Business Context and Reporting Period
Company: Full House Resorts, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: The Company develops, manages, and invests in gaming-related opportunities. Key operations include a 50% interest in the Harrington Raceway and Casino (Delaware), a consolidated 50% joint venture (GEM) managing the FireKeepers Casino (Michigan), and full ownership of Stockman's Casino (Nevada). The Company also pursues development projects with Indian tribes, though the Montana project was impaired in 2009.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $19,012,683 | $9,671,941 |
| Net Income (Attributable to Company) | $4,768,239 | $1,618,290 |
| Operating Income | $8,585,932 | $3,615,060 |
| Cash and Equivalents (Year End) | $9,198,399 | $5,304,755 |
| Net Cash Provided by Operating Activities | $11,654,906 | $2,276,885 |
| Long-Term Debt (Excluding Current Portion) | $0 | $6,204,239 |
| Current Portion of Long-Term Debt | $1,450,087 | $225,224 |
| Available Credit Line | $8,500,000 | $5,300,000 (approx.) |
Note: The Company fully repaid its revolving credit facility with Nevada State Bank in November 2009. Long-term debt due to joint venture affiliate (RAM) was reclassified as current.
Material Changes vs. Prior Period
- Revenue Surge: Total revenues increased 96.6% to $19.0 million, driven primarily by $10.0 million in management fees from the FireKeepers Casino, which opened in August 2009.
- Profitability: Net income attributable to the Company nearly tripled to $4.8 million, up from $1.6 million in 2008.
- Debt Reduction: The Company paid off its $16.0 million reducing revolving loan facility in full by November 2009. Additionally, the Peters Family Trust promissory note was paid off in June 2009.
- Impairment Losses: The Company recorded a $0.7 million impairment loss related to the Northern Cheyenne Tribe project in Montana due to economic conditions and financing uncertainty. Contract rights and notes receivable for this project were written down to zero.
- Asset Sales: The Holiday Inn Express portion of the Stockman's property was sold in February 2008 (proceeds used to reduce debt), and land held for the Manuelito project was sold in October 2009.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary
- FireKeepers Casino: Management expects the property to generate sufficient revenues to pay the 26% management fee. The joint venture agreement runs through August 2016.
- Harrington Casino: The management contract expires in August 2011. The agreement guarantees a minimum 5% annual growth in management fees through expiration, insulating the Company from some competitive pressures.
- Montana Project: Development is stalled due to the economic recession and credit availability. The Company is not obligated to fund construction but is working with the tribe on a revised proposal.
- Nambé Pueblo: The Company expects reimbursement of $0.7 million in advances once the tribe's new facility opens, expected within seven months of funding (anticipated Q1 2010).
Risks and Contingencies
- Arbitration: Harrington Raceway, Inc. filed for arbitration disputing the management fee formula, seeking a $1.5 million refund. A hearing was held in February 2010; management believes it is likely to prevail but no decision was received by the filing date.
- Regulatory Environment: Operations are subject to strict federal, state, and tribal regulations. Changes in gaming laws (e.g., sports betting restrictions in Delaware, new casinos in Maryland) could impact revenues.
- Banking Risk: The Company held significant cash at Nevada State Bank, which received a "D+" rating from The Street.com citing significant weaknesses. The Company moved all cash balances to FDIC-insured accounts in late February 2010.
- Technical Default: The Company is in technical default of a tangible net worth covenant with Nevada State Bank but has applied for a waiver and maintains access to the credit line.
Investor Verification Checklist
- Arbitration Outcome: Verify the final ruling on the $1.5 million dispute with Harrington Raceway, Inc.
- FireKeepers Performance: Monitor actual management fee collections and revenue performance of the FireKeepers Casino against projections, considering competition from the Gun Lake Tribe casino.
- Montana Project Status: Confirm if the Northern Cheyenne project is revived or if the impairment loss is permanent.
- Debt Covenant Waiver: Confirm receipt of the waiver for the tangible net worth covenant default with Nevada State Bank.
- Cash Management: Verify that all cash balances remain in FDIC-insured accounts following the move from Nevada State Bank.