SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☑ | |
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the fiscal year ended: December 31 | |
☐ | Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ____ to ____
Commission File No. 001-32583
FULL HOUSE RESORTS, INC.
(Exact Namename of Registrantregistrant as specified in Its Charter)
(State or Other Jurisdiction of | (I.R.S. Employer |
Incorporation or Organization) | Identification No.) |
One Summerlin,
1980 Festival Plaza Drive, Suite 680, Las Vegas, Nevada89135(Address and zip code of principal executive offices)
(702) 221-7800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each | Trading Symbol | Name of Each Exchange on Which |
Common Stock, $0.0001 per Share | FLL | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
þ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ◻ | | Accelerated filer | þ | | Emerging growth company | ☐ |
Non-accelerated filer | ◻ | | Smaller reporting company | þ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of Registrant’s voting $0.0001 par valueand non-voting common stock held by non-affiliates of the Registrant, as of June 30, 2018,2021 (the last business day of the Registrant’s most recently completed second fiscal quarter), was: $79.5$323.8 million. As of March 11, 2019,2022, there were 26,958,83634,242,581 shares of common stock, $0.0001 par value per share, outstanding.
Documents Incorporated Byby Reference
The information required by Part III of this Form 10-K is incorporated by reference from the Registrant’s definitive proxy statement relating to the annual meeting of stockholders to be held in 2019,2022, which definitive proxy statement is anticipated to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year.year ended December 31, 2021.
FULL HOUSE RESORTS, INC.
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Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document to “Full House,” the “Company,” “we,” “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates.
The Company currently operates five casinos: four on real estate that we own or lease and one located within a hotel owned by a third party. Construction continues for a sixth property, Chamonix Casino Hotel (“Chamonix”), adjacent to our existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We also benefit from six permitted sports wagering “skins,” three in Colorado and three in Indiana. Other companies operate or will operate these online sports wagering sites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts.
In December 2021, we were selected to develop our “American Place” project in Waukegan, Illinois, a northern suburb of Chicago. We intend to open a temporary casino facility named The Temporary by American Place (“The Temporary”) in Summer 2022, subject to customary regulatory approvals. We expect to operate The Temporary until the opening of the permanent American Place facility and intend to include such operations as its own segment, Illinois. We also expect to receive one sports skin in Illinois upon the opening of The Temporary.
The following table presents selected information concerning our casino resort properties as of December 31, 2018:
Property | Acquisition Date | Location | Slot Machines | Table Games | Hotel Rooms | |||||
Silver Slipper Casino and Hotel | 2012 | Hancock County, MS (near New Orleans) | 920 | 26 | 129 | |||||
Bronco Billy’s Casino and Hotel | 2016 | Cripple Creek, CO (near Colorado Springs) | 885 | 10 | 36 | |||||
Rising Star Casino Resort | 2011 | Rising Sun, IN (near Cincinnati) | 917 | 25 | 294 | |||||
Stockman’s Casino | 2007 | Fallon, NV (one hour east of Reno) | 225 | 4 | — | |||||
Grand Lodge Casino (leased and part of the Hyatt Regency Lake Tahoe Resort, Spa and Casino) | 2011 | Incline Village, NV (North Shore of Lake Tahoe) | 270 | 17 | * |
| | |
Segments and Properties | | Locations |
Colorado | | |
Bronco Billy’s Casino and Hotel | Cripple Creek, CO (near Colorado Springs) | |
Chamonix Casino Hotel (under construction) | | Cripple Creek, CO (near Colorado Springs) |
Illinois | | |
American Place (under development) | | Waukegan, IL (northern suburb of Chicago) |
Indiana | | |
Rising Star Casino Resort | Rising Sun, IN (near Cincinnati) | |
Mississippi | | |
Silver Slipper Casino and Hotel | Hancock County, MS (near New Orleans) | |
Nevada | | |
Grand Lodge Casino (leased and part of the Hyatt | Incline Village, NV | |
Stockman’s Casino | Fallon, NV (one hour east of Reno) | |
Contracted Sports Wagering | | |
Three sports wagering websites (“skins”) | | Colorado |
Three sports wagering websites (“skins”) | | Indiana |
We manage our casinos based primarily on geographic regions within the United States. Accordingly, Stockman’s CasinoOur 2021 results reflect a change in our operating segments. We now break out our on-site and Grand Lodge Casino comprise our Northern Nevada businessonline sports wagering skins in Colorado and Indiana as a standalone segment, while Silver Slipper Casino and Hotel, Bronco Billy’s Casino and Hotel, and Rising Star Casino Resort are currently distinct segments.Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position. Our corporate headquarters areis in Las Vegas, Nevada.
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Our mission is to maximize shareholder value.stockholder value, while also being good employers and community participants. We seek to increase revenues by providing our customers with their favorite games and amenities, high-quality customer service, and appropriate customer loyalty programs. Our customers include nearby residents who represent a high potential for repeat visits, along with drive-in tourist patrons. We continuously focus on improving the operating marginsresults of our existing properties through a combination of revenue growth and expense management efforts. The casino resort industry is capital-intensive, and we rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We also continually assess the potential impact of growth and development opportunities, including capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.
Our casino properties are operated by usgenerally operate 24 hours each day, nearly every day of the year with the exception of Christmas morning for four to six hours at Rising Star Casino Resort.365 days per year. We also operate the hotel, and food and beverage, and other on-site operations at Silver Slipper Casino and Hotel (“Silver Slipper”), Bronco Billy’s Casino and Hotel (“Bronco Billy’s”), Rising Star Casino Resort (“Rising Star”) and Stockman’s Casino.Casino (“Stockman’s”), as well as a golf course, recreational vehicle (RV) park and ferry service at Rising Star and an RV park at Silver Slipper. At Grand Lodge Casino (“Grand Lodge”), the adjoining hotel and the food and beverage outlets are managed by Hyatt Regency Lake Tahoe Resort, Spa and Casino (“Hyatt Lake Tahoe”).
Silver Slipper Casino and Hotel (“(Hancock County, Mississippi)
The Silver Slipper”)Slipper is situatedthe western-most casino on the west end of the Mississippi Gulf Coast, near Bay St. Louis,midway between Biloxi, Mississippi and in addition to gaming space, includes 129 hotel rooms, a fine-dining restaurant, a buffet, a quick-service restaurant, an oyster bar, a casino bar and a beachfront bar.New Orleans, Louisiana. The property sits at the western end of an approximately eight-mile-long white sand beach, the closest such beach to the New Orleans and Baton Rouge metropolitan areas. Its customers are primarily from communities in southwestern Mississippi and southern Louisiana, including the North Shore of Lake Pontchartrain and the New Orleans and Baton Rouge metropolitan areas,areas. In addition to its large, modern casino, the Silver Slipper offers 129 hotel rooms or suites, an on-site sportsbook, a fine-dining restaurant, a buffet, a quick-service restaurant, an oyster bar, a casino bar and southwestern Mississippi.a beachfront pool and bar. The Silver Slipper currently generates the most revenue and operating income of any of our properties. In August 2018, we added a sports book operation to the casino in partnership with a company specializing in race and sports betting.
The primary lease for the Silver Slipper includes approximately 38 acres, consisting of the seven-acre parcel on which the casino and hotel is situated and approximately 31 acres of protected marshlands. The lease term ends in April 2058. Between February 2019 andFrom April 1, 2022 through October 1, 2027, we have the option to purchasebuy out the land site. Management believes that it will be economically favorable to exercise the buyout option and intends to do so, subject to our financial resources and future capital market conditions.
We also manage a nearby 37-space beachfront RV park under a management contract, which expires on March 31, 2020,2025, unless canceled by either party.
Bronco Billy’s Casino and Hotel (“(Cripple Creek, Colorado)
Bronco Billy’s”)Billy’s is located in Cripple Creek, Colorado, a historical gold mining town located approximately one hour southwest of Colorado Springs and two hours from Denver. Its customers are primarily from the Colorado Springs/Pueblo/Cañon City metropolitan area, the second-largest metropolitan area in Colorado, with a population of approximately 900,000 residents. Its secondary market, the Denver metropolitan area, has a population of approximately four million people. Bronco Billy’s occupies a significant portion of the key city block of Cripple Creek’s “casino strip” and instrip.” In addition to gaming space, contains 36it currently offers 14 hotel rooms, a steakhouse, and foura casual dining outlets.outlet. Bronco Billy’s owns much of its real estate, but also leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease has six renewal options in three-year increments tothrough January 2035, and we have the right to buy out the lease at any time during its term. We also commenced a three-year lease in August 2018 for the new Christmas Casino,a key corner on our block that was subsequently extended through August 2023, which also includes an option to extend or buy out the lease. Bronco Billy’s customers
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We are primarily fromallowed to offer online sports wagering through three sports “skins” in Colorado. Rather than operate these sports skins ourselves, we contracted with three companies to operate such skins under their own brands in exchange for a percentage of revenues, as defined in each contract, subject to annual minimum amounts paid to us. For Colorado, the Colorado Springs/Pueblo/Cañsum of the minimum annual amounts is $3.5 million. If our percentage-share of sports revenue exceeds our contractual minimums, then we should receive in excess of $3.5 million on City metropolitan area,an annualized basis. We incur minimal expenses related to these revenues. As of December 31, 2021, all three of our skins had begun operations. However, one of our three skin operators subsequently informed us of their intent to cease operations on May 15, 2022. We are currently negotiating with other companies to be the second-largest metropolitan area in Colorado, with a population of approximately 900,000 residents. Cripplereplacement operator for such skin, though there can be no guarantee that any replacement contract will be entered into on similar terms or at all.
Chamonix Casino Hotel (Cripple Creek, is approximately a one-hour drive from Colorado Springs, as well as a two-hour drive from the Denver metropolitan area, which has a population of approximately four million people.
In 2018, we began our expansion ofplanning and design work on Chamonix, a new and distinct, luxury hotel and casino, to be located adjacent to Bronco Billy’s which we anticipate completing in two phases. Phase OneCripple Creek. Following changes made to the state’s gaming laws in November 2020, including the elimination of the Bronco Billy’s expansion project includes the construction of a 319-space parking garage and connector building, the purchase of the Imperial Hotel in June 2018 and certain other nearby parcels of land,betting limits and the grand reopeningapproval of new table games, we increased the size of Chamonix by 67% to approximately 300 luxury guest rooms and suites, from our previously planned 180 guest rooms. Such plans were approved by the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in November 2018January and February 2021. Our construction budget for Chamonix is approximately $250 million. To fund such construction, on February 12, 2021 we issued $310 million aggregate principal amount of both8.25% Senior Secured Notes due 2028 (the “2028 Notes”) and placed a portion of such proceeds into a restricted cash account dedicated to Chamonix’s construction (see Note 6 to the Imperial Casinoconsolidated financial statements set forth in Part II, Item 8. “Financial Statements and Imperial Hotel together asSupplementary Data”). We expect to open Chamonix in the Christmas Casino & Inn. Phase Twosecond quarter of the Bronco Billy’s expansion project, which is expected to include a new luxury hotel tower, spa, convention and entertainment space, two new restaurants, and a substantial remodeling of the casino. Construction of Phase Two is contingent upon receipt of financing on acceptable terms, among other contingencies.
Rising Star Casino Resort
Rising Star Casino Resort (“Rising Star”) is located on the banks of the Ohio River in Rising Sun, Indiana, approximately one hour from Cincinnati, Ohio, and within two hours of Indianapolis, Indiana, and also within two hours of Louisville and Lexington, Kentucky. In addition to its casino, Rising Star offers in addition to casinoa land-based pavilion with approximately 31,500 square feet of meeting and convention space, a contiguous 190-room190-guest-room hotel, an adjacent leased 104-room104-guest-room hotel set on three acres, a 56-space RV park, fivefour dining outlets, surface parking and an 18-hole golf course.course on over 230 acres. The 104-room104-guest-room hotel is leased pursuant to a capital leasean agreement that expires in October 2027 and contains a bargain purchase option, whereby we have the right to purchase the hotel and the landlord has the right to put the hotel to us, in both cases for $1 if exercised upon maturity of the lease. We also own 1.3 acres of vacant land located in Burlington, Kentucky that is used as part of our ferry boat operations, as further described below.
We have completed several capital projects.projects in recent years. In July 2018, we renovated the entry pavilion and the adjoining hotel’s lobby and hallways. We also commenced operations forof a 10-vehicle ferry boat service in September 2018
We are allowed to offer online sports wagering through three sports “skins” in Indiana. As in Colorado, we contracted with three companies to operate such skins under their own brands in exchange for a percentage of revenues, as defined in each contract, subject to annual minimum amounts. The sum of the minimum annual amounts in Indiana is $3.5 million with minimal expected expenses, so that the total between the six contracts and two states is $7 million per year. If our percentage-share of sports revenue exceeds our contractual minimums in one or more contracts, then we should receive in excess of $7 million on an annualized basis. As of December 31, 2021, all three of our skins in Indiana were contractually live, with the last skin subsequently receiving gaming in Ohio, where several new competitorsapproval on February 28, 2022. However, one of our three skin operators subsequently informed us of their intent to cease operations on May 15, 2022. We are now located. Allcurrently negotiating with other companies to be the replacement operator for such skin, though there can be no guarantee that any replacement contract will be entered into on similar terms or at all.
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Stockman’s Casino
Stockman’s Casino (“Stockman’s”) is located in Churchill County, Nevada, approximately one hour from Reno, Nevada. In addition to gaming space, the facility has a bar, a fine-dining restaurant and a coffee shop. In the first quarter of 2018, we completed numerous external improvements to the property, including a new porte cochère. Stockman’s primarily serves the local market of Fallon and surrounding areas, including the nearby Naval Air Station, Fallon,which is the United States Navy’s premier air-to-air and air-to-groundair training facility, informally referred to as the “Top Gun” school.
Grand Lodge Casino
We operate the Grand Lodge Casino at the Hyatt Lake Tahoe under a lease with Hyatt Equities, L.L.C. (“Hyatt”).Incline Hotel, LLC. Grand Lodge Casino is located within the Hyatt Lake Tahoe in Incline Village, Nevada on the north shore of Lake Tahoe and includes approximately 20,990 square feet of leased space. The Hyatt Lake Tahoe is one of three AAA Four Diamond hotels in the Lake Tahoe area. ItsOur casino’s customers consist of both locals and tourists visiting the Lake Tahoe area.
Our lease with Incline Hotel, LLC is set to expire in August 2023, but we own the personal property, including slot machines. The lease was subsequently amendedis secured by our interests under such lease, consisting of certain collateral (as defined and described in a security agreement), and is subordinate to extend our relationship and refurbish and improve the casino facility.Notes. The amendment included: (i)landlord currently has an agreement for Hyatt to renovate the casino and for us to purchase new gaming equipment, which was completed during the second quarter of 2017, (ii) an extension of the initial lease term through August 31, 2023 with an additional five-year renewal option, (iii) an increase in monthly rent from $125,000 to $145,833 commencing on July 1, 2017, and to $166,667 commencing on January 1, 2018, and (iv) the deferral of Hyatt’s option to purchase our leasehold interest and related operating assets of the Grand Lodge Casino at a defined price based partially on earnings.
American Place, Including The Temporary (Waukegan, Illinois)
In December 2021, we were chosen by the Illinois Gaming Board (“IGB”) to January 1, 2019.develop American Place, a new gaming and entertainment destination located in Waukegan, Illinois, a northern suburb of Chicago, subject to final regulatory approvals. Waukegan has a population of approximately 89,000 and is the county seat of Lake County, which has a population of approximately 714,000. According to the U.S. Census Bureau, Lake County has a median household income of approximately $89,000 and is also the third most populous county in the state.
The permanent American Place facility is slated to include a world-class casino with a state-of-the-art sports book; a premium boutique hotel comprised of 20 luxurious villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; a gourmet restaurant that will rival the finest restaurants in Chicago; additional eateries and bars; and other amenities that will attract gaming and non-gaming patrons from throughout Chicagoland and beyond.
While the larger, more lavish, permanent facility is under construction, we will operate a temporary casino facility, aptly named The Temporary by American Place. The Temporary is slated to include approximately 1,000 slot machines, 50 table games, a fine-dining restaurant, two additional restaurants, and a center bar. We intend to open The Temporary in Summer 2022, pending customary regulatory approvals.
In preparation for the opening of The Temporary, we recently agreed to purchase a “Sprung structure,” which encloses an area of approximately 1.5 football fields and will house most of the temporary casino. The Sprung structure is expected to arrive on-site in April 2022. Additionally, we recently entered into an agreement to purchase approximately 10 acres of land adjoining the approximately 30-acre casino site to be leased from the city, providing space for additional parking and access to the casino site from a major road.
On February 7, 2022, we closed a private offering of $100 million aggregate principal amount of our 8.25% Senior Secured Notes due 2028 (the “Additional Notes”). The Additional Notes were sold at a price of 102.0% of the principal amount and were issued pursuant to an indenture under which we previously issued for the 2028 Notes on February 12, 2021 (collectively, the “Notes”). Also on February 7, 2022, we amended our senior secured revolving credit facility agreement to, among other things, increase our borrowing capacity from $15 million to $40 million (the “Credit Facility”), all of which remains undrawn as of this report date (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data”). The interest rate for borrowings under the Credit Facility, based on today’s rates, would be less than 4%.
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Government Regulation
The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. Each of our casinos is subject to extensive regulation under the laws, rules, and regulations of the jurisdiction in which it is located. These laws, rules, and regulations generally concern the responsibility, financial stability, and character of the owners, managers, and persons with financial interests in the gaming operations and include, without limitation, the following conditions and restrictions:
● | Periodic license fees and taxes must be paid to state and local gaming authorities; |
● | Certain officers, directors, key employees, and gaming employees are required to be licensed or otherwise approved by the gaming authorities; |
● | Individuals who must be approved by the gaming authorities must submit comprehensive personal disclosure forms and undergo an extensive background investigation, the costs for which must be borne by the applicant; |
● | Changes in any licensed or approved individuals must be reported to and/or approved by the relevant gaming authority; |
● | Failure to timely file the required application forms by any individual required to be approved by the relevant gaming authority may result in that individual’s denial and the gaming licensee may be required by the gaming authority to disassociate with that individual; and |
● | If any individual is found unsuitable by a gaming authority, the gaming licensee is required to disassociate with that individual. |
Violations of gaming laws in one jurisdiction could result in disciplinary action in other jurisdictions. A summary of the governmental gaming regulations to which we are subject is filed as Exhibit 99.1 and is herein incorporated by reference.
Our businesses are also subject to other various federal, state, and local laws and regulations, in addition to gaming regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, smoking, environmental matters, employees, currency transactions, taxation, zoning and building codes, construction, land use, and marketing and advertising. We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results. See “Item 1A – Part I, Item 1A. “Risk Factors” for additional discussion.
Costs and Effects of Compliance with Environmental Laws
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. For example, our Indiana property is subject to the Indiana Department of Environmental Managementenvironmental regulations for its riverboat, ferry boat and golf club operations, and ouroperations. Our Mississippi property is located near environmental wetlands. In Colorado and Illinois, we are building major new casino hotels and such construction must also adhere to certain environmental regulations. Our Colorado facilities, for example, are in historical mining areas. Failure to comply with applicable laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of the property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, and may also incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent the property. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our business, financial condition, or results of operations; however, there can be no assurancewe cannot assure you that such matters will not have such an effect in the future.
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Competition
The gaming industry is highly competitive. Gaming activities with which we compete include traditional commercial casinos and casino resorts in various states including on tribal lands and at racetracks, riverboat and dockside gaming, state-sponsored lotteries, video poker in restaurants, bars and hotels, pari-mutuel betting on horse and dog racing and jai alai, sports betting and card rooms. Furthermore,We also face competition from Internet lotteries, sweepstakes, and other Internet wagering gaming services, beyond those in which we participate. Internet gaming services allow their customers to wager on a wide variety of sporting events and play Las Vegas-style casino games from home or in non-casino settings,settings. Although there is no meaningful evidence to date that this has been the case, this could divert customers from our properties, and thus, adversely affect our business. All of our casinos, as well as other casinos that we may develop or acquire, compete with all these forms of gaming. We also will compete with any new forms or jurisdictions of gaming that may be legalized, as well as with other types of entertainment. Some of our competitors have more personnel and greater financial or other resources than we do. The principal methods of competition are:
Silver Slipper Casino and Hotel
Silver Slipper is in Mississippi, but is close to the closest casino to mostNorth Shore of St. Tammany Parish,Lake Pontchartrain, one of the most affluent and fastest-growing parishesregions in Louisiana. Louisiana law permits 15 riverboat casinos, one land-based casino, four casinos at racetracks, and in certain areas, a limited number of slot machines at qualifying truck stops. The legislation permitting riverboat and truck stop casinos requires a local referendum and, at the time such legalization occurred, it was rejected by St. Tammany Parish voters.referendum. At this time, all licenses for riverboat casinos in Louisiana have been granted and areonly one of such casinos is not currently in operation, though it is possible for an existing licenseeoperation. In 2021, the owners of the closed casino attempted to relocate itsmove their gaming license from Bossier City to Slidell, Louisiana. Such efforts were not successful, as voters rejected the casino (subjectreferendum by a vote of 63% to state laws and approval in a local referendum)37%. Mississippi which has lower gaming tax rates than Louisiana, does not have a limitation on the number of casino licenses, but requires casinos in certain southern counties to be within approximately 800 feet of the Mississippi River shoreline or the Gulf of Mexico, as defined by state law. There are occasionally proposals to relocate casinos within Louisiana or to develop new casinos in Mississippi, but there are considerable political and economic constraints on such potential competition, and managementcompetition. Management does not believe such efforts will be successful in the foreseeable future.
Bronco Billy’s Casino and Hotel
Bronco Billy’s isand Chamonix are located in Cripple Creek, Colorado, which is a historichistorical gold mining town located approximately one hour southwest of Colorado Springs, on the west side of Pikes Peak. Cripple Creek receives an estimated 1.5 million visitors per year and is one of only three cities in Colorado where commercial gaming is permitted. The other two cities adjoin each other and are nearapproximately one hour west of Denver. Additionally, twoDowntown Denver and Colorado Springs are approximately 70 miles apart and certain suburbs of each metropolitan area largely merge into the other. Two Native American gaming operations exist in southwestern Colorado and there are tribal casinos in Oklahoma, but these are much further from Colorado Springs and Denver than Cripple Creek. There are no federally-recognized Native American tribes in the Colorado Front Range, which includes Denver and Colorado Springs. As of December 31, 2018, we believe that2021, Bronco Billy’s was the second largestone of the seven gaming facilities operating in Cripple Creek. SeveralOne of those competitors have announced their intentadded a 100-guest-room hotel in 2021. Chamonix, which is currently under construction, will be significantly larger and is planned to expand, principally throughbe higher in quality than any of the addition of new hotel rooms, though none of those projects have broken ground. Gamingexisting casinos in Colorado is “limited stakes,” which restricts any single wager to a current maximum of $100.
Rising Star Casino Resort
Rising Star Casino Resort in Rising Sun, Indiana is one of three riverboat casinos located on the banks of the Ohio River in southeasternRising Sun, Indiana, approximately one hour from Cincinnati, Ohio, and within two hours of Indianapolis, Indiana, and also within two hours of Louisville and Lexington, Kentucky. ItsOne of three riverboat casinos in southeastern Indiana, its closest competitors are each approximately 15 miles away, near bridges crossing the Ohio River. There is no bridge at Rising Star, but in September 2018, we commenced a ferry boat service connecting Rising Sun, Indiana, to the more populous Northern Kentucky region. Rising Star also competes with a large casino near Louisville, which completed a significant investment to transition from a dockside riverboat casino to a new land-based casino in December 2019; casinos in Ohio; casinosOhio and elsewhere in Indiana; and twoslot parlors associated with racetracks in Kentucky. In January 2020, the racetrack casinos near Indianapolis, Indiana.
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Stockman’s Casino
Stockman’s Casino is the largest of several casinos in Churchill County, Nevada, which has a population of approximately 25,000 residents. Churchill County is also the home of Naval Air Station Fallon, the United States Navy’s premier air-to-air and air-to-groundair training facility, informally referred to as the “Top Gun” school. While we are not aware of any significant planned expansion to gaming capacity in the Churchill County area, additional competition may adversely affect our financial condition or results of operations. Furthermore, while the Navy appears to be currently expanding its base in Fallon, a reduction of its activities at the base would likely have an adverse effect on Stockman’s results of operations. Fallon is approximately 30 minutes east of the new large Tesla battery factory and other developments in the Tahoe-Reno Industrial Center.
Grand Lodge Casino
Grand Lodge Casinois located in Incline Village, Nevada, and is one of four casinos located within a five-mile radius in the North Lake Tahoe area. A fifth casino, which has been closed for several years, was sold out of bankruptcy during 2017 and may re-open in the near future.
Grand Lodge Casino also competes with casinos in South Lake Tahoe and Reno. There are also numerous Native American casinos in California serving the Northern California market.
American Place and The Temporary
American Place will compete against two existing casinos which primarily serve the suburbs north of Chicago, a tribal casino in Milwaukee, and slot machines in bars (limited to six machines per bar) in many parts of Illinois. It will be the only full-service casino in Lake County, Illinois, which has a population of approximately 714,000 residents. Including areas neighboring Lake County, we estimate that American Place will be the closest casino to more than 1.0 million individuals. American Place is also designed to offer more, and better, amenities than any other casino operating today in Illinois.
Marketing
Our marketing efforts are conducted through various means, including our customer loyalty programs and specialized marketing campaigns, such as our seasonal “Christmas Casino” event at Rising Star Casino Resort. We advertise through various channels, including radio, television, Internet, billboards, newspapers and magazines, direct mail, email and social media. We also maintain websites to inform customers about our properties and utilize social media sites to promote our brands, unique events, and special deals. Our customer loyalty programs include the Silver Slipper Casino PlayersRewards Club, the Bronco Billy’s MVP “Most Valuable Players”Mile High Rewards Club, the Rising Star Rewards Club™,VIP Club, the Grand Lodge Players Advantage Club®, and the Stockman’s Winner’s Club. Under these programs, customers earn points based on their volume of wagering that may be redeemed for various benefits, such as “free play,” cash back, complimentary dining, and hotel stays.
Our properties do not have coordinated loyalty programs. We do not currently believe that it would be economically advantageous givenprograms, due to the disparate locations of our properties. Instead, our loyalty programs focus on providing each casino’s customers the amenities they most prefer.prefer in each market.
Intellectual Property
We use a variety of trademarks, patents and copyrights in our operations and believe that we have all the licenses necessary to conduct our continuing operations. We have registered several trademarks with the United States Patent and Trademark Office or otherwise acquired the licenses to use certain trademarks, patents and copyrights that are material to conduct our business.
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Employees
As of March 1, 2019,2022, we had 1512 full-time corporate employees, three of whom are executive officers and twoone additional senior management employees.employee. Our casino properties had 1,284881 full-time and 313265 part-time employees, as follows:
Full-time | Part-time | |||||
Silver Slipper Casino and Hotel | 469 | 82 | ||||
Bronco Billy’s Casino and Hotel | 257 | 67 | ||||
Rising Star Casino Resort | 387 | 123 | ||||
Grand Lodge Casino | 90 | 34 | ||||
Stockman’s Casino | 81 | 7 | ||||
Corporate | 15 | — | ||||
Total Employees | 1,299 | 313 |
| | | | |
| | March 1, 2022 | ||
Employee Count by Property |
| Full-time |
| Part-time |
Silver Slipper Casino and Hotel | | 407 | | 91 |
Bronco Billy’s Casino and Hotel | | 145 | | 56 |
Rising Star Casino Resort | | 210 | | 77 |
Grand Lodge Casino | | 67 | | 38 |
Stockman’s Casino |
| 52 |
| 3 |
Corporate |
| 12 |
| — |
Total Employees |
| 893 |
| 265 |
We believe that our relationship with our employees is excellent. None of our employees are currently represented by labor unions.
Available Information
Our principal executive offices are located at Full House Resorts, Inc., One Summerlin, 1980 Festival Plaza Drive, Suite 680, Las Vegas, Nevada 89135, and our telephone number is (702) 221-7800. Our website address is www.fullhouseresorts.com. We make available, free of charge, on or through our Internet website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our Internet website and information contained on our Internet website are not part of this annual reportAnnual Report on Form 10-K and are not incorporated by reference herein.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) for which the Private Securities Litigation Reform Act of 1995 provides a safe harbor. These forward-looking statements can be identified by use of terms such as “believes,” “expects,” “anticipates,” “estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “future,” “possible,” “seeks,” “may,” “could,” “should,” “will,” “might,” “likely,” “enable,” or similar words or expressions, as well as statements containing phrases such as “in our view,” “we cannot assure you,” “although no assurance can be given,” or “there is no way to anticipate with certainty.” Examples of forward-looking statements include, among others, statements we make regarding our plans, beliefs or expectations regarding our growth strategies; the impact of the coronavirus (COVID-19) pandemic; our expected construction budgets, estimated commencement and completion dates, expected amenities, and our expected operational performance for Chamonix, The Temporary, and American Place; our investments in capital improvements and other projects, including the amounts of such investments, the timing of commencement or completion of such capital improvements and projects and the resulting impact on our financial results; our sports wagering contracts with third-party providers, including the expected revenues and expenses and our expectations regarding our ability to replace our terminated sports wagering contracts in Colorado and Indiana and our ability to enter into a new sports wagering contract in Illinois; our ability to obtain the casino license for the Temporary and American Place; management’s expectation to exercise its buyout option on the Silver Slipper Casino and Hotel; adequacy of our financial resources to fund operating requirements and planned capital expenditures and to meet our debt and contractual obligations; expected sources of revenue; anticipated sources of funds; anticipated or potential legislative actions; beliefs in connection with our marketing efforts; factors that affect the financial performance of our properties; adequacy of our insurance; competitive outlook; outcome of legal matters; impact of recently issued accounting standards; and estimates regarding certain accounting and tax matters, among others.
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Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the factors as discussed throughout Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.
We undertake no obligation to update or revise any forward-looking statements as a result of future developments, events or conditions, except as required by law. New risks emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.
Item 1A. Risk Factors.
An investment in our securities is subject to risks inherent to our business. We have described below what we currently believe to be the material risks and uncertainties in our business. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K.
We also face other risks and uncertainties beyond what is described below. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of securities, including our common stock, could decline significantly. You could lose all or part of your investment.
Summary of Risk Factors
The following is a summary of the risk factors discussed in Part I, Item 1A. “Risk Factors” of this Form 10-K. This summary should be read in conjunction with those Risk Factors and should not be relied upon as an exhaustive summary of the material risks facing our business.
Risks Related to our Business and Operations
● | The outbreak of COVID-19 (coronavirus) has significantly impacted the global economy, including the gaming industry, and could have a material adverse effect on our results of operations, cash flows and liquidity. |
● | A prolonged closure of our casinos would negatively impact our ability to service our debt. |
● | We face significant competition from other gaming and entertainment operations. |
● | We may face revenue declines if discretionary consumer spending drops due to an economic downturn. |
● | We cannot assure you that any of our contracted sports betting parties, through the use of our permitted website “skins,” will be able to compete effectively, that our contracted sports parties will have the ability and/or willingness to sustain sports betting operations should they experience an extended period of unprofitability, or that we will have the ability to replace existing partners or vendors on similar terms as our existing contractual revenue minimums. |
● | Marine transportation is inherently risky, and insurance may be insufficient to cover losses that may occur to our assets or result from our ferry boat operations. |
● | Our Mississippi casino hotel currently generates a significant percentage of our revenues and Adjusted EBITDA. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of that property. |
● | We derive our revenues and operating income from our properties located in Mississippi, Colorado, Indiana and Nevada, and expect to commence operations in Illinois, and are especially subject to certain risks, including economic and competitive risks, associated with the conditions in those areas and in the states from which we draw patrons. |
● | Some of our operations are located on leased property. If the lessor of the Grand Lodge Casino exercises its buyout rights or if we default on this or certain of our other leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino. |
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● | Adverse weather conditions, road construction, gasoline shortages and other factors affecting our facilities and the areas in which we operate could make it more difficult for potential customers to travel to our properties and deter customers from visiting our properties. |
● | Our results of operations and financial condition could be materially adversely affected by the occurrence of natural disasters, including as a result of climate change, such as hurricanes, floods, wildfires, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus pandemic, or other catastrophic events, including war, terrorism and gun violence. |
● | Several of our properties, including Silver Slipper, Bronco Billy’s and Rising Star, are accessed by our customers via routes that have few alternatives. |
● | We may incur property and other losses that are not adequately covered by insurance, including adequate levels of Weather Catastrophe Occurrence/Named Windstorm, Flood and Earthquake insurance coverage for our properties. |
● | We depend on our key personnel and our ability to attract and retain employees. |
● | Higher wage and benefit costs could adversely affect our business. |
● | Rising operating costs at our gaming properties could have a negative impact on our business. |
● | We face the risk of fraud and cheating. |
● | Win rates for our gaming operations depend on a variety of factors, some beyond our control. |
● | The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us. |
● | Our business may be adversely affected by legislation prohibiting tobacco smoking. |
● | We rely on, among other things, trademarks, licenses, confidentiality procedures, and contractual provisions to protect our intellectual property rights and we may be unable to protect or may not be successful in protecting our intellectual property rights. |
● | Our commercial success depends upon us avoiding the infringement of intellectual property rights owned by others and any such infringements, including those that are inadvertent, may have a material adverse effect on our business. |
● | We are subject to risks related to corporate social responsibility and reputation. |
Risks Related to Development and Growth Opportunities
● | We are engaged from time to time in one or more construction and development projects, including Chamonix and American Place, and many factors could prevent us from completing them as planned. |
● | The construction costs for our growth projects, including Chamonix and American Place, may exceed budgeted amounts plus contingencies, which may result in insufficient funds to complete these projects or the need to raise additional capital. |
● | There is no assurance that our growth projects, including Chamonix and American Place, will not be subject to additional regulatory restrictions, delays, or challenges. |
● | There is no assurance that our growth projects, including Chamonix and American Place, will be successful. |
● | Failure to comply with the terms of our disbursement agreement related to Chamonix could limit our access to funds. |
● | We face a number of challenges prior to opening new or upgraded facilities. |
● | We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future. |
● | The construction of Chamonix may inconvenience customers and disrupt business activity at the adjoining Bronco Billy’s casino. |
● | The permanent American Place facility, additional growth projects or potential enhancements at our properties may require us to raise additional capital. |
● | The casino, hotel and resort industry is capital intensive, and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage. |
● | We may face risks related to our ability to receive regulatory approvals required to complete certain acquisitions, mergers, joint ventures, and other developments, as well as other potential delays in completing certain transactions. |
● | If we fail to obtain necessary government approvals in a timely manner, or at all, it can adversely impact our various expansion, development, investment and renovation projects. |
● | Insufficient or lower-than-expected results generated from our new developments and acquired properties may negatively affect our operating results and financial condition. |
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Risks Related to our senior secured notes imposesIndebtedness
● | Our significant indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations. |
● | The indenture governing the Notes and the Credit Facility impose restrictive covenants and limitations that could significantly affect our ability to operate our business and lead to events of default if we do not comply with the covenants. |
● | To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control. |
● | We may not be able to generate sufficient cash flows to service all of our indebtedness and fund our operating expenses, working capital needs and capital expenditures, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. |
● | We depend on our subsidiaries for certain dividends, distributions and repayment of our indebtedness, including the Notes and any borrowings under the Credit Facility. |
● | Our ability to obtain additional financing on commercially reasonable terms may be limited. |
● | The obligations under the Notes and the Credit Facility are collateralized by a security interest in substantially all of our assets, so if we default on those obligations, the holders of the Notes and lenders under the Credit Facility could foreclose on our assets. In addition, the existence of these security interests may adversely affect our financial flexibility. |
● | We and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks described above. |
Risks Related to our Legal and Regulatory Environment
● | We face extensive regulation from gaming and other regulatory authorities and the cost of compliance or failure to comply with such regulations may adversely affect our business and results of operations. |
● | Changes in legislation and regulation of our business could have an adverse effect on our financial condition, results of operations and cash flows. |
● | Stockholders may be required to dispose of their shares of our common stock if they are found unsuitable by gaming authorities. |
● | We are subject to environmental laws and potential exposure to environmental liabilities. |
● | We are subject to litigation which, if adversely determined, could cause us to incur substantial losses. |
● | Our ferry boat service is highly regulated, which can adversely affect our operations. |
Risks Related to Technology
● | Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. If we experience damage or service interruptions, we may have to cease some or all of our operations, which will result in a decrease in revenue. |
● | Our information technology and other systems are subject to cyber-security risk, misappropriation of customer information and other breaches of information security. |
General Risks
● | Our ability to utilize our net operating loss, or NOL, carryforwards and certain other tax attributes may be limited. |
● | The market price for our common stock may be volatile, and investors may not be able to sell our stock at a favorable price or at all. |
● | The exercise of outstanding options to purchase common stock may result in substantial dilution and may depress the trading price of our common stock. |
Risks Related to our Business and Operations
The outbreak of COVID-19 (coronavirus) has significantly impacted the global economy, including the gaming industry, and could have a material adverse effect on our results of operations, cash flows and liquidity.
The COVID-19 pandemic and the efforts to contain it have significantly impacted the global economy, including the gaming industry in the United States and abroad. The ongoing outbreak resulted in extended shutdowns of non-essential businesses around the world, including our own casinos for approximately three months, beginning in March 2020.
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The current circumstances regarding the COVID-19 pandemic are dynamic and the impacts of COVID-19 and its variants on our business operations, including the duration and impact on overall customer demand, is ongoing and uncertain. While case numbers are currently trending lower, COVID-19 and its variants continue to spread. As a result, we may from time to time elect or be required by governmental officials to undergo partial or full closures. Even as vaccines and boosters are readily available, the pandemic may still have the potential to have a material adverse impact on our business, results of operations, financial position and cash flows and may exacerbate many of the other risks described in this Annual Report on Form 10-K.
A prolonged closure of our casinos would negatively impact our ability to operateservice our businessdebt.
Our casinos are our primary sources of income and leadoperating cash flows, which we rely upon to events of default if we do not comply with our covenants.
We face significant competition from other gaming and entertainment operations.
The gaming industry is characterized by an increasingly high degree of competition among a large number of participants, including riverboatparticipants. Our casinos dockside casinos, land-based casinos, racetrack casinos, video lottery, poker machines not located in casinos, Native American gaming, social gaming and contracted sport wagering businesses compete with other forms of gaming. Furthermore, competition from Internetgaming, such as casinos, racetracks, state-sponsored lotteries, sweepstakes, charitable gaming, video gaming terminals at bars, restaurants, taverns and truck stops, illegal slot machines and skill games, fantasy sports and internet or mobile-based gaming platforms, including online gaming and sports betting. Certain state and other Internet wagering gaming services, which allow their customers to wager on a wide varietyjurisdictions are considering expansion of sporting events and play Las Vegas-style casino games from home or in non-casino settings,such forms of gaming. Each of these could divert customers from our propertiescasinos and services, and thus materially and adversely affect our business. Such Internet wagering services are often illegal under federal law, but operate from overseas locations and are, nevertheless, sometimes accessible to domestic gamblers. Additionally, there are often proposals to legalize Internet poker and other varieties of Internet gaming in a number of states and at the federal level. Several states, including Nevada, New Jersey, and Delaware, have enacted legislation authorizing intrastate Internet gaming and Internet gaming operations have begun in these states. Expansion of Internet gaming in other jurisdictions (both legal and illegal) could further compete with our traditional operations, which could have an adverse impact on our business and results of operations.
In most markets, we compete directly with other casino facilities operating in the immediate and surrounding market areas. In some markets, we face competition from nearby markets in addition to direct competition within our market areas. As competing properties and new markets are opened, our operating results may be negatively impacted. In addition, some of our direct competitors in certain markets may have superior facilities and/or operating conditions. We expect each existing or future market in which we participate to be highly competitive. The competitive position of each of our casino properties is discussed in “ItemPart I, Item 1. “Business – Competition”.
In a license or registration to conduct gaming operations. Furthermore, because we are subject to regulation in each jurisdiction in which we operate, and because regulatory agencies within each jurisdiction review our compliance with gaming laws in other jurisdictions, it is possible that gaming compliance issues in one jurisdiction may lead to reviews and compliance issues in other jurisdictions.
We may face revenue declines shouldif discretionary consumer spending drop fromdrops due to an economic downturn.
Our net revenues are highly dependent upon the volume and spending levels of customers at our properties and, as such, our business has been in the past, and could be in the future, adversely impacted by economic downturns. Decreases in discretionary consumer spending brought about by weakened general economic conditionsfactors such as, but not limited to, lackluster recoveries from recessions,recessions; inflation; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as COVID-19; high unemployment levels,levels; higher income taxes,taxes; low levels of consumer confidence,confidence; weakness or uncertainty in the housing market,market; cultural and demographic changes,changes; the impact of high energy, fuel, food and healthcare costs; fears of war or actual conflicts, such as the Russian invasion of Ukraine, civil unrest, terrorism or violence; and increased stock market volatility may negatively impact our revenues and operating cash flow. This could lead to a reduction in discretionary spending by our guests on entertainment and leisure activities, which could have a material adverse effect on our revenues, cash flow and results of operations. Furthermore, during periods of economic contraction, our revenues may decrease while many of our costs remain fixed and some costs may increase, resulting in decreased earnings.
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We cannot assure you that any of our contracted sports betting parties, through the use of our permitted website “skins,” will be able to compete effectively, that our contracted sports parties will have the ability and/or willingness to sustain sports betting operations should they experience an extended period of unprofitability, or that we will have the ability to replace existing partners or vendors on similar terms as our existing contractual revenue minimums.
Our businesscontracted sports betting parties, through the use of our permitted website “skins,” compete in a rapidly evolving and highly competitive market against an increasing number of competitors. The success of their sports betting operations is dependent on a number of factors that are beyond their control, and ours, including the ultimate tax rates and license fees charged by jurisdictions across the United States; their ability to gain market share in a newly developing market; the timeliness and the technological and popular viability of their products; their ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; and the availability and popularity of other forms of entertainment. While our current agreements with our contracted sports betting parties provide us with contractual minimums for revenue upon their launch of operations, we cannot assure you that any of our contracted sports parties will be able to compete effectively or that they will have the ability or willingness to sustain sports betting operations for an extended period of unprofitability. Should any of our contracted sports betting parties cease operations, whether due to unprofitability or for other reasons, there can be no assurance that we will be able to replace them on similar terms as our existing agreements. In February 2022, one of our skin operators informed us of their intent to cease operations through one of our skins in Colorado and one of our skins in Indiana on May 15, 2022. We have begun discussions with other companies to replace such operator in both Colorado and Indiana, though there can be no guarantee that any replacement contract will be entered into on similar terms or at all.
Marine transportation is inherently risky, and insurance may be adversely affected by legislation prohibiting tobacco smoking.
The operation of our properties are not currentlyferry boat is subject to tobacco restrictions. While gaming areas have generally been exempted fromvarious inherent risks, including:
● | catastrophic marine disasters and accidents; |
● | adverse weather conditions or natural disasters; |
● | mechanical failure or equipment damage; |
● | hazardous substance spills; and |
● | navigation and human errors. |
The occurrence of any of these restrictions, if additional restrictions on smoking are enacted in jurisdictions in which we operate, we could experience a decrease in gaming revenue. This is particularly the case if such restrictions are not applicable to all competitive facilities in that gaming market.
Our Mississippi casino hotel currently generates a significant percentage of our revenues and Adjusted EBITDA. Our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of that property.
For the year ended December 31, 2021, we generated 50.3% of our revenues and 54.3% of our Adjusted Segment EBITDA from our casino resort in Mississippi. Therefore, until our new developments are operating, our results will be dependent on the regional economies and competitive landscapes at our Mississippi property. Likewise, our ability to meet our operating and debt service requirements is dependent, in part, upon the continued success of this property.
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We derive our revenues and operating income from our properties located in Mississippi, Colorado, Indiana and Nevada, and expect to commence operations in Illinois, and are especially subject to certain risks, including economic and competitive risks, associated with the former Second Lienconditions in those areas and in the states from which we draw patrons.
Because we derive our revenues and operating income from properties concentrated in four states, we are subject to greater risks from regional conditions than a gaming company with operating properties in a greater number of different geographic regions. A decrease in revenues from, or an increase in costs for, one of these locations is likely to have a proportionally greater impact on our business and operations than it would for a gaming company with more geographically diverse operating properties. Risks from regional conditions include the following:
● | regional economic conditions; |
● | regional competitive conditions, including legalization or expansion of gaming in Mississippi, Colorado, Indiana, Nevada, Illinois or in neighboring states; |
● | allowance of new types of gaming, such as the introduction of live table games at Indiana racinos or Internet gaming; |
● | reduced land or air travel due to increasing fuel costs or transportation disruptions; and, |
● | increase in our vulnerability to economic downturns and competitive pressures in the markets in which we operate. |
Some of our operations are located on leased property. If the lessor of the Grand Lodge Casino exercises its buyout rights or if we default on this or certain of our other leases, the applicable lessors could terminate the affected leases and we could lose possession of the affected casino.
We lease certain parcels of land at our Silver Slipper Casino and Hotel in Mississippi, certain land and buildings at Bronco Billy’s Hotel and Casino in Colorado (much of which is to be utilized for Chamonix) and one of the two hotels at our Rising Star Casino Resort in Indiana. We also lease casino space at our Grand Lodge Casino in Nevada. Unless we have a purchase option under such leases and exercise such option, we will have no interest in the improvements thereon at the expiration of the leases. We have purchase options on the leased property at the Silver Slipper, Bronco Billy’s and for the leased hotel at Rising Star, but it is either currently more advantageous for us to continue to lease rather than exercise the buyout option, or we have certain restrictions which only allow us to exercise the purchase option during certain future time periods. The obligations under the Notes and the Credit Facility we have warrants outstanding, representing rights to purchase approximately 1.0 million sharesare collateralized by a security interest in substantially all of our common stock at the optionassets. The Notes contain representations and warranties, financial covenants, and restrictions on dividends customary for notes of this type. Mandatory prepayments, in whole or in part, of the lenders. If our outstanding warrants and other options to purchase shares of our common stock are exercised and the underlying shares of common stock are issued upon such exercise are sold, our stockholders may experience substantial dilution and the market price of our shares of common stock could decline. Further, the perception that such securities mightNotes will be exercised could adversely affect the trading price of our shares of common
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Adverse weather conditions, road construction, gasoline shortages and other factors affecting our facilities and the areas in which we operate could make it more difficult for potential customers to travel to our properties and deter customers from visiting our properties.
Our continued success depends upon our ability to draw customers from each of the geographic markets in which we operate. Adverse weather conditions or road construction can deter our customers from traveling to our facilities or make it difficult for them to frequent our properties. In recent years, there were severe cold temperatures that we believe adversely affected our Indiana and Mississippi properties’ financial performance, and historically low snow levels and forest fires in the Lake Tahoe region adversely affected visitation and financial performance at Grand Lodge. Moreover, gasoline shortages or fuel price increases could make it more difficult for potential customers to travel to our properties and deter customers from visiting. Our dockside gaming facility in Indiana, as well as any additional riverboat or dockside casino properties that might be developed or acquired, are also subject to risks, in addition to those associated with land-based casinos, which could disrupt our operations. Although our Indiana casino vessel does not leave its moorings in normal operations, there are risks associated with the movement or mooring of vessels on waterways, including risks of casualty due to river turbulence, flooding, collisions with other vessels and severe weather conditions. Our ferry boat that we operate at Rising Star has similar risks as our Indiana casino vessel, as well as additional risks related to ferry boat operations discussed above.
Our results of operations and financial condition could be materially adversely affected by the occurrence of natural disasters, including as a result of climate change, such as hurricanes, floods, wildfires, pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus pandemic, or other catastrophic events, including war, terrorism and gun violence.
Natural disasters and extreme weather conditions, potentially exacerbated by climate change, such as major hurricanes, tornadoes, typhoons, floods, fires and earthquakes, could adversely affect the market priceour business and operating results. Certain of our shares.properties are located in areas that may be subject to extreme weather conditions. Hurricanes are common in the area in which our Mississippi property is located, and the severity of such natural disasters is unpredictable. In October 2020, Hurricane Zeta caused the temporary closure of the Silver Slipper and caused approximately $5 million of damage, most of which was covered by insurance. In 2005, Hurricanes Katrina and Rita caused significant damage in the Gulf Coast region. Additionally, our Indiana property is at risk of flooding due to its proximity to the Ohio River. Wildfires are also increasing in frequency and intensity, and the Western United States and the Rocky Mountain Region have been experiencing continuing drought conditions. Bronco Billy’s and Grand Lodge were adversely affected by nearby forest fires and the impacts therefrom. Changes in federal, state, and local legislation and regulation based on concerns about climate change could result in increased regulatory costs, which may include capital expenditures at our existing properties to ensure compliance with any new or updated regulations, which may potentially adversely affect our operations. There can be no assurance that the potential impacts of climate change and severe weather will not have a material adverse effect on our properties, operations or business.
If a pandemic, epidemic or outbreak of an infectious disease, such as the COVID-19 pandemic, occurs in the United States or on a global scale, our business may be adversely affected. As described elsewhere in these Risk Factors, such events may result in closures of our properties, a period of business disruption, and/or in reduced operations, any of which could materially affect our business, financial condition and results of operations.
Catastrophic events, such as terrorist and war activities in the United States and elsewhere, when they occur, have had a negative effect on travel and leisure expenditures, including lodging, gaming and tourism. Gun violence has also occurred at casinos, including a mass shooting at a casino in Las Vegas in 2017. We cannot accurately predict the extent to which such events may affect us, directly or indirectly, in the future. There also can be no assurance that we will be able to obtain or choose to purchase any insurance coverage with respect to occurrences of terrorist and violent acts and any losses that could result from these acts. If there is a prolonged disruption at our properties due to natural disasters, terrorist attacks or other catastrophic events, our results of operations and financial condition could be materially adversely affected.
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Several of our properties, including Silver Slipper, Bronco Billy’s and Rising Star, are accessed by our customers via routes that have few alternatives.
The Silver Slipper is located at the end of a dead-end road, with no other access. Bronco Billy’s is accessed by most guests via a mountain pass; if that pass is closed for any reason, the alternative is longer. Rising Star’s primary access from Cincinnati is via a road alongside the Ohio River; if this road were to close, the alternative routes involve a ferry boat or more winding roads through the rolling hills inland from the river. If access to any of these roads is blocked for any significant period, our results of operations and financial condition could be materially affected.
We may incur property and other losses that are not adequately covered by insurance, including adequate levels of Weather Catastrophe Occurrence/Named Windstorm, Flood and Earthquake insurance coverage for our properties.
Although we maintain insurance that our management believes is customary and appropriate for our business, there can be no assurance that insurance will be available at reasonable costs in any given year or adequate to cover all losses and damage to which our business or our assets might be subjected. The lack of adequate insurance for certain types or levels of risk could expose us to significant losses in the event that a catastrophe occurred for which we are uninsured or under-insured. Any losses we incur that are not adequately covered by insurance may decrease our future operating income, require us to find replacements or repairs for destroyed property, and reduce the funds available for payments of our obligations. In addition, certain casualty events, such as labor strikes, nuclear events, acts of war, declines in visitation and loss of income due to fear of terrorism or other acts of violence, loss of electrical power due to catastrophic events, rolling blackouts or otherwise, deterioration or corrosion, insect or animal damage, pandemic-related shutdowns and pollution, may not be covered at all under our policies. The occurrence of any of the foregoing could, therefore, expose us to substantial uninsured losses.
There is no certainty that insurance companies will continue to offer insurance at acceptable rates, or at all, in hurricane-prone areas or other areas affected by extreme weather, including the Mississippi Gulf Coast. Some insurance companies may significantly limit the amount of coverage they will write in these markets and increase the premiums charged for this coverage. Additionally, uncertainty can occur as to the viability of certain insurance companies. While we believe that the insurance companies from which we have purchased insurance policies will remain solvent, there is no certainty that this will be the case.
We depend on our key personnel.
We are highly dependent on the services of our executive management team and other members of our senior management team. Our ability to attract and retain key personnel is affected by the competitiveness of our compensation packages and the other terms and conditions of employment, our continued ability to compete effectively against other gaming companies, and our growth prospects. The loss of the services of any members of our senior management team could have a material adverse effect on our business, financial condition and results of operations. We have faced recent increased challenges in attracting and retaining qualified employees, particularly in light of the increase in employee resignations taking place throughout the United States as a result of the COVID-19 pandemic. If we fail to retain our current employees, it would be difficult and costly to identify, recruit and train replacements needed to continue to conduct and expand our business. There can be no assurance that we will be able to retain and motivate our employees.
Higher wage and benefit costs could adversely affect our business.
While the majority of our employees earn more than the minimum wage in their relative jurisdictions and many receive medical plan benefits from us, changes in federal and state minimum wage laws and other laws relating to employee benefits, including the Patient Protection and Affordable Care Act, have in the past, and could in the future, cause us to incur additional wage and benefits costs. Increased labor costs brought about by changes in either federal or state minimum wage laws, other regulations or prevailing market conditions have recently, and could in the future, further increase our expenses, which could have an adverse impact on our profitability, or decrease the number of employees we are able to employ, which could decrease customer service levels at our gaming facilities and therefore adversely impact revenues.
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Rising operating costs at our gaming properties could have a negative impact on our business.
The operating expenses associated with our gaming properties could increase due to, among other reasons, the following factors:
● | inflationary pressures; |
● | supply chain issues that are beyond our control; |
● | changes in federal, state or local tax or regulations, including state gaming regulations or gaming taxes, could impose additional restrictions or increase our operating costs; |
● | aggressive marketing and promotional campaigns by our competitors for an extended period of time could force us to increase our expenditures for marketing and promotional campaigns in order to maintain our existing customer base or attract new customers; |
● | as our properties age, we may need to increase our expenditures for repairs, maintenance, and to replace equipment necessary to operate our business in amounts greater than what we have spent historically; |
● | our reliance on slot play revenues and any additional costs imposed on us from slot machine vendors; |
● | availability and cost of the many products and services we provide our customers, including food, beverages, retail items, entertainment, hotel rooms, spa and golf; |
● | availability and costs associated with insurance; |
● | increases in costs of labor; |
● | our properties use significant amounts of electricity, natural gas and other forms of energy, and energy price increases may adversely affect our cost structure; |
● | our properties use significant amounts of water, and a water shortage may adversely affect our operations; and |
● | at Grand Lodge, we rely on Hyatt Lake Tahoe to provide certain items at reasonable costs, including food, beverages, parking and rooms. Any change in its pricing or the availability of such items may affect our ability to compete. |
If our operating expenses increase without any offsetting increase in our revenues, our results of operations would suffer.
We face the risk of fraud and cheating.
Our gaming customers may attempt or commit fraud or cheat in order to increase winnings. Acts of fraud or cheating could involve the use of counterfeit chips or other tactics, possibly in collusion with our employees. Internal acts of cheating could also be conducted by employees directly or through collusion with dealers, surveillance staff, floor managers or other casino or gaming area staff. Failure to discover such acts or schemes in a timely manner could result in losses in our gaming operations. In addition, negative publicity related to such schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business, financial condition, results of operations and cash flows.
Win rates for our gaming operations depend on a variety of factors, some beyond our control.
The gaming industry is characterized by an element of chance. In addition to the element of chance, win rates are also affected by other factors, including players’ skill and experience, the mix of games played, the financial resources of players, the spread of table limits, the volume of bets played and the amount of time played. Our gaming profits are mainly derived from the difference between our casino winnings and the casino winnings of our gaming customers. Since there is an inherent element of chance in the gaming industry, we do not have full control over our winnings or the winnings of our gaming customers. If our winnings do not exceed the winnings of our gaming customers by enough to cover our operating costs, we may record a loss from our gaming operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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The concentration and evolution of the slot machine manufacturing industry could impose additional costs on us.
A majority of our revenues are attributable to slot machines and related systems operated by us at our gaming facilities. It is important, for competitive reasons, that we offer popular and up-to-date slot machine games to our customers. A substantial majority of the slot machines sold in the U.S. in recent years were manufactured by only a few companies, and there has been recent consolidation activity within the gaming equipment sector. In recent years, slot machine manufacturers have frequently refused to sell slot machines featuring the most popular games, instead requiring participation lease arrangements. Participation slot machine leasing arrangements typically require the payment of a fixed daily rental or a percentage payment of coin-in or net win. Generally, a participation lease is more expensive over the long term than the cost to purchase a new machine. For competitive reasons, we may be forced to purchase new slot machines or enter into participation lease arrangements that are more expensive than our current costs associated with the continued operation of our existing slot machines. If the newer slot machines do not result in sufficient incremental revenues to offset the increased investment and participation lease costs, it could hurt our profitability.
Our business may be adversely affected by legislation prohibiting tobacco smoking.
Legislation in various forms to ban indoor tobacco smoking has been enacted or introduced in jurisdictions in which we operate. Except for our casino in Colorado, the gaming areas of our properties are not currently subject to tobacco restrictions. While gaming areas have generally been exempted from these restrictions, if additional restrictions on smoking are enacted in jurisdictions in which we operate, we could experience a decrease in gaming revenue. This is particularly the case if such restrictions are not applicable to all competitive facilities in that gaming market.
We rely on, among other things, trademarks, licenses, confidentiality procedures, and contractual provisions to protect our intellectual property rights and we may be unable to protect or may not be successful in protecting our intellectual property rights.
Our commercial success depends upon our ability to develop brands and to successfully obtain or acquire proprietary or statutory protection for our intellectual property rights and to implement new or improved technologies purchased or licensed from third parties. We rely on, among other things, trademarks, licenses, confidentiality procedures, and contractual provisions to protect our intellectual property rights. While we enter into license, confidentiality, and non-disclosure agreements to attempt to limit access to, and distribution of, proprietary and confidential information, it is possible that:
● | some or all of our confidentiality and non-disclosure agreements will not be honored; |
● | disputes concerning the ownership of intellectual property will arise with our strategic partners, users or others; |
● | unauthorized disclosure or use of our intellectual property, including know-how or trade secrets, will occur; |
● | we will be unable to successfully enforce our trademark or copyright rights; or |
● | contractual provisions may not be enforceable. |
There can be no assurance that we will be successful in protecting our intellectual property rights or that we will become aware of third-party infringements that might be occurring. Inability to protect our intellectual property rights could have a material adverse effect on our prospects, business, financial condition or results of operations.
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Our commercial success depends upon us avoiding the infringement of intellectual property rights owned by others and any such infringements, including those that are inadvertent, may have a material adverse effect on our business.
The industries in which we compete have many participants that own, or claim to own, intellectual property, including participants that own intellectual property similar to our own, and proprietary rights for technologies similar to those used or licensed by us. Some of this intellectual property may provide very broad protection to the third-party owners thereof. Patents in particular can be issued very rapidly and there is often a great deal of secrecy surrounding pending patent applications. We cannot determine with certainty whether any existing third-party intellectual property or the issuance of any new third-party intellectual property would require our partners or suppliers to alter their technologies or services, pay for licenses, challenge the validity or enforceability of the intellectual property, or cease certain activities. Third parties may assert intellectual property infringement claims against us and against our partners and/or suppliers. We may be subject to these types of claims either directly or indirectly through indemnities assuming liability for these claims that we may provide to certain partners or suppliers. There can be no assurance that our attempts to negotiate favorable intellectual property indemnities in favor of us with our partners or suppliers for infringement of third-party intellectual property rights will be successful or that a partner’s or supplier’s indemnity will cover all damages and losses suffered by us and our partners and other suppliers due to infringing products, or that we can secure a license, modification or replacement of a partner’s or supplier’s products with non-infringing products that may otherwise mitigate such damages and losses.
Some of our competitors have, or are affiliated with companies that have, substantially greater resources than us, and these competitors may be able to sustain the costs of complex intellectual property infringement litigation to a greater degree and for longer periods of time than us. Regardless of whether third-party claims of infringement against us have any merit, these claims could:
● | adversely affect our relationships with our customers; |
● | be time-consuming to evaluate and defend; |
● | result in costly litigation; |
● | result in negative publicity for us; |
● | divert our management’s attention and resources; |
● | cause product and software delivery delays or stoppages; |
● | subject us to significant liabilities; |
● | require us to enter into costly royalty or licensing agreements; |
● | require us to develop possible workaround solutions that may be costly and disruptive to implement; or |
● | require us to cease certain activities or to cease providing services in certain markets. |
In addition to being liable for potentially substantial damages relating to intellectual property following an infringement action against us, we may be prohibited from commercializing certain technologies, or products or services unless we obtain a license from the holder of the applicable intellectual property rights. There can be no assurance that we will be able to obtain any such license or acquire intellectual property on commercially reasonable terms, or at all. If we do not obtain such a license, our prospects, business, operating results and financial condition could be materially adversely affected and we could be required to cease related business operations in some markets and restructure our business to focus on continuing operations in other markets.
We are subject to risks related to corporate social responsibility and reputation.
Many factors influence our reputation and the value of our brands, including the perception held by our customers, business partners, other key stakeholders and the communities in which we do business. Our business faces increasing scrutiny related to environmental, social and governance activities and risk of damage to our reputation and the value of our brands if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, climate change, workplace conduct, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.
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Risks Related to Development and Growth Opportunities
We are engaged from time to time in one or more construction and development projects, including Chamonix and American Place, and many factors could prevent us from completing them as planned.
We are currently constructing Chamonix in Cripple Creek, Colorado, adjoining and connected to our existing Bronco Billy’s casino. We also intend to open The Temporary and, subsequently, American Place in Waukegan, Illinois.
Construction of these types of projects have certain inherent risks, including the risks of fire, structural collapse, human error and electrical, mechanical and plumbing malfunction. Our development and expansion projects are exposed to significant risks, including:
● | shortage of materials, including due to supply chain issues that are beyond our control; |
● | shortage of skilled labor or work stoppages; |
● | unforeseen construction scheduling, engineering, excavation, environmental or geological problems; |
● | increases in the cost of steel and other raw materials for construction, driven by inflation, U.S. tariffs on imports, demand, higher labor and construction costs and other factors, may cause price increases beyond those anticipated in the budgets for our development projects; |
● | natural disasters, hurricanes, weather interference, changes in river levels, floods, fires, earthquakes, the impacts of pandemic such as coronavirus, or other casualty losses or delays; |
● | unanticipated cost increases or delays in completing the project; |
● | delays in obtaining, or inability to obtain or maintain, necessary license or permits; |
● | lack of sufficient funds, or delays in the availability of, financing; |
● | failure to comply with the terms of our disbursement agreements under our indenture could limit our access to funds for the projects; |
● | changes to plans or specifications; |
● | performance by contractors and subcontractors; |
● | disputes with contractors; |
● | mechanic’s liens on real property collateral may have priority over the liens securing our indebtedness; |
● | personal injuries to workers and other persons; |
● | structural heights and the required use of cranes; |
● | disruption of our operations caused by diversion of management’s attention to new development projects and construction at our existing properties; |
● | remediation of environmental contamination at some of our proposed construction sites, which may prove more difficult or expensive than anticipated in our construction budgets; |
● | failure to obtain and maintain necessary gaming regulatory approvals and licenses, or failure to obtain such approvals and licenses on a timely basis; |
● | requirements or government-established “goals” concerning union labor or requiring that a portion of the project expenditures be through companies controlled by specific ethnic or gender groups, goals that may not be obtainable, or may only be obtainable at additional project cost; and |
● | other unanticipated circumstances or cost increases. |
The occurrence of any of the foregoing could increase the total costs of a project, or delay or prevent its construction, development, expansion or opening. Escalating construction costs may cause us to modify the design and scope of projects from those initially contemplated or cause the budgets for those projects to be increased. We generally carry insurance to cover certain liabilities related to construction, but not all risks are covered, and it is uncertain whether such insurance will provide sufficient payment in a timely fashion even for those risks that are insured and material to us.
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The construction costs for our growth projects, including Chamonix and American Place, may exceed budgeted amounts plus contingencies, which may result in insufficient funds to complete these projects or the need to raise additional capital.
Delays in the completion of the plans and specifications for our growth projects, including Chamonix and American Place, could delay completion of the projects. In addition, completion of the plans and specifications while construction is in progress could cause inefficiencies, and certain items may need to be modified or replaced after they have been purchased, constructed or installed in order to conform to building code requirements or subsequently-developed plans and specifications. The Pre-Construction Services Agreement and Letter of Intent with our general contractor for Chamonix provides that the cost of construction may increase and the deadlines for the contractor’s obligations to complete construction may be adjusted for alterations in the project’s scope. We may enter into similar arrangements with the general contractor for American Place. We can give no assurance that changes in the scope of these projects will not increase the cost of the projects or extend their completion dates. We establish budgets for the projects based, in part, on our estimate of the cost of various construction goods and services for parts of the projects that, in some cases, are not yet fully designed. If the actual cost with respect to these allowance items exceeds the estimated amount, we will be responsible for the payment of those excess amounts out of the cash flow from our other operations and from cash balances. Our cash flow or cash reserves may not be adequate at any given time to address balancing of the construction budgets if there are increased costs. If our contingency, cash flow from operations and anticipated excess liquidity are insufficient to cover any shortfall, we may not have sufficient funds to complete the projects without seeking additional capital or at all.
There is no assurance that our growth projects, including Chamonix and American Place, will not be subject to additional regulatory restrictions, delays, or challenges.
We received approval of the plans for Chamonix from the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in January and February 2021, respectively. Additionally, as part of these approvals, the Cripple Creek City Council voted to amend the prior Development Agreement with Bronco Billy’s regarding the project, as an Amended & Restated Development Agreement. In the Amended & Restated Development Agreement, we are obligated to complete the project by December 31, 2022. If we do not complete the project by that date, the City may exercise its right of reversion for the previously vacated right of way of portions of 2nd Avenue and the alley. If the project is substantially underway at the deadline, it is likely that the City Council would agree to extend the deadline; however, there is no certainty that would be the case. We are still developing our plans related to American Place and the Temporary, and such plans will be subject to regulatory approval. Completion of these projects could also be delayed by weather, labor shortages or other construction delays. There is no assurance that these projects will not be subject to additional restrictions, delays, or challenges, as the projects will also require at least the following administrative approvals: a development plan, approved construction drawings required for a building permit, and a certification of occupancy.
There is no assurance that our growth projects, including Chamonix and American Place, will be successful.
In addition to the construction and regulatory risks associated with the development of our growth projects, including Chamonix and American Place, we cannot assure you that the level of consumer demand for these projects will meet our expectations. The operating results of these projects may be materially different than expected due to, among other factors, consumer spending and preferences in the geographic areas, competition from other markets, or other developments that may be beyond our control. In addition, these projects may be more sensitive than anticipated by management to certain risks, including risks associated with downturns in the economy. Further, these projects may not generate cash flows on our anticipated timeline. We may not be able to successfully implement our growth strategy with respect to these projects, capital investments, and acquisitions. There is no assurance that these projects will result in a more successful business operation, or that these projects will increase clientele or revenues. With respect to Chamonix, there is no assurance that a more modern expansion will attract new visitors to a city with historic architecture. The occurrence of any of these issues could adversely affect our prospects, financial condition and results of operations.
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Failure to comply with the terms of our disbursement agreement related to Chamonix could limit our access to funds.
As of January 2022, we had approximately $221 million deposited in a construction disbursement account for Chamonix. The funds in the construction disbursement account, which will be used to fund the completion of the design, development, construction, equipping and opening costs of Chamonix, will be disbursed pursuant to the terms of our Cash Collateral and Disbursement Agreement. Funds will be distributed from this account only upon satisfaction of certain conditions, including the approval of the disbursements by an independent construction consultant, as contemplated by the Cash Collateral and Disbursement Agreement. If we fail to satisfy draw conditions or the independent construction consultant does not give its approval to construction draws, in each case under our Cash Collateral and Disbursement Agreement, we may not have access to funds when needed to pay such costs, which could cause delays in the construction of Chamonix.
We face a number of challenges prior to opening new or upgraded facilities.
No assurance can be given that, when we endeavor to open new or upgraded facilities, the expected timetables for opening such facilities will be met in light of the uncertainties inherent in the development of the regulatory framework, construction, the licensing process, legislative action and litigation. Delays in opening new or upgraded facilities could lead to increased costs and delays in receiving anticipated revenues with respect to such facilities and could have a material adverse effect on our business, financial condition and results of operations.
We may face disruption and other difficulties in integrating and managing facilities we have recently developed or acquired, or may develop or acquire in the future.
We may face certain challenges as we integrate the operational and administrative systems of recently developed or acquired facilities into our business. As a result, the realization of anticipated benefits may be delayed or substantially reduced. Events outside of our control, including changes in state and federal regulations and laws, as well as economic trends, also could adversely affect our ability to realize the anticipated benefits from the acquisition or future development.
We expect to continue pursuing expansion opportunities. For example, we plan to build an approximately 180-guest room hotel in Cripple Creek, Colorado, adjoining and integral with our existing Bronco Billy’s. The expansion is expected to include a spa, parking garage, convention and entertainment space, and two new restaurants. As part of the expansion, we refurbished and reopened the Imperial Casino as the Christmas Casino and rebranded the Imperial Hotel as the Christmas Inn. We also regularly evaluate opportunities for acquisition and development of new properties. We could face significant challenges in managing and integrating our expanded or combined operations and any other properties we may develop or acquire, particularly in new competitive markets. The integration of properties we may develop or acquire will require the dedication of management resources that may temporarily divert attention from our day-to-day business. The process of integrating properties that we may acquire also could interrupt the activities of those businesses, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the development of new properties may involve construction, local opposition, regulatory, legal and competitive risks, as well as the risks attendant to partnership deals on these development opportunities. In particular, in projects where we team up with a joint venture partner, if we cannot reach agreement with such partners, or our relationships otherwise deteriorate, we could face significant increased costs and delays. Local opposition can delay or increase the anticipated cost of a project. Finally, given the competitive nature of these types of limited license opportunities, litigation is possible.
Management of new properties, especially in new geographic areas, may require that we increase our management resources. We cannot assure you that we will be able to manage the combined operations effectively or realize any of the anticipated benefits of our acquisitions. We also cannot assure you that, if acquisitions are completed, that the acquired businesses will generate returns consistent with our expectations.
The occurrence of some or all of the above describedabove-described events could have a material adverse effect on our business, financial condition and results of operations.
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The construction of Chamonix may inconvenience customers and disrupt business activity at the adjoining Bronco Billy’s casino.
Although we will attempt to minimize disruption of our existing Bronco Billy’s operations, construction of Chamonix will require portions of the adjoining Bronco Billy’s to be closed or disrupted. For example, Chamonix will be built, in part, on surface parking lots currently used by guests of Bronco Billy’s. As a result, we will close such parking lots and relocate guest parking until the Chamonix’s new parking garage is available for use. Similarly, hotel rooms at Bronco Billy’s will be temporarily unavailable during construction. Any significant disruption in operations at Bronco Billy’s could have a significant adverse effect on our business, financial condition and results of operations.
The permanent American Place facility, additional growth projects or potential enhancements at our properties may require us to raise additional capital.
We may need to access financial institution sources, capital markets, private sources or otherwise obtain additional funds to fund the permanent American Place facility, additional growth projects or potential enhancements we may undertake at our facilities. We do not know when or if financial institution sources, capital markets or private sources will permit us to raise additional funds for such phases and enhancements in a timely manner, on acceptable terms, or at all. Inability to access financial institution sources, capital markets or private sources, or the availability of capital only on less-than-favorable terms, may force us to delay, reduce or cancel our growth projects and enhancement projects.
Our ability to obtain financial institution sources, capital markets or private source financing for future offerings may also be limited by our financial condition, results of operations or other factors, such as our credit rating or outlook at the time of any such financing or offering and the covenants in our existing debt agreements, as well as by general economic conditions and contingencies and uncertainties that are beyond our control. As we seek additional financing, we will be subject to the risks of rising interest rates and other factors affecting the financial markets.
The casino, hotel and resort industry is capital intensive, and we may not be able to finance expansion and renovation projects, which could put us at a competitive disadvantage.
Our properties have an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We may also need to make capital expenditures at our casino properties to comply with our debt covenants, lease agreements and applicable laws and regulations.
Renovations and other capital improvements at our properties require significant capital expenditures. In addition, renovations and capital improvements usually generate little or no cash flow until the projects are completed. We may not be able to fund such projects solely from existing resources and cash provided from operating activities. Consequently, we may have to rely upon the availability of debt or equity capital to fund renovations and capital improvements, and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. We cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. Our failure to renovate our properties may put us at a competitive disadvantage.
We may face risks related to our ability to receive regulatory approvals required to complete certain acquisitions, mergers, joint ventures, and other developments, as well as other potential delays in completing certain transactions.
Our growth may be fueled, in part, by the acquisition of existing gaming and development properties. In addition to standard closing conditions, our material transactions, including but not limited to acquisitions, are often conditioned on the receipt of regulatory approvals and other hurdles that create uncertainty and could increase costs. Such delays could significantly reduce the benefits to us of such transactions and could have a material adverse effect on our business, financial condition and results of operations.
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If we fail to obtain necessary government approvals in a timely manner, or at all, it can adversely impact our various expansion, development, investment and renovation projects.
The scope of the approvals required for expansion, development, investment or renovation projects can be extensive and may include regulatory approvals, state and local land-use permits, and building and zoning permits. Unexpected changes or concessions required by local, state or federal regulatory authorities could involve significant additional costs and delay the scheduled openings of the facilities. We may not obtain the necessary permits, licenses, entitlements and approvals within the anticipated time frames, or at all.
Insufficient or lower-than-expected results generated from our new developments and acquired properties may negatively affect our operating results and financial condition.
We cannot assure you that the revenues generated from our new developments and acquired properties will be sufficient to pay related expenses if and when these developments are completed; or, even if revenues are sufficient to pay expenses, that the new developments and acquired properties will yield an adequate return or any return on our significant investments. As previously discussed, the development of new properties may involve construction, regulatory, legal and competitive risks or local opposition, any of which can significantly increase the anticipated cost of a project. Our projects, if completed, may not achieve the level of guest acceptance and patronage we anticipate and, for this or other reasons, may take significantly longer than we expect to generate returns, if any. If our new developments or acquired properties do not achieve the financial results anticipated, it could adversely affect our revenues and results of operations. Moreover, lower-than-expected results from the opening of a new facility may make it more difficult to raise capital.
Risks Related to our Indebtedness
Our significant indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations.
As of February 7, 2022, the total principal amount of our indebtedness, excluding unamortized debt issuance costs, was $410 million, consisting entirely of the Notes. Our Credit Facility remains undrawn as of this report date and includes a letter of credit sub-facility. The Notes and the Credit Facility are summarized in Part I, Item 1. “Business — Operating Properties — American Place, Including The Temporary.” We also have a finance lease at our Rising Star Casino Resort with an outstanding balance of $3.3 million.
Our debt could, among other things:
● | require us to dedicate a large portion of our cash flow from operations to the servicing and repayment of our debt, thereby reducing funds available for working capital, capital expenditures and acquisitions, and other general corporate requirements; |
● | limit our ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; |
● | limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; |
● | restrict our ability to make strategic acquisitions or dispositions or to exploit business opportunities; |
● | increase our vulnerability to general adverse economic and industry conditions and increases in interest rates; |
● | place us at a competitive disadvantage compared to our competitors that have less debt; and |
● | adversely affect our credit rating, which may adversely affect the market price of our common stock. |
Any of these risks could impact our ability to fund our operations or limit our ability to expand our business, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
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The indenture governing the Notes and the Credit Facility impose restrictive covenants and limitations that could significantly affect our ability to operate our business and lead to events of default if we do not comply with the covenants.
The indenture governing the Notes and the Credit Facility impose restrictive covenants on us and our subsidiaries that may limit our current and future operations. The restrictions that are imposed include, among other obligations, limitations on our and our subsidiaries’ ability to:
● | incur additional debt and guarantee indebtedness; |
● | make payments on subordinated obligations; |
● | make dividends or distributions and repurchase stock; |
● | make investments; |
● | enter into transactions with affiliates; |
● | grant liens on our property to secure debt; |
● | sell assets or enter into mergers or consolidations; |
● | sell equity interest in our subsidiaries; |
● | make capital expenditures; or |
● | amend or modify our subordinate indebtedness without obtaining certain consents from the holders of our indebtedness. |
These restrictions could adversely affect our ability to:
● | obtain additional financing for our operations; |
● | make needed capital expenditures; |
● | make strategic acquisitions or investments or enter into alliances; |
● | withstand a continued and sustained downturn in our business or the economy in general; |
● | engage in business activities, including future opportunities, that may be in our interest; and |
● | plan for or react to market conditions or otherwise execute our business strategies. |
Our ability to comply with the covenants under the indenture, the Credit Facility, or in any instrument governing future indebtedness, may be affected by general economic conditions, industry conditions, and other events beyond our control, including delays in the completion of new projects under construction. As a result, there can be no assurance that we will be able to comply with these covenants. Our failure to comply with the covenants contained under the indenture the Credit Facility, or in any instrument governing future indebtedness, including failure to comply as a result of events beyond our control, could result in an event of default. If there were an event of default and it is not waived by the requisite parties (at their option), the agent, the trustee or holders, as applicable, could cause all the outstanding obligations under the Notes, the Credit Facility or other future indebtedness to be due and payable, subject to applicable grace periods, which could materially and adversely affect our operating results and our financial condition. Additionally, this could trigger cross-defaults under other debt obligations. We cannot assure you that our assets or cash flow would be sufficient to repay our obligations under the Notes, the Credit Facility or any future outstanding debt obligations, if accelerated upon an event of default, or that we would be able to borrow sufficient funds to refinance the Notes, the Credit Facility or any future debt instruments.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness, and to fund planned capital expenditures and expansion efforts, will depend upon our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, including the impact of the coronavirus pandemic.
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We cannot assure you that our business will generate sufficient cash flows from operations or asset sales, our anticipated growth in operations, including through our expansion efforts, will be realized, or that future borrowings will be available to us in amounts sufficient to enable us to repay the Notes, and any amounts outstanding under the Credit Facility and to fund our other liquidity needs. In addition, as we undertake substantial new developments or facility renovations or if we consummate significant acquisitions in the future, our cash requirements may increase significantly and we may need to obtain additional equity or debt financing or joint venture partners. Any increase in our level of indebtedness could impose additional cash requirements on us in order to support interest payments. If we incur additional debt, the related risks that we now face could intensify.
If we are not able to generate sufficient cash flows from operations to repay the Notes or any amounts outstanding under the Credit Facility, as needed, or to obtain adequate additional financing, we may have to adopt one or more alternatives, such as reducing or delaying planned expenses and capital expenditures, selling assets, or issuing equity.
We may not be able to generate sufficient cash flows to service all of our indebtedness and fund our operating expenses, working capital needs and capital expenditures, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our indebtedness will depend upon our future operating performance and our ability to generate cash flow in the future, which are subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us in an amount sufficient to enable us to pay our indebtedness or fund our other liquidity needs. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures, dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The indenture governing the Notes and the Credit Facility restrict our ability to dispose of assets and use the proceeds from asset dispositions, and may also restrict our ability to raise debt or equity capital to repay or service our indebtedness. If we cannot make scheduled payments on our debt, we will be in default and, as a result, our lenders could declare all outstanding amounts to be due and payable and foreclose against the collateral securing such debt, and we could be forced into bankruptcy or liquidation, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects and could result in you losing your investment in us.
We depend on our subsidiaries for certain dividends, distributions and repayment of our indebtedness, including the Notes and any borrowings under the Credit Facility.
The source of much of our cash flow to pay our obligations under the Notes and any borrowings under the Credit Facility and to make payments on any other indebtedness will be dividends and distributions from our subsidiaries. If our subsidiaries are unable to make dividend payments or distributions to us and sufficient cash or liquidity is not otherwise available, we may not be able to pay interest or principal under the Notes or borrowings under the Credit Facility. Unless they guarantee the Notes and the Credit Facility, our subsidiaries will not have any obligation to pay amounts due under the Notes and the Credit Facility or to make funds available for that purpose. Unless they guarantee the Notes and the Credit Facility, our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness, including the Notes and the Credit Facility. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries. In addition, while the indentures governing the Notes and the Credit Facility limit the ability of our restricted subsidiaries to restrict the payment of dividends or make other intercompany payments to us, these limitations will be subject to certain qualifications and exceptions. In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the Notes and the Credit Facility.
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Our ability to obtain additional financing on commercially reasonable terms may be limited.
Although we believe that our cash, cash equivalents, working capital, future cash from operations, and the capital obtained from the Notes and available borrowing under the Credit Facility will provide adequate resources to fund completion of Chamonix, the Temporary at American Place and ongoing operating requirements, we may need to refinance or seek additional financing to compete effectively or grow our business, including to complete the permanent American Place facility. These financing strategies may not be completed on satisfactory terms, if at all. In addition, certain financing transactions require approval of gaming regulatory authorities. Some requirements may prevent or delay us from obtaining necessary capital. We cannot assure you that we will be able to obtain any additional financing, refinance our existing debt, or fund our growth efforts. If we are unable to obtain financing on commercially reasonable terms, it could:
● | reduce funds available to us for purposes such as working capital, capital expenditures, strategic acquisitions and other general corporate purposes; |
● | restrict our ability to capitalize on business opportunities; |
● | increase our vulnerability to economic downturns and competitive pressures in the markets in which we operate; and |
● | place us at a competitive disadvantage. |
The obligations under the Notes and the Credit Facility are collateralized by a security interest in substantially all of our assets, so if we default on those obligations, the holders of the Notes and lenders under the Credit Facility could foreclose on our assets. In addition, the existence of these security interests may adversely affect our financial flexibility.
The obligations under the Notes and any borrowings under the Credit Facility are secured by a security interest in substantially all of our assets. As a result, if we default under our obligations under the Notes or the Credit Facility, the holders of the Notes and the lenders under the Credit Facility, acting through their appointed agent, could foreclose on their security interests and liquidate some or all of these assets, which could harm our business, financial condition and results of operations and could require us to reduce or cease operations. In addition, the pledge of these assets and other restrictions may limit our flexibility in raising capital for other purposes. Because substantially all of our assets are pledged under these financing arrangements, our ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on our financial flexibility.
We and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks described above.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The indentures governing the Notes and the Credit Facility do not fully prohibit us or our subsidiaries from doing so. If new debt is added to our or our subsidiaries’ current debt levels, the related risks that we or they now face could intensify.
Risks Related to our Legal and Regulatory Environment
We face extensive regulation from gaming and other regulatory authorities and the cost of compliance or failure to comply with such regulations may adversely affect our business and results of operations.
Licensing. The gaming industry is highly regulated, and we must maintain our licenses and pay gaming taxes to continue our operations. The ownership, management and operation of gaming facilities are subject to extensive state and local regulation in the jurisdiction in which it is located. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interest in the gaming operations. The regulatory authorities in jurisdictions where we operate have broad discretion, and may, for any reason set forth in the applicable legislation, rules and regulations, limit, condition, suspend, fail to renew or revoke a license or registration to conduct gaming operations. Furthermore, because we are subject to regulation in each jurisdiction in which we operate, and because regulatory agencies within each jurisdiction review our compliance with gaming laws in other jurisdictions, it is possible that gaming compliance issues in one jurisdiction may lead to reviews and compliance issues in other jurisdictions.
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Taxation and fees. We believe that the prospect of significant tax revenue is one of the primary reasons that jurisdictions permit legalized gaming. As a result, gaming companies are typically subject to significant revenue-based taxes and fees in addition to normal federal, state, local and provincial income and employment taxes, and such taxes and fees are subject to increase at any time. We pay substantial taxes and fees with respect to our operations. From time to time, federal, state, local and provincial legislators and officials have proposed changes in tax laws, or in the administration of such laws, affecting the gaming industry. In addition, any downturn in economic conditions could intensify the efforts of state and local governments to raise revenues through increases in gaming taxes and/or property taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration of such laws. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our business, financial condition and results of operations.
Compliance with other laws. In addition to gaming regulations, we are also subject to various federal, state, and local laws and regulations affecting businesses in general. These laws and regulations include, but are not limited to, environmental matters, employment, currency transactions, taxation, construction, zoning, construction and land-use laws, marketing and advertising, smoking, and regulations governing the serving of alcoholic beverages.
The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Treasury Department, requires us to report currency transactions in excess of $10,000 occurring within a gaming day, including identification of the guest by name and social security number, to the Internal Revenue Service (“IRS”). This regulation also requires us to report certain suspicious activity, including any transaction that exceeds $5,000 that we know, suspect or have reason to believe involves funds from illegal activity or is designed to evade federal regulations or reporting requirements. Periodic audits by the IRS and our internal audit function assess compliance with the Bank Secrecy Act, and substantial penalties can be imposed against us if we fail to comply with this regulation. In recent years, the U.S. Treasury Department has increased its focus on Bank Secrecy Act compliance throughout the gaming industry. Recent public comments by FinCEN suggest that casinos should make efforts to obtain information on each customer’s sources of income. This could impact our ability to attract and retain casino guests.
We also deal with significant amounts of cash in our operations and are subject to various reporting and anti-money laundering regulations. Any violations of anti-money laundering laws or regulations by any of our properties could have an adverse effect on our financial condition, results of operations or cash flows. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted.
Our riverboat, as well as our ferry boat operations, at Rising Star must comply with certain federal and state laws and regulations with respect to boat design, on-board facilities, equipment, personnel and safety. In addition, we are required to have third parties periodically inspect and certify our casino riverboat for safety, stability and single compartment flooding integrity. All of our casinos also must meet local fire safety standards. We could incur additional costs if our gaming facilities are not in compliance with one or more of these regulations.
Changes in legislation and regulation of our business could have an adverse effect on our financial condition, results of operations and cash flows.
Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial, competitive or other burdens on the way we conduct our business.
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In particular, certain areas of law governing new gaming activities, such as the federal and state law applicable to sports betting, are new or developing in light of emerging technologies. New and developing areas of law may be subject to the interpretation of the government agencies tasked with enforcing them. In some circumstances, a government agency may interpret a statute or regulation in one manner and then reconsider its interpretation at a later date. No assurance can be provided that government agencies will interpret or enforce new or developing areas of law consistently, predictably, or favorably. Moreover, legislation to prohibit, limit or add burdens to our business may be introduced in the future in states where gaming has been legalized. In addition, from time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material adverse effect on our operating results. For example, in January 2019, legal counsel for the U.S. Department of Justice (“DOJ”) issued a legal opinion on the Interstate Wire Act of 1961 (“Wire Act”), which stated that the Wire Act bans any form of online gambling if it crosses state lines and reversed a 2011 DOJ legal opinion that stated that the Wire Act only applied to interstate sports betting. The validity of the 2019 DOJ legal opinion and the conflicting interpretations of the Wire Act by DOJ is presently the subject of ongoing litigation.
Stockholders may be required to dispose of their shares of our common stock if they are found unsuitable by gaming authorities.
While gaming authorities generally focus on stockholders with more than 5% and often 10% of a company’s shares, such authorities generally can require that any beneficial owner of our common stock and other securities file an application for a finding of suitability. If a gaming authority requires a record or beneficial owner of our securities to file a suitability application, the owner must apply for a finding of suitability within 30 days or at an earlier time prescribed by the gaming authority. The gaming authority has the power to investigate an owner’s suitability and the owner must pay all costs of the investigation. If the owner is found unsuitable, then the owner may be required by law to dispose of our securities. Our certificate of incorporation also provides us with the right to repurchase shares of our common stock from certain beneficial owners declared by gaming regulators to be unsuitable holders of our equity securities. The price we may pay to any such beneficial owner may be below the price such beneficial owner would otherwise accept for his or her shares of our common stock.
We are subject to environmental laws and potential exposure to environmental liabilities.
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including emissions and discharges into the environment, and the handling and disposal of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities or restrictions. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly, may adversely affect our ability to use, sell or rent property. There can be no assurances that these matters or other matters arising under environmental laws will not have a material adverse effect on our business, financial condition, or results of operations in the future.
We are subject to litigation which, if adversely determined, could cause us to incur substantial losses.
From time to time during the normal course of operating our businesses, we are subject to various litigation claims and legal disputes. Some of the litigation claims may not be covered under our insurance policies, or our insurance carriers may seek to deny coverage. As a result, we might also be required to incur significant legal fees, which may have a material adverse effect on our financial position. In addition, because we cannot accurately predict the outcome of any action, it is possible that, as a result of current and/or future litigation, we will be subject to adverse judgments or settlements that could significantly reduce our earnings or result in losses.
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Our ferry boat service is highly regulated, which can adversely affect our operations.
Our ferry boat service at the Rising Star Casino Resort is subject to stringent local, state and federal laws and regulations governing, among other things, the health and safety of our passengers and personnel, and the operation and insurance of our vessel. Many aspects of our ferry boat service are subject to regulation by a wide array of agencies, including the U.S. Coast Guard and other federal authorities, the State of Indiana and Commonwealth of Kentucky authorities, as well as local authorities in Ohio County, Indiana and Boone County, Kentucky. In addition, we are required by various governmental and quasi-governmental agencies to obtain, maintain and periodically renew certain permits, licenses and certificates with respect to our ferry boat service. Compliance with or the enforcement of applicable laws and regulations can be costly. In addition, failure to comply with applicable laws and regulations may result in administrative and civil penalties, criminal sanctions or, in certain cases, the suspension or termination of our ferry boat service.
Risks Related to cover losses that may occur to our assets or result from our ferry boat operations.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power and ifpower. If we experience damage or service interruptions, we may have to cease some or all of our operations, which will result in a decrease in revenue.
Our gaming operations rely heavily on technology services and an uninterrupted supply of electrical power. Our security system and all of our slot machines are controlled by computers and reliant on electrical power to operate. A loss of electrical power or a failure of the technology services needed to run the computers wouldcould make us unable to run all or parts of our gaming operations. Any unscheduled interruption in our technology services or interruption in the supply of electrical power is likely to result in an immediate, and possibly substantial, loss of revenue due to a shutdown of our gaming operations. Although we have designed our systems around industry-standard designs to reduce downtime in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks and similar events. Additionally, substantial increases in the cost of electricity and natural gas could negatively affect our results of operations.
Our information technology and other systems are subject to cyber-security risk, misappropriation of customer information and other breaches of information security.
We rely extensively on our computer systems to process customer transactions, manage customer data, manage employee data and communicate with third-party vendors and other third parties, and we may also access the Internet to use our computer systems. Our operations require that we collect and store customer data, including credit card numbers and other personal information, for various business purposes, including marketing and promotional purposes. We also collect and store personal information about our employees. Breaches of our security measures or information technology systems or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive personal information or confidential data about us, or our customers, or our employees including the potential loss or disclosure of such information as a result of hacking or other cyber-attack, computer virus, fraudulent use by customers, employees or employees of third party vendors, trickery or other forms of deception or unauthorized use, or due to system failure, could expose us, our customers, our employees or other individuals affected to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation or brand names or otherwise harm our business. Additionally, disruptions in the availability of our computer systems, through cyber-attacks or otherwise, could impact our ability to service our customers and adversely affect our sales and the results of operations. We rely on proprietary and commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of customer information, such as
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Additionally, the collection of customer and employee personal information imposes various privacy compliance related obligations on our business and increases the risks associated with a breach or failure of the integrity of our information technology systems. The collection and use of personal information isare governed by privacy laws and regulations enacted in the United States and other jurisdictions around the world. Privacy regulations continue to evolve and on occasion may be inconsistent from one jurisdiction to another. Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact our ability to market our products, properties and services to our customers. In addition, non-compliance with applicable privacy laws and regulations by us (or in some circumstances non-compliance by third party service providers engaged by us) may also result in damage of reputation, result in vulnerabilities that could be exploited to breach our systems and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of personal information.
General Risks
Our ability to environmental lawsutilize our net operating loss, or NOL, carryforwards and certain other tax attributes may be limited.
Our ability to utilize our NOL carryforwards to offset potential exposurefuture taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates, if applicable, of the NOL carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to environmental liabilities.
Under Sections 382 and local environmental laws and regulations that govern our operations, including emissions and discharges into383 of the environment, and the handling and disposalInternal Revenue Code of hazardous and non-hazardous substances and wastes. Failure to comply with such laws and regulations could result in costs for corrective action, penalties1986, as amended, or the imposition ofCode, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other liabilitiespre-change tax attributes (such as research and development tax credits) to offset its post-change income or restrictions. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of propertytaxes may be liable forlimited. We have experienced ownership changes in the costspast, and we may experience ownership changes in the future and/or subsequent shifts in our stock ownership (some of remediating contaminated soil or groundwater on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of contamination, or failure to remediate it properly,which may adversely affectbe outside our control). As a result, if we earn net taxable income, our ability to use sell or rent property. To date, none of these matters or other matters arising under environmental laws has had a material adverse effect on our business, financial condition, or results of operations; however, there can be no assurance that such matters will not have such an effect in the future.
The market price for our common stock may be volatile, and investors may not be able to sell our stock at a favorable price or at all.
Many factors could cause the market price of our common stock to rise and fall, including:
● | actual or anticipated variations in our quarterly results of operations; |
● | the impact of the coronavirus pandemic on our business; |
● | change in market valuations of companies in our industry; |
● | change in expectations of future financial performance; |
● | regulatory changes; |
● | fluctuations in stock market prices and volumes; |
● | issuance of common stock market prices and volumes; |
● | the addition or departure of key personnel; and |
● | announcements by us or our competitors of acquisitions, investments, dispositions, joint ventures or other significant business decisions. |
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to companies’ operating performance.performance, for example, as a result of the coronavirus epidemic. Broad market and industry factors may materially harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, shareholderstockholder derivative lawsuits and/or securities class-action litigation has sometimes been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources.
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The exercise of outstanding options to purchase common stock may be requiredresult in substantial dilution and may depress the trading price of our common stock.
If our outstanding options to dispose of theirpurchase shares of our common stock if they are found unsuitable by gaming authorities.
Not applicable.
Substantially all of our assets collateralize our indebtedness, as discussed in Note 6 to the consolidated financial statements set forth in “ItemPart II, Item 8. Financial “Financial Statements and Supplementary Data.”
| | | | | | | | | | | | |
| | | | December 31, 2021 | ||||||||
| | | | Owned | | Leased | | | | | | |
| | | | Land | | Land | | Slot | | Table | | Hotel |
Segments and Properties | | Locations | | (acres) | | (acres) | | Machines | | Games | | Rooms |
Colorado | | | | | | | | | | | | |
Bronco Billy’s Casino and Hotel |
| Cripple Creek, CO |
| 5.77 |
| 4.27 |
| 407 |
| 7 |
| 14 |
Chamonix Casino Hotel (under construction) | | Cripple Creek, CO | | (a) | | (a) | | ─ | | ─ | | ─ |
Illinois | | | | | | | | | | | | |
American Place (under development) | | Waukegan, IL | | (b) | | (b) | | ─ | | ─ | | ─ |
Indiana | | | | | | | | | | | | |
Rising Star Casino Resort |
| Rising Sun, IN |
| 289.58 |
| 3.01 |
| 642 |
| 16 |
| 294 |
Mississippi | | | | | | | | | | | | |
Silver Slipper Casino and Hotel |
| Hancock County, MS |
| 0.03 |
| 43.70 |
| 757 |
| 24 |
| 129 |
Nevada | | | | | | | | | | | | |
Grand Lodge Casino |
| Incline Village, NV |
| ─ |
| 0.48 |
| 269 |
| 9 |
| (c) |
Stockman’s Casino |
| Fallon, NV |
| 4.73 |
| ─ |
| 186 |
| (d) |
| ─ |
__________
(a) | Chamonix is being constructed mostly on land owned by us and partially on land leased by us. |
(b) | We are currently under contract to purchase approximately 10 acres of land adjoining the approximately 30-acre casino site to be leased from the City of Waukegan. |
(c) | Leased and part of the Hyatt Lake Tahoe, which offers 422 rooms. |
(d) | Table games operations remained closed during 2021. Electronic table games were installed as an alternative to meet this demand at Stockman’s. |
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A discussion of our legal proceedings is contained in Note 10 to various legalour consolidated financial statements set forth in Part II, Item 8. “Financial Statements and administrative proceedings relating to personal injuries, employment matters, commercial transactions and other matters arising in the normal courseSupplementary Data” of business. We do not believe that the outcome of these matters will have a material adverse effectthis Annual Report on our financial position, results of operations or cash flows. We maintain what we believe is adequate insurance coverage to further mitigate the risks of such potential negative effects.
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the Nasdaq Capital Market under the symbol “FLL.”
On March 11, 2019,2022, we had 8374 “registered holders” of record of our common stock. We believe that a substantial number of shareholdersstockholders hold their common stock in “street name” or are otherwise beneficial holders whose shares of record are held by banks, brokers, and other financial institutions. Such holders are not included in the number of “registered holders” above.
Dividend Policy
We have not paid any dividends on our common stock to date. The payment of dividends in the future will be at the discretion of our board of directors and will be contingent upon our revenues and earnings, if any; the terms of our indebtedness; our capital requirements; growth opportunities; and general financial condition. Our debt covenants restrict the payment of dividends and it is the present intention of our board of directors to retain all earnings, if any, for use in our business operations, debt reduction and growth initiatives, reinvesting such earnings on behalf of shareholders.stockholders. Accordingly, we do not anticipate paying any dividends in the foreseeable future.
Performance Graph
The following performance graph compares the performance of our common stock with the performance of the Nasdaq Composite Index and the Dow Jones U.S. Gambling Total Stock Market Index, during the five years ended December 31, 2021. The graph plots the changes in value of an initial $100 investment over the indicated time period, assuming all dividends are reinvested. Past stock price performance, including the stock price performance in this graph, is not necessarily indicative of future stock price performance.
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| | | | | | | | | | | | | | | | | | |
| | Cumulative Total Return | ||||||||||||||||
| | December 31, | ||||||||||||||||
| | 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 | ||||||
Full House Resorts, Inc. |
| $ | 100.00 | | $ | 162.08 | | $ | 84.17 | | $ | 139.58 | | $ | 163.75 | | $ | 504.58 |
NASDAQ Composite | | $ | 100.00 | | $ | 129.64 | | $ | 125.96 | | $ | 172.17 | | $ | 249.51 | | $ | 304.85 |
Dow Jones US Gambling TSM |
| $ | 100.00 | | $ | 149.98 | | $ | 105.72 | | $ | 153.55 | | $ | 166.14 | | $ | 160.17 |
The performance graph should not be deemed filed or incorporated by Rule 12b-2reference into any other of our filings under the Securities Act of 1933 or the Exchange Act of 1934, except to the extent we are not required to providespecifically incorporate the information requiredperformance graph by this Item.reference therein.
Item 6. [Reserved]
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The following discussion of our results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Part I, Item 1A. “Risk“Risk Factors” and elsewhere in this report.Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House,” the “Company,” “we,” “our” or “us”.
Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering casino gambling, hotel accommodations, dining, golfing, RV camping, sports betting, entertainment and retail outlets, among other amenities. We currently own or operate five casino properties in four states – Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada properties as one operating segment.
Construction continues for a sixth property, Chamonix, which will be located adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. It is expected to open in the second quarter of 2023 and will be included in our Colorado segment. We are also developing American Place in Waukegan, Illinois, including a temporary casino facility named The Temporary that we intend to open in the summer of 2022. We expect to include American Place as its own segment.
Our portfolio consists of the following:
Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we provide credit at some of our casinos where 37 We our properties, achieving and maintaining cost efficiencies, taxation and other regulatory changes, and competitive factors, including but not limited to, additions and improvements to the competitive supply of gaming facilities, as well as pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of results in future periods. Our market environment is highly competitive and capital-intensive. We rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties. COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. At the start of the pandemic, COVID-19 resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties began reopening when permitted by local authorities. We reopened the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s We believe we American Place. In December 2021, we were selected by the IGB to develop and operate American Place, our proposal for a 38 Debt Financing. Subsequent to year-end, we successfully completed our funding of The Temporary, which is intended to open in Summer 2022. On February 7, 2022, we closed on our private offering of $100.0 million in Additional Notes. The Additional Notes were sold at a price of 102.0% of the principal amount and were issued pursuant to an indenture, dated as of February 12, 2021, under which we previously issued $310.0 million in 2028 Notes. Also in February 2022, we amended our Credit Facility to, among other currently available to draw upon. Key Performance Indicators We use several key performance indicators to evaluate the operations of our properties. These key performance indicators include the following: Gaming revenue indicators: Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume. Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop. Room revenue indicators: Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations furnished to customers free of charge, are included in the calculation of the hotel occupancy rate. Adjusted EBITDA, Adjusted Management uses Adjusted EBITDA as a measure of our performance. For a description of Adjusted EBITDA see Results of Operations 2020 Consolidated operating results The following summarizes our consolidated operating results for the years ended December 31,
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The following discussion is based on our consolidated financial statements for the years ended December 31,
Revenues. Consolidated revenues increased contributions from our six contracted sports wagering agreements (compared to three that were live in 2020). “Other Non-casino Revenues” includes $5.9 million of revenue related to our contracted sports wagering agreements in 2021, compared to $2.2 million in 2020. See “Operating Results — Reportable Segments” below for details. Operating expenses. While our operating costs increased in 2021, overall operating margins improved. Upon reopening in mid-2020, we improved operating efficiencies at all of our properties, in part by See further information within our reportable segments described below. 40 Interest and other non-operating expense, net. Interest Expense
Interest expense more detailed discussion. Other non-operating expense, net We incurred resulted in increases in the value of the warrants, causing non-cash expense; conversely, decreases in our share price resulted in decreases in the value of the warrants, causing non-cash income. In 2021, the final fair value adjustment to our outstanding warrants of $1.3 million was made when such warrants were repurchased in February 2021. Using a portion of the proceeds from the issuance of the 2028 Notes, we retired all outstanding warrants for $4.0 million in the first quarter of 2021. Other non-operating expense in 2021 also includes a net loss of $0.4 million from the extinguishment of debts in 2021. This amount consists of a $6.1 million extinguishment loss related to the February 2021 refinancing of our Prior Notes, and a $5.7 million gain due to the forgiveness of principal and interest in December 2021 for CARES Act loans made to certain qualifying subsidiaries. See Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a more detailed discussion. Income taxes. Our effective income tax rate for the years ended December 31,DTAs. We do not expect to pay any federal income taxes or receive any federal tax refunds related to our See Note 41 We manage our casinos based primarily on geographic regions within the United States. or financial position. See Part I, Item 1. “Business — Introduction” for additional discussion. The following table presents detail by segment of our consolidated
42 The
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Mississippi Our Mississippi segment consists of the
Silver Slipper Casino and Non-casino revenue increased by Adjusted Segment EBITDA increased by 103.4%, reflecting a focus on marketing and labor improvements. During the shutdown period, we reexamined our cost structure, specifically focusing on labor and marketing efficiencies company-wide. Upon reopening, we ensured that the hours of operations of our amenities were appropriately matched to our business levels. Additionally, Silver Slipper’s operational performance reflects the benefit of numerous investments in the Indiana Our Indiana segment consists of Rising Star Casino Non-casino revenue increased by 43 Adjusted Segment EBITDA increased by 257.4%, reflecting Colorado Our Colorado segment includes Bronco Billy’s Casino and Non-casino revenue increased by 33.4% during 2021 due to higher guest volumes, especially as capacity and operating restrictions continued to ease in 2021. Food and beverage revenues drove much of this increase, up by 36.9% during 2021 due to increased covers and the reopening of our steakhouse. Hotel revenues followed with an increase of 23.7%, as higher average daily room rights offset the gradual loss of guestrooms due to Chamonix’s construction during 2021 and the impact of the closure period. Adjusted Segment EBITDA increased by 46.3%, reflecting an improved customer experience and analytics from Bronco Billy’s new slot marketing system and labor controls that were partially offset by certain labor expenses related to the pandemic. Results also benefited from the increase in capacity and operations as described above. Nevada The Nevada segment consists of the Grand Lodge and Stockman’s casinos. Our This business segment was more negatively affected by the COVID-19 pandemic than our other business segments, as pandemic-related restrictions at the nearby ski resorts in late 2020 and early 2021 affected destination travel to the region. Pursuant to pandemic-related state orders, we temporarily closed both Grand Lodge Casino and Stockman’s Casino for a portion of the prior year, from March 17, 2020 through June 4, 2020. Reflecting the gradual relaxation of pandemic-related restrictions, revenues Adjusted Segment EBITDA increased by 986.6%. As restrictions eased in Nevada, both properties improved revenues while continuing to maintain control of overall expenses. Similar to our other properties, 44 Contracted Sports Wagering The Contracted Sports Wagering segment consists of our on-site and online sports wagering skins in Colorado and Indiana. Revenues and Adjusted Segment EBITDA were 2021. We receive a percentage of defined revenues of each skin, subject to annual minimums. Such minimums total $7 million of revenue on an annualized basis under our current agreements, with minimal related expenses. In February 2022, one of our contracted parties for sports wagering informed us of its intent to cease operations on May 15, 2022, which will create one available skin in each of Colorado and Indiana. We are currently negotiating with other companies to be the replacement operator for such skins. However, no assurance can be given that we will be able to enter into any replacement contract on similar terms or at all. Additionally, we expect to have an available sports skin in Illinois, as we were recently chosen by the IGB to develop and operate a casino in Waukegan, Illinois. Illinois law allows one sports skin for each physical casino license, which results in fewer total sports skins than in each of Colorado and Indiana. Illinois is also the sixth most populous state in the country, with approximately 12.8 million residents. As a result, we expect to receive better terms for our expected Illinois skin than for any of our individual skins in Colorado or Indiana. However, no assurance can be given that we will be able to enter into a contract related to such skin, either on better terms than our other skins or at all. Corporate Corporate expenses increased In 2020, we began allocating certain costs to the properties. Previously, such costs were carried at the corporate level. For 2021, a total of $1.9 million was allocated, compared to $0.8 million in 2020. We believe that such allocations are appropriate, as the corporate team provides additional support to each of our properties, and that such allocations make our segment results more comparable to other casino companies. Non-GAAP Measure “Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, and non-cash share-based compensation expense. Adjusted EBITDA information is presented solely as supplemental disclosure to measures reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”) because management believes this measure is (i) a widely used measure of operating performance in the gaming and hospitality industries and (ii) a principal basis for valuation of gaming and hospitality companies. In addition, a version of Adjusted EBITDA (known as Consolidated 45 The following table presents a reconciliation of net
The following tables present reconciliations of operating income (loss) to Adjusted
46
Operating expenses deducted to arrive at operating income (loss) in the above tables include facility rents related to: (i) finance obligation. Liquidity and Capital Resources Cash Flows As of December 31, operations. Cash flows – operating activities. On a consolidated basis, cash provided by operations duringmarketing efficiencies company-wide. Cash flows – investing activities. On a consolidated basis, cash used in investing activities during47 Cash flows – financing activities. On a consolidated basis, cash provided by financing activities duringunsecured loans under the CARES Act, which were forgiven in full in accordance with their terms by the U.S. Small Business Administration in December 2021. Other Factors Affecting Liquidity We have significant outstanding debt and contractual obligations, in addition to planned capital Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. discussed under “Recent Developments.” Long-Term Debt. At December 31,See Note 6 to the consolidated financial statements set forth in debt obligations. Hyatt Option to Purchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate the Grand Lodge CasinoCapital Investments. Chamonix - As previously discussed above in “Operating Properties — Chamonix Casino and Hotel” under Part I, Item 1. “Business,” we increased the size of the Chamonix project’s hotel capacity by 67%, to approximately 300 luxury guest rooms and suites from our 48 American Place- As discussed above in the Temporary in Summer 2022, pending customary regulatory approvals. Other Capital Expenditures - Additionally, we may fund various other capital expenditure projects, depending on our financial resources. Our capital expenditures may fluctuate due to decisions regarding strategic capital investments in new or existing facilities, and the timing of capital investments to maintain the quality of our properties. No assurance can be given that any of our planned capital expenditure projects will be completed or that any completed projects will be successful. Our annual capital expenditures typically include some number of new slot machines and related equipment; to some extent, we can coordinate such purchases to match our resources.We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful. Principal Debt Arrangements See Note 6 to the consolidated financial statements set forth in information. Critical Accounting Estimates and Policies Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating estimates that affect reported amounts and disclosures. By their nature, judgments are subject to an inherent degree of uncertainty, and therefore, actual results may differ from our estimates. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements. Impairment of Long-lived Assets, Goodwill and Indefinite-Lived Intangibles Our long-lived assets include property and equipment, goodwill, and indefinite-lived intangibles, and are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include, as applicable, an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which we operate, or a significant long-term decline in historical or forecasted earnings or cash flows or the fair value of our property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, we consider: (i) the length of time and the extent to which the fair value or market value has been less than cost; (ii) the financial condition and near-term prospects of the casino property, including any specific events which may influence the operations; (iii) our intent related to the asset and ability to retain it for a period of time sufficient to allow for any anticipated recovery in fair value; (iv) the condition and trend of the economic cycle; (v) historical and forecasted financial performance; and (vi) trends in the general market. 49 We review the carrying value of our property and equipment used in our operations whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset. Fair value is typically measured using a discounted cash flow model whereby future cash flows are discounted using a weighted-average cost of capital, developed using a standard capital-asset pricing model, based on guideline companies in our industry. We test our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or when a triggering event occurs. For our Fixed Asset Capitalization and Depreciation Policies We define We must make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is sometimes a matter of judgment. When constructing or purchasing assets, we must determine whether existing assets are being replaced or otherwise impaired, which also may be a matter of judgment. In addition, our depreciation expense is highly dependent on the assumptions we make about our assets’ estimated useful lives. We determine the estimated useful lives based on our experience with similar assets, engineering studies, and our estimate of the usage of the asset. Whenever events or circumstances occur, which would change the estimated useful life of an asset, we account for the change prospectively. Income Taxes We are subject to federal and state taxes in the United States. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net Our income tax returns are subject to examination by the IRS and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold. It is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. 50 Recently Issued Accounting Pronouncements Not Yet Adopted See Note 2 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a discussion of recently issued accounting pronouncements not yet adopted. As a smaller reporting company during the year ended December 31, 2021, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item. 51
The financial information included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or the notes thereto. 52 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Full House Resorts, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Full House Resorts, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021 of the Company and our report dated March 15, 2022, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Las Vegas, Nevada March 15, 2022 53 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Full House Resorts, Inc. Opinion on the We have audited the accompanying consolidated balance sheets of Full House Resorts, Inc. and We have also Basis for These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 54 Income Taxes ─ Valuation Allowance ─ Refer to Note 9 to the financial statements Critical Audit Matter Description The Company provides valuation allowances against deferred tax assets when it is deemed “more likely than not” that some portion or all of the deferred tax asset will not be realized within a reasonable period of time. Future realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences become deductible. Sources of taxable income include future reversals of deferred tax liabilities, projected future taxable income, ability to carry tax attributes back to prior years, and tax planning strategies, collectively referred to herein as “estimated taxable income sources”. The Company’s valuation allowance for its US federal and certain state deferred tax assets was $9.9 million as of December 31, 2021. We identified the Company’s valuation allowance analysis and conclusion as a critical audit matter because of the estimates and judgments required by management in determining estimated taxable income sources. Auditing the estimated taxable income sources required a high degree of auditor judgment and increased audit effort, including the need to involve our income tax specialists in evaluating the appropriateness and reasonableness of such estimates. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the estimated taxable income sources included the following, among others:
/s/ Deloitte & Touche LLP Las Vegas, Nevada March 15, 2022 We have served as the Company’s auditor since 55 FULL HOUSE RESORTS, INC. AND SUBSIDIARIES (In thousands, except share and per share data)
56 FULL HOUSE RESORTS, INC. AND SUBSIDIARIES (In thousands, except share data)
The accompanying notes 57 FULL HOUSE RESORTS, INC. AND SUBSIDIARIES (In thousands)
The accompanying notes 58 FULL HOUSE RESORTS, INC. AND SUBSIDIARIES (In thousands)
The accompanying notes 59 FULL HOUSE RESORTS, INC. AND SUBSIDIARIES 1. ORGANIZATION Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document to “Full House,” the “Company,” “we,” “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates. The Company currently In December 2021, Full House was selected by the Illinois Gaming Board (“IGB”) to develop its American Place project in Waukegan, Illinois, a northern suburb of Chicago. The Company intends to open a temporary casino facility named The Temporary by American Place (“The Temporary”) in Summer 2022, subject to customary regulatory approvals. The Company expects to operate The Temporary until the opening of the permanent American Place facility and intends to include such operations as its own segment, Illinois. Full House also expects to receive 1 sports skin in Illinois upon the opening of The Temporary. The following table identifies
The Company manages its casinos based on geographic regions within the United States. Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Colorado and Indiana as a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position. See Note 13 for further information. 60 COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines and boosters designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly reported cases has recently been in decline in the U.S., though new variants could result in a reversal of these trends. For example, the Delta and Omicron variants resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders, the Company temporarily closed all of its casino properties. As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities. The reopening dates were:
During the shutdown period, the Company evaluated labor, marketing and other costs at its businesses so that, upon reopening, its properties could reopen with significantly lower operating costs. As a result, the Company’s operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite business restrictions throughout its properties and additional pandemic-related costs. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19, including Delta, Omicron and other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities to contain or minimize the impact of COVID-19 and any variants (including the potential mandated vaccination or repeated testing of our employees); increased operating costs and constraints to implement sanitation and social distancing requirements; increased costs for materials due to supply chain constraints; and general economic conditions, among others. The disruptions arising from COVID-19 continued to impact the Company during the year ended December 31, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of the Company’s properties are currently open and operating restrictions further eased during the fourth quarter of 2021, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter the Company’s current operations. As of December 31, 2021, the Company had total cash and cash equivalents of $265.3 million, which includes $176.6 million of restricted cash reserved to fund Chamonix, and an undrawn revolver. As detailed in Note 6 below, the Company issued $100.0 million of additional senior secured notes and increased the size of its revolving credit facility from $15.0 million to $40.0 million, which remained undrawn as of this report date. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Accounting. The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. AllExcept when otherwise required by accounting principles generally accepted in the United States of America (“GAAP”) and disclosed herein, Use of Estimates. The consolidated financial statements have been prepared in conformity with GAAP. These principles require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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.61 Fair Value and the Fair Value Input Hierarchy.Fair value measurements affect GAAP categorizes the inputs used for fair value into a three-level hierarchy:
The Company utilizes Level its Notes (see Note 6). The Company utilizes Level 2 inputs when measuring the fair value of its The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Notes 6 and Cash Restricted cash balances consist Chamonix property. Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate
Inventories. Inventories consist primarily of food, beverage and retail items, and are stated at the lower of cost or net realizable value. Costs are determined using the first-in, first-out and the weighted average methods. 62 Property and Equipment. Property and equipment are stated at cost and are capitalized and depreciated, while normal repairs and maintenance are expensed in the period incurred. A significant amount of the Company’s property and equipment was acquired through business combinations, and therefore, Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property, plant and equipment should be assessed, including, among others, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. For assets to be held and used, the Company reviews for impairment whenever indicators of impairment exist. When such events or changes in circumstances are present, loss based on the fair value of the asset, typically measured using a discounted cash flow model. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is appropriate under the circumstances.
Capitalized Interest.Interest costs associated with major construction projects are capitalized and included in the cost of the projects. When no debt is incurred specifically for construction projects, interest is capitalized on amounts expended using the weighted average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or construction activity is suspended for more than a brief period. Leases.The Company determines if a contract is, or contains, a lease at inception or modification of the agreement. A contract is, or contains, a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period of time in exchange for consideration. Control over the use of the identified asset means that the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset. For material leases with terms greater than a year, the Company records right-of-use (“ROU”) assets and lease liabilities on the balance sheet, as measured on a discounted basis. For finance leases, the Company recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the Company recognizes straight-line rent expense. The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a single lease component by asset class for gaming-related equipment; as a result, the Company will not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices. 63 Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate as estimated by third-party valuation specialists in determining the present value of future payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term for operating leases. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement. Goodwill and Indefinite-lived Intangible Assets. Goodwill represents the excess of the purchase price of Bronco Billy’s Casino and Hotel, Silver Slipper Casino and Hotel, Rising Star Casino Resort and Stockman’s Casino over the estimated fair value of their net tangible and other intangible assets on the acquisition date, net of subsequent impairment charges. The evaluation of goodwill and other indefinite-lived intangible assets requires the use of estimates about future operating results, valuation multiples and discount rates to determine the estimated fair value. Changes in the assumptions can materially affect these estimates. Thus, to the extent that gaming volumes deteriorate in the near future, discount rates increase significantly, or reporting units do not meet projected performance, the Company could have impairments to record in the future and such impairments could be material. These tests for impairment are performed annually during the fourth quarter or when a triggering event occurs. Finite-lived Intangible Assets. to the remaining period of amortization and the possible need for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, then Debt Issuance Costs and Debt Discounts. Debt issuance costs and debt discounts incurred in connection with the issuance of debt have been included as a component of the carrying amount of debt, and are amortized over the contractual term of the debt to interest expense, using the straight line method, which approximates the effective interest method. WhenRevenue Recognition: Accrued Club Points and Customer Loyalty Programs: Operating Revenues and Related Costs and Expenses. Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company sometimes 64 Many of the Company’s customers choose to earn points under Deferred Revenues: Market Access Fees from Sports Wagering Agreements. The Company entered into several agreements with various unaffiliated companies allowing for online sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star Casino Resort and at Bronco Billy’s Casino and Hotel (the “Sports Agreements”). As part of these long-term Sports Agreements, the Company received one-time market access fees totaling $6 million, which were recorded as long-term liabilities and are being recognized as revenue ratably over the initial term length of 10 years, beginning with the commencement of operations. Indiana. NaN of the Company’s Sports Agreements commenced operations in December 2019 and April 2021, respectively. The third party for the remaining Sports Agreement went live contractually in December 2021, with the last skin subsequently receiving gaming approval on February 28, 2022. Colorado. The Company’s 3 Sports Agreements commenced online operations in June 2020, December 2020 and April 2021, respectively. Deferred revenues also include a total of $2.0 million related to the annual prepayment of contracted revenue, as required in 2 of the Sports Agreements. We received $1.0 million of prepaid revenue for contracted sports operations that commenced in Colorado in December 2020, and $1.0 million for contracted sports operations that commenced in Indiana in April 2021. As of December 31, 2021, $0.8 million of such deferred revenue has been recognized. Deferred revenues consisted of the following as discussed above:
In February 2022, 1 of our 3 skin operators informed us of its intent to cease operations on May 15, 2022, which will create 1 available skin in each of Colorado and Indiana. We are currently negotiating with other companies to be the replacement operator for such skins, though there can be no guarantee that we will enter into any replacement contract on similar terms or at all. Other Revenues. The transaction price of rooms, food and beverage, Revenue by Source. The Company presents earned revenue as disaggregated by the type or 65
Advertising Costs. Costs for advertising are expensed as incurred, or the first time the advertising takes place, and are included in selling, general and administrative expenses. Total advertising costs wereProject Development and Acquisition Stock-based Compensation. Income Taxes. We classify deferred taxin which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided against deferred tax assets (“DTAs”) when it is deemed Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of this update did not have a material impact on the Company’s consolidated financial statements. 66 Earnings (loss) per share. Earnings (loss) per share is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, including stock options and warrants, using the treasury stock method.
Recently Issued Accounting Pronouncements Not Yet Adopted. Property and equipment, net consisted of the following:
Property and equipment included assets under
67
Goodwill: The following tables set forth changes in the carrying value of goodwill by segment:
Other Intangible Assets: The following tables set forth changes in the carrying value of intangible assets other than goodwill:
There were 68 Land Lease Acquisition Costs and Water Rights. Silver Slipper recognized intangible assets related to its lease agreement with Cure Land Company, LLC (see NoteCasino Lease Option. Casino lease option represents total amounts paid in order to extend the lease option for the Imperial Casino,Gaming Licenses. Gaming licenses primarily represent the value of the license to conduct gaming in certain jurisdictions, which are subject to highly extensive regulatory oversight and, in some cases, a limitation on the number of licenses available for issuance. The values of gaming licenses were primarily estimated using a multi-period excess earning method of the income approach, which examines the economic returns contributed by the identified tangible and intangible assets of a company, and then isolates the excess return, which is attributable to the asset being valued, based on cash flows attributable to the gaming license.Trade Names. Trade names represents the value of the Bronco Billy’s casino name, which has existed for approximatelyCurrent and Future Amortization. Intangible asset amortization expense was approximatelyFuture amortization expense for intangible assets is as follows:
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Other accrued
AND SUBSEQUENT EVENTS Long-Term Debt Senior Secured Notes due 2028. On February 12, 2021, the Company refinanced all of its outstanding Senior Secured Notes due 2024 (the “Prior Notes”) with the issuance of $310 million aggregate principal amount of 8.25% Senior Secured Notes due 2028 (the “2028 Notes”). The net proceeds from the sale of the 2028 Notes were used to redeem all of the outstanding Prior Notes (including a 0.90% prepayment premium) and to repurchase all outstanding warrants. Additionally, $180 million of bond proceeds were placed into a construction reserve account to fund construction of Chamonix. Net of transaction fees and expenses, approximately $8 million was added to unrestricted cash and equivalents following such refinancing. On February 7, 2022, the Company closed a private offering of $100 million aggregate principal amount of additional 8.25% Senior Secured Notes due 2028 (the “Additional Notes”), which sold at a price of 102.0% of such principal amount. Proceeds from the sale of the Additional Notes are being used: (i) to develop, equip and open The Temporary, which the Company intends to operate while it designs and constructs its permanent American Place facility, (ii) to pay the transaction fees and expenses of the offer and sale of the Additional Notes and (iii) for general corporate purposes. The Additional Notes were issued pursuant to the indenture, dated as of February 12, 2021 (the “Indenture”), to which the Company issued the $310 million of 2028 Notes noted above (collectively, the “Notes”). In connection with the issuance of the Additional Notes, the Company and the subsidiary guarantors party to the Indenture entered into two Supplemental Indentures with Wilmington Trust, National Association, as trustee, dated February 1, 2022 and February 7, 2022, respectively. On March 3, 2022, the Company entered into a third Supplemental Indenture to establish a special record date for the initial interest payment for the Additional Notes. The Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the Notes is payable on February 15 and August 15 of each year, with the next interest payment due on August 15, 2022. The Notes are guaranteed, jointly and severally (such guarantees, the “Guarantees”), by each of the Company’s restricted subsidiaries (collectively, the “Guarantors”). The Notes and the Guarantees will be the Company’s and the Guarantor’s general senior secured obligations, subject to the terms of the Collateral Trust Agreement (as defined in the Indenture), ranking senior in right of payment to all of the Company’s and the Guarantor’s existing and future debt that is expressly subordinated in right of payment to the Notes and the Guarantees, if any. The Notes and the Guarantees will rank equally in right of payment with all of the Company’s and the Guarantors’ existing and future senior debt. 70 The Notes contain representations and warranties, financial covenants, and restrictions on dividends customary for notes of this type. Mandatory prepayments, in whole or in part, of the Notes will be required upon the occurrence of certain events, including sales of certain assets, upon certain changes of control, or should the Company have certain unused funds in the construction disbursement account following the completion of Chamonix. On or prior to February 15, 2024, the Company may redeem up to 35% of the original principal amount of the Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, the Company may redeem some or all of the Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium. The Company may redeem some or all of the Notes at any time on or after February 15, 2024, for cash at the following redemption prices.
Prior Senior Secured Notes due 2024. On February 2, 2018, the Company sold $100 million of The Revolving Credit Facility due 2026. On February 7, 2022, the Company entered into a First Amendment to Credit Agreement with Capital One, N.A. (“Capital One”), which, among other things, increased the borrowing capacity under the Company’s Credit Agreement, dated as of March 31, 2021, from $15.0 million to $40.0 million (the “Credit Facility”). The amended $40.0 million senior secured revolving credit facility matures on March 31, 2026 and includes a letter of credit sub-facility. The Credit Facility may be used for working capital and other ongoing general purposes. Prior to the First Amendment to Credit Agreement, the interest rate per annum applicable to loans under the Credit Facility was, at the Company’s option, either (i) LIBOR plus a margin equal to 3.50%, or (ii) a base rate plus a margin equal to 2.50%. Upon completion of Chamonix (as defined in the agreement), the interest rate per annum applicable to loans under the Credit Facility would have been reduced to, at the Company’s option, either (i) LIBOR plus a margin equal to 3.00%, or (ii) a base rate plus a margin equal to 2.00%. The commitment fee per annum payable was equal to 0.50% of the unused portion of the Credit Facility. The Company also agreed to pay customary letter of credit fees, if any such letters of credit were issued. The Credit Facility was available, subject to the satisfaction of customary conditions, until March 31, 2026, at which time all amounts borrowed must be repaid. As of December 31, 2021, there were 0 drawn amounts under the Credit Facility or any outstanding letters of credit. Under the First Amendment to Credit Agreement, the interest rate per annum applicable to loans under the Credit Facility was amended to be, at the Company’s option, either (i) the Secured Overnight Financing Rate (“SOFR”) plus a margin equal to 3.50% and a Term SOFR adjustment of 0.15%, or (ii) a base rate plus a margin equal to 2.50%. Upon completion of Chamonix (as defined in the agreement), the interest rate per annum applicable to loans under the Credit Facility will be reduced to, at the Company’s option, either (i) SOFR plus a margin equal to 3.00% and a Term SOFR adjustment of 0.15%, or (ii) a base rate plus a margin equal to 2.00%. Terms regarding the annual commitment fee, customary letter of credit fees, and repayment date of March 31, 2026, remain unchanged from the original Credit Agreement, dated as of March 31, 2021. As of this report date, there were 0 drawn amounts under the Credit Facility or any outstanding letters of credit. 71 The Credit Facility is equally and ratably secured by the same assets and guarantees securing the Notes. The Company may make prepayments of any amounts outstanding under the Credit Facility (without any reduction of the revolving commitments) in whole or in part at any time without penalty. The Credit Facility contains a number of negative covenants that, subject to certain exceptions, are substantially similar to the covenants contained in the Notes. The Credit Facility also requires compliance with a financial covenant as of the last day of each fiscal quarter, such that Adjusted EBITDA (as defined) for the trailing twelve-month period must equal or exceed the utilized portion of the Credit Facility, if drawn. The Company was in compliance with this financial covenant as of December 31, 2021. Unsecured Loans Under the CARES Act. On May 8, 2020, two wholly-owned subsidiaries of the Company executed promissory notes (the “Promissory Notes”) evidencing unsecured loans in the aggregate amount of $5,606,200 through programs established under the CARES Act (the “Loans”) and administered by the U.S. Small Business Administration (the “SBA”). Such funds were principally used to rehire several hundred employees at Rising Star and Bronco Billy’s in advance of, and subsequent to, their reopenings in mid-June. The Loans were made through Zions Bancorporation, N.A. dba Nevada State Bank (the “Lender”), bore interest at a rate of 1.00% per annum, and originally had a two-year term until federal legislation extended the maturity date to May 3, 2025. After a 15-month deferment period for principal and interest payments, the Company was required to make monthly loan payments totaling $128,557 beginning in September 2021 to the Lender. However, the Loans could be prepaid at any time prior to maturity with no prepayment penalties. In December 2021, the SBA granted full forgiveness for each of the 2 Promissory Notes, in accordance with their terms and the rules set forth in the CARES Act. As the Company made no payments of principal or interest for the Loans prior to such forgiveness, this resulted in a gain of approximately $5.7 million, which was netted against the debt extinguishment costs related to the refinancing of the Prior Notes of approximately $6.1 million in February 2021. The net loss from extinguishment of debt is presented on the consolidated statement of operations during 2021 for $0.4 million. Long-term debt, related discounts and issuance costs consisted of the following:
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Interest expense, net. Interest expense, net, was as follows for the 2021:
Common Stock Warrant Liability On February 12, 2021, the Company used a portion of the proceeds from the 2028 Notes offering to redeem all of its outstanding warrants. As part of the Company’s former Second Lien Credit Facility, which was retired in 2018, the Company granted the second lien lenders 1,006,568 The
7. LEASES The Company has no material leases in which it is signage. The Company’s remaining lease terms, including extensions, range from one month to approximately 36 years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants, but the land lease at Silver Slipper does include contingent rent as further discussed below. Operating Leases Silver Slipper Casino Land Lease through April 2058 and Options to Purchase. In 2004,73 The Bronco Billy’s / Chamonix Lease through January 2035 and Option to Purchase. Bronco Billy’s leases certain parking lots and buildings, including a portion of the hotel and casino, under a long-term lease. The lease term includesrefusal on any sale of the property. Third Street Corner Building through August 2023 and Option to Purchase. The Company leased a nearby closed casino in August 2018 and reopened it in November 2018. The reopened casino did not produce enough incremental revenue to offset the incremental costs, and it was closed in September 2020. The Company currently has the right to purchase the casino at any time during the extended lease term for $2.8 million. As part of the Chamonix development project, this building is currently used as office space for construction personnel, obviating the need for construction trailers. The lease includes a minimum three-year term with annual lease payments of $0.2 million, and was subsequently extended in June 2021 for an additional two years with current annual lease payments of $0.3 million. Grand Lodge Casino Lease through August 2023. In July 2020, the Company executed a fifth amendment to 2019. Corporate Office Finance Lease Rising Star Casino Hotel Lease through October 2027 and Option to Purchase. The Company’s Indiana subsidiary, Gaming Entertainment (Indiana) LLC, leases 74 Leases recorded on the balance sheet consist of the following:
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The components of lease expense are as follows:
75 Maturities of lease liabilities are summarized as follows:
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Other information related to lease term and discount rate is as follows:
Supplemental cash flow information related to leases is as follows:
76 8. ACQUISITIONS Cripple Creek Land and Real Estate Purchase. As part of the development of Chamonix, the Company purchased Carr Manor, a boutique hotel with 14 guest rooms. This transaction closed on March 31, 2021 as an asset purchase for total consideration of $2.8 million. The purchase included 5 parcels of land, which adds to the Company’s land ownership in Cripple Creek by approximately 1.6 acres and provides additional guest parking. The addition of Carr Manor allows Bronco Billy’s to provide overnight accommodations to its guests during the construction of Chamonix, as all of Bronco Billy’s existing hotel rooms are either currently closed, being utilized by construction personnel, or will be repurposed as part of the construction of Chamonix. Additionally, on April 16, 2021, the Company purchased a lot and building near its operations in Cripple Creek, Colorado for $600,000. 9. INCOME TAXES The income tax expense (benefit) attributable to the Company’s income (loss) before income taxes consisted of the following:
A reconciliation of the federal income tax statutory rate and the Company’s effective tax rate is as follows:
77 The Company’s deferred tax assets (liabilities) consisted of the following:
As of December 31, 2021, the Company had federal net operating loss carryforwards totaling $14.1 million and state tax carryforwards of $86.3 million. The entire federal net operating loss carryforward can be carried forward indefinitely. Regarding the state tax carryforwards, $85.4 million can be carried forward 20 years and will begin to expire in 2035; the remaining amount can be carried forward indefinitely. The Company also has general business credits of $0.8 million which begin to expire in 2035. 78 In assessing the realizability of its DTAs, the Company considered whether it is “more likely than not” that some portion or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considered the scheduled reversal of existing deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. The Company evaluated both positive and negative evidence in determining the need for a valuation allowance. The Company continues to assess the realizability of DTAs and concluded that it has not met the “more likely than not” threshold. As of December 31, 2021, the Company continues to provide a valuation allowance against its DTAs that cannot be offset by existing deferred tax liabilities. In accordance with Accounting Standards Codification 740 (“ASC 740”), this assessment has taken into consideration the jurisdictions in which these DTAs reside. The valuation allowance against DTAs has no effect on the actual taxes paid or owed by the Company. We have recorded a valuation allowance against all of our U.S. federal and certain state DTAs as of both December 31, 2021 and December 31, As of December 31, 2021 and 2020, the Company had $1.1 million and respectively, of deferred tax liabilities relating to goodwill and other indefinite-lived intangibles net of the maximum benefit allowed under the statute after netting with the indefinite-lived DTAs. The
defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percentage points over a three-year period. The Company has completed a preliminary Section 382 analysis as of the date of this report and determined it is “more likely than not” that there have not been any of such greater-than-50% ownership changes within a three-year period during the last five years that would prohibit the Company from utilizing all of its tax attributes. Management has made an annual analysis of its state and federal tax returns and concluded that the Company has 0 recordable liability, as of December 31, 2021 or 2020, for unrecognized tax benefits as a result of uncertain tax positions taken. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is generally not subject to examination for periods prior to December 31, 2018. However, as the Company utilizes its net operating losses, prior periods can be subject to examination. 10. COMMITMENTS AND CONTINGENCIES Litigation The Company is party to a number of pending legal proceedings related to matters that occurred in the normal course of business. Management does not expect that the outcome of any such proceedings, either individually or in the aggregate, will have a material effect on our financial position, results of operations and cash flows. 79 Options to Purchase or Lease Land Fountain Square of Waukegan Land Purchase Under Contract. In connection with the development of its American Place project in Waukegan, Illinois, the Company entered into Option Agreement for Public Trust Tidelands Lease in Mississippi. The Upon commencement of the environmental approvals. There can be no certainty that the tidelands lease option will be exercised or that the contemplated Silver Slipper expansion will be built. Defined Contribution The Company sponsors a defined contribution Matching contributions made by the Company were $47,000 for 2021, $66,000 for 2020, and $336,000 for 2019, excluding nominal administrative expenses. Liquidity, Concentrations and Economic Risks and Uncertainties The Company carries cash on deposit with financial institutions that may be in excess of federally-insured limits. The extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institution, if any, is not subject to estimation at this time. 11. 2015 Equity Incentive Plan. On May 80 Restricted Stock Awards and Performance-Based Shares. Also on or will vest on the anniversary date of the awards, as both of the Company’s growth-rate targets for such period were achieved. Vesting of the remaining performance-based shares requires satisfaction of similar conditions for the 2022 and 2023 periods. As of December 31, Stock Options. The following table summarizes information related to
Compensation Cost. Compensation expense is as follows for the three years ended December 31,
These costs are recognized on a straight-line basis over the vesting period of the awards net of forfeitures and are included in selling, general and administrative expense on the consolidated statements of operations. As of December 31, 81 The Company estimates the fair value of each stock option award on the grant date using the Black-Scholes valuation model. Option valuation models require the input of highly subjective assumptions, and changes in assumptions used can materially affect the fair value estimate. Option valuation weighted-average assumptions were as follows:
Expected volatility is based on the historical volatility of our stock price. Dividend yield is based on the estimate of annual dividends expected to be paid at the time of the grant. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Therefore, the weighted-average grant date fair value of options granted is as follows for the three years ended December 31, 2021:
82 Methods and assumptions used to estimate the fair value of financial instruments are affected by the duration of the instruments and other factors used by market participants to estimate value. The carrying amounts for cash and equivalents, restricted cash, accounts receivable, and accounts payable approximate their estimated fair value because of the short durations of the instruments and inconsequential rates of interest. Management also believes that the carrying value of variable long-term debt also approximates their estimated fair value because the terms of the facilities are representative of current market conditions. While management believes the Similarly, contract liabilities represent the sum of certain annual prepayments of contracted revenue and all six of one-time market access fees from the Company’s Sports Agreements. On March 31, 2021, the Interest Rate Cap the Company purchased to help manage potential interest rate increases on the Prior Notes expired. The
13. SEGMENT REPORTING The Company manages its reporting segments based on geographic regions within the United online sports wagering skins. Additionally, this new segment breakout aims to enhance transparency of operations and allows for a more appropriate valuation of the Company’s various business components. The Company utilizes Adjusted 83 offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, non-cash share-based compensation expense, and corporate-related costs and expenses that are not allocated to each segment. As a result of the change in reportable segments described above, the Company has recast previously-reported segment information to conform to the current presentation in the following tables for enhanced comparability, which had no effect on previously reported results of operations or financial position. The following tables present the Company’s segment information: 84
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87 SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS FULL HOUSE RESORTS, INC. AND SUBSIDIARIES For the Years Ended December 31, 2021, 2020 and 2019
Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure. None. Evaluation of Disclosure Controls and Procedures —As of December 31,level. We have established controls and procedures designed at the reasonable assurance level to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and is accumulated and communicated to management, including the principal executive officer and the principal financial officer, to allow timely decisions regarding required disclosure. 88 Management’s Annual Report on Internal Control Over Financial Reporting —Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and our directors; and (iii) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) as of December 31, The Company’s independent registered public accounting firm’s report on the effectiveness of our internal control over financial reporting appears herein. Changes in Internal Control Over Financial Reporting — There have been no changes during the quarter ended December 31, Item 9B. Other Information. On March 14, 2022, the Company’s compensation committee approved cash bonuses to its named executive officers related to the Company’s financial performance in 2021, successfully winning the competitive process for the available gaming license in Waukegan, Illinois, and the successful financing of The Temporary through the issuance of the Additional Notes. Mr. Lee received a cash bonus of $962,500 for the Company’s financial performance in 2021. Mr. Fanger received cash bonuses of $406,250 for the Company’s financial performance in 2021 and $100,000 for the successful financing of The Temporary. Ms. Guidroz received cash bonuses of $250,000 for the Company’s financial performance in 2021 and $75,000 pursuant to the previously-disclosed financing milestone set forth in her employment agreement. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 89 The information required by this Item will be set forth under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” and elsewhere in the definitive Proxy Statement for our The information required by this Item will be set forth under the caption “Executive Compensation” and elsewhere in our Proxy Statement and is incorporated herein by this reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this Item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation The information required by this Item will be set forth under the caption “Certain Relationships and Related Transactions” and “Independence of Directors” and elsewhere in our Proxy Statement and is incorporated herein by this reference. The information required by this Item will be set forth under the caption “Ratification of Independent Registered Public Accounting Firm” and elsewhere in our Proxy Statement and is incorporated herein by this reference. Item 15. Exhibits, Financial Statement Schedules.
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* Filed herewith. ** Furnished herewith. + Executive compensation plan or arrangement. We have elected not to disclose the optional summary information. 93 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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