Full House Resorts
Annual Report 2009

Plain-text annual report

Table of ContentsU.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K þ Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended: December 31, 2009 o Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934Commission file number 1-32583 FULL HOUSE RESORTS, INC.(Exact Name of Registrant as specified in Its Charter) Delaware 13-3391527(State or Other Jurisdiction (I.R.S. Employerof Incorporation or Organization) Identification No.)4670 S. Fort Apache Rd., Suite 190, Las Vegas, Nevada 89147(Address and zip code of principal executive offices)(702) 221-7800(Registrant’s Telephone Number, Including Area Code)Securities registered under Section 12(b) of the Exchange Act: Common Stock, $.0001 per Share(Title of Each Class) NYSE Amex (formerly American Stock Exchange)(Name of Each Exchange on Which Registered)Securities registered under Section 12(g) of the Exchange Act:None(Title of class) Indicate by check mark if the registrant is a well-known seasoned issue, as defined in Rule 405 of the Securities Act.Yes o No þCheck if the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. oCheck whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during thepast 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes þ No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post suchfiles). Yes o No oCheck if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K (229.405 of this chapter) isnot contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, orsmaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” inRule 12b-2 of the Exchange Act. (Check one):Large Accelerated Filer o Accelerated Filer o Non Accelerated Filer oDo not check if smallerreporting company Smaller reporting company þIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No þThe aggregate market value of registrant’s voting $.0001 par value common stock held by non-affiliates of the registrant,as of June 30, 2009, was: $30,016,574. As of March 23, 2010, there were 18,001,681 shares of Common Stock, $.0001 parvalue per share, outstanding.Documents Incorporated By ReferenceThe information required by Part III of this Form 10-K, to the extent not set forth herein, is incorporated by reference fromthe Registrant’s definitive proxy statement relating the annual meeting of stockholders to be held in 2010, which definitiveproxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year towhich this Form 10-K relates.  TABLE OF CONTENTS PART I Item 1. Business 3 Item 1A. Risk Factors 15 Item 1B. Unresolved Staff Comments 15 Item 2. Properties 16 Item 3. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities 17 Item 6. Selected Financial Data 17 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 28 Item 8. Financial Statements and Supplementary Data 28 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49 Item 9A (T). Controls and Procedures 49 Item 9B. Other Information 49 PART III Item 10. Directors, Executive Officers and Corporate Governance 49 Item 11. Executive Compensation 49 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 50 Item 13. Certain Relationships and Related Transactions, and Director Independence 50 Item 14. Principal Accountants’ Fees and Services 50 Item 15. Exhibits 51 Exhibit 21 Exhibit 23 Exhibit 31.1 Exhibit 31.2 Exhibit 32.1 2Table of ContentsPART IItem 1. Business.BACKGROUNDFull House Resorts, Inc., a Delaware corporation formed in 1987, (Full House, we, our, ours, us) develops, manages andinvests in gaming related opportunities. Beginning in 1994, we became involved in several gaming projects, including theFireKeepers Casino near Battle Creek, Michigan with the Nottawaseppi Huron Band of Potawatomi (the “Michigan Tribe”) andHarrington Raceway and Casino (“Harrington Casino”), a “racino” in Harrington, Delaware, both of which are discussed indetail below. The Company also owns Stockman’s Casino in Fallon, Nevada and has an agreement with the Northern CheyenneTribe of Montana for the development and management of a gaming facility in Montana.Projects Currently OperatingHarrington Raceway and Casino, DelawareWe are a 50%-investor in Gaming Entertainment (Delaware), LLC (“GED”), a joint venture with Harrington Raceway, Inc.(“HRI”), which has a management contract with Harrington Casino. Harrington Casino, a division of HRI, which operates videolottery terminals under the supervision of the Delaware State Lottery Office, commenced operations on August 20, 1996. GEDprovided over $11.0 million in financing and managed the development of the project, and has a contract to providemanagement services to HRI for a fee which expires in August 2011. The fee is based primarily on a percentage of revenues andoperating profits of Harrington Casino as defined, which was previously subject to an annual limitation. The gaming facilitywas originally 35,000 square feet and opened with 500 gaming devices, a simulcast parlor and a small buffet, but was expandedand renovated during 2007. The expansion and renovation was completed in early February 2008, and the facility now offersapproximately 2,100 gaming devices, a 450-seat buffet, a fine dining restaurant, a 50-seat diner, and an entertainment loungearea.On June 18, 2007, we restructured our joint venture agreement with HRI to allow HRI greater flexibility in GED’smanagement of Harrington Casino, while providing us with guaranteed growth in our GED adjusted management feeentitlement for the remaining term of the management agreement. Under the terms of the restructured management agreement,we receive the greater of 50% of GED’s distributable net income as prescribed under the management agreement or a 5%increase in our share of GED’s management fees paid in the prior year, except for 2008 when the increase was 8%. The annualgrowth rate in 2009 through the expiration of the GED management contract in August 2011 is 5% per year.The Harrington Casino is located in Harrington, Delaware on Route 13, approximately 20 miles south of Dover, Delawarebetween Philadelphia and Baltimore/Washington, D.C. and is one of three gaming facilities operating in Delaware. The closestcompeting casino is in Dover and operates over 3,000 devices. In February 2006, the law was changed to allow up to 4,000gaming devices at each of the three authorized locations in Delaware. The third facility is approximately 60 miles north of theHarrington Casino. In 2009, the Delaware law was again changed to allow betting on sporting events, commonly known assports books at the three authorized casinos. After a lawsuit filed by the NFL and related parties, the federal court ruled thatDelaware sports books were authorized only to accept bets on multiple contests, commonly called district parley bets, and notbets on individual contests. The district court ruling has been appealed to the Federal Court of Appeals. The impact on revenuesfrom Harrington Casino from sports betting has been minimized due to this restrictive limitation on what bets can be placed andaccepted. In January 2010, the Delaware state legislature passed a law allowing live table games at the three Delaware casinos.The bill was signed into law and table game operations are expected to commence in 2010.In 2004, the Pennsylvania legislature passed a law authorizing gambling. Included in the authorized types of games areslot machines similar to those operated in Delaware. During 2006 and in January 2007, the Pennsylvania Gaming Control Boardissued licenses for operators and gaming equipment suppliers. Several of the “racino” licensed facilities and casinos havesubsequently opened. The Harrington Casino is located the furthest south of the three authorized gaming locations in Delawareand does not attract a substantial patronage from Pennsylvania. Pennsylvania has also legalized table games in 2009 which thelicensed facilities have begun to implement. 3Table of ContentsDuring 2008, the Maryland legislature approved casino-type gaming in certain designated counties of the state. In theNovember 2008 elections, Maryland voters passed a referendum approving the bill. The new law allows for a total of 15,000slot machines in five locations, including 4,750 slots in Anne Arundel County (within two miles of Route 295); 3,750 slots inBaltimore City, (on city-owned land within one-half mile of I-95 and Route 295 that is in a nonresidential area and not adjacentto or within one-quarter mile of residential property); 2,500 slots in Worcester County (within one mile of the intersection ofRoute 50 and Route 589); 2,500 slots in Cecil County (within two miles of I-95) and 1,500 slots in Allegany County (on state-owned land associated with the Rocky Gap State Park that is not in the same physical building as the Rocky Gap Lodge andGolf Resort). Recently, bids were submitted to the state for authorization by private contractors to conduct gaming in Maryland.While we expect there to be an adverse impact on the revenues of Harrington Casino from this added competition when it isfully implemented, as well as from the current economic climate, we expect to be insulated from the effect of such competitiveand economic factors by the guaranteed minimum payment paid to us under the restructured management agreement with HRI,which guarantees us a 5% increase in the management fees we receive each year through the end of the agreement. Table gamesare not part of the authorization at Maryland gaming establishments, although the Maryland legislature is considering a bill toallow table game operations. This may give Delaware casinos an edge over Maryland gaming but the impact on revenues isunknown and is not expected to have a positive impact on our management fees.Stockman’s CasinoWe acquired Stockman’s Casino and Holiday Inn Express in Fallon, Nevada (“Stockman’s”) on January 31, 2007. Theacquisition was funded by a reducing revolving loan agreement from Nevada State Bank of $16.0 million, approximately$1.2 million of seller financing in the form of a promissory note and approximately $10.2 million in cash which was raised aspart of an equity offering in December 2006. Stockman’s Casino has approximately 8,400 square feet of gaming space withapproximately 265 slot machines, four table games and keno. There is a bar, a fine dining restaurant and a coffee shop. Initially,our facility included a Holiday Inn Express, which had 98 guest rooms, indoor and outdoor pools, sauna, fitness center and ameeting room.On October 1, 2007, we entered into an agreement to sell the Holiday Inn Express. Under the terms of the agreement, thebuyer agreed to purchase the real property, building, improvements and personal property comprising the hotel operations for$7.2 million. On February 20, 2008, the sale was consummated and we received net cash proceeds of approximately$7.0 million, which we used to reduce debt.Stockman’s is located on the west side of Fallon on Highway 50, approximately 60 miles east of Reno, Nevada and is thelargest of several casinos in the Churchill County area. Churchill County’s population is roughly 25,000 with a nearby naval airbase which has a significant economic impact on our business. Of the nine casinos currently operating in the Fallon, Nevadamarket, our major competitors are three other casinos that are smaller than Stockman’s in size and the number of gamingmachines. At December 31, 2009, Stockman’s share of the slot units in the Churchill County market was approximately 23.6%and our share of slot revenues for the 2009 year was approximately 36.9%. While we are not aware of any planned expansion togaming capacity in the Churchill County area, additional competition in the area may adversely affect the financial conditionor results of operations of Stockman’s Casino.FireKeepersWe own 50% of Gaming Entertainment Michigan, LLC (“GEM”), a joint venture with RAM Entertainment, LLC (“RAM”),where we are the primary beneficiary and, therefore, consolidate in our consolidated financial statements. GEM has amanagement agreement with the Michigan Tribe, for the development and management of the FireKeepers Casino near BattleCreek, Michigan. The land for the development was taken into trust in December 2006. The Michigan Tribe’s compact with theState of Michigan was recently amended to permit gaming until 2030 and other matters. The management agreement wasapproved by the National Indian Gaming Commission (“NIGC”) on December 14, 2007, and an amended version was approvedby the NIGC on April 21, 2008.The Michigan Tribe achieved final federal recognition as a tribe in April 1996 and obtained a gaming compact fromMichigan’s governor in December 1998 to operate an unlimited number of electronic gaming devices as well as roulette, keno,dice and banking card games. The Michigan legislature ratified the compact by resolution in December 1998. The compactbecame effective in 1999 upon its approval by the Secretary of the Interior and remains in effect for 20 years thereafter, but therecent amendment extended the term until 2030. The land designated for the casino was designated reservation land underfederal law by the Secretary of the Interior in October 2007. 4Table of ContentsEffective May 15, 2007, GEM entered into an agreement with Green Acres Casino Management, Inc. (“Green Acres”) toacquire all of Green Acres’ interests in GEM for $10.0 million. Prior to the execution of the agreement, Green Acres had a rightto receive royalty payments based on numerous metrics, which would approximate in excess of 15% of the total managementfee to be received by GEM from the management of the FireKeepers Casino. GEM’s members equally funded an initial depositand periodic payments totaling approximately $0.6 million and the remaining obligation became due once financing wasobtained as part of the project funding for the casino. On May 6, 2008, the FireKeepers Development Authority of theNottawaseppi Huron Band of Potawatomi Michigan Tribe (the “Authority”) closed on $340.0 million of Senior Secured Notesand a $35.0 million equipment financing facility to fund the development and construction of the FireKeepers Casino. Inconnection with the project financing, GEM received partial reimbursement of its tribal notes receivable in the amount of$9.3 million, which was used to repay the remaining obligation to Green Acres.Through 2007 total advances to or on behalf of the Michigan Tribe, related to reimbursable development costs, were$14.3 million. Effective December 14, 2007, following the land being taken into trust and final approval of the managementcontract from NIGC, RAM exercised its right to convert the loan into a $2.0 million capital contribution in, and a $0.4 millionloan to, GEM. In addition, interest payable in the amount of $0.6 million, previously due on the original promissory note, wasalso converted into a loan to GEM. Pursuant to the parties’ agreement, the balance of the original note payable ($1.0 million) isan obligation solely of GEM and will mature no sooner than two years after the opening of the casino. In connection with the2008 Michigan project financing, GEM received partial reimbursement of its tribal notes receivable in the amount of$9.3 million, which was used to repay the remaining obligation to Green Acres, leaving a balance of $5.0 million outstandingdue to GEM from the Michigan Tribe. The Michigan tribe paid the remaining $5.0 million with interest to GEM inFebruary 2010.The FireKeepers Casino commenced construction in May 2008 and opened on August 5, 2009. The closest competition tothe FireKeepers Casino is located in Detroit, approximately 100 miles east of the Battle Creek area and the Four Winds Casinoin the New Buffalo, Michigan area which is approximately 100 miles to the Southwest. The Gun Lake Tribe has also begun acasino development in Wayland, Michigan, approximately a one hour drive northwest of our site. Litigation over the trust landfor the casino being developed by the Gun Lake Tribe was recently resolved in favor of the casino project and the Michiganstate legislature in early February 2009 approved a gaming compact with the Gun Lake Tribe. The Gun Lake Tribe commencedconstruction of a casino in September 2009, however, it is unclear at this time when the Gun Lake project will be prepared tocommence gaming operations or how significant the impact may be on casino revenues and our related management fees whenthe project ultimately commences gaming operations.Projects in DevelopmentNorthern Cheyenne Tribe — Decker, MontanaIn light of changes to the Northern Cheyenne tribal leadership and the downward turn the general economy has taken,together with the Northern Cheyenne Tribe, we have withdrawn the management agreement from consideration by the NIGCallowing for revisions to the development plan. In April 2007, the tribe extended the existing gaming Compact with the State ofMontana for its Charging Horse Casino, while continuing negotiations on a new Class III Gaming Compact for the site of ourproject. Since the existing Compact does not apply to our site, if the Northern Cheyenne Tribe is not able to successfullynegotiate a Class III Gaming Compact with the State of Montana for our site, we will be unable to develop the proposed casinoand recover the expenses we have already incurred in pursuing this project.The recent economic recession and resulting impact on credit availability has significantly decreased the likelihood thatfinancing could be obtained on favorable terms, if at all, for the Montana project in the foreseeable future. The company intendsto continue working with the Northern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana,however, based on current economic conditions management has determined that both the timing and feasibility of this projecthave become more difficult to determine. As a result, we believe that the project assets are impaired and collectability isdoubtful and the fair value of the notes receivable originally valued at $0.6 million and contract rights originally valued at $0.1million related to the project were written down to zero value as of December 2009, which resulted in a $0.7 million impairmentloss. 5Table of ContentsThe proposed site for this project is on land held in trust for the tribe, which was approved for gaming use by the Secretaryof the Interior on October 28, 2008 and the Governor of Montana on July 30, 2009, pursuant to the Indian Gaming RegulatoryAct. Our management agreements with the Michigan Tribe and the Northern Cheyenne Tribe and any future managementagreements we enter into with all Indian tribes are subject to approval by the NIGC. We previously requested NIGC approval ofthe management agreement, but have suspended the approval process pending agreement with the tribe on the scope and timingof the project.While we are not obligated to fund the construction phase of our Northern Cheyenne project in Montana, our agreementswith the tribe require us to arrange on a best efforts basis up to $15.0 million in tribal financing for the project. InNovember 2008, the tribe held elections for its tribal council, which resulted in an entirely new council being seated. InJanuary 2009, we forwarded to the new council a revised proposal for the casino development taking into account the currentstatus and availability of financing for the development project. As of December 31, 2009, our advances to the NorthernCheyenne Tribe total $0.7 million.Discontinued ProjectsNambé Pueblo Indian Tribe — Santa Fe, New MexicoIn the first quarter of 2008, we received notice that the Nambé tribal council had effectively terminated the businessrelationship with Full House. As a result, the Company recorded an impairment loss of $207,534 related to capitalized contractrights during the fourth quarter of 2007. We are in discussions with the Nambé Pueblo and the developer to determine themethod and timing of the reimbursement of our advances to date of $661,600. The development agreement between theCompany and the Nambé Pueblo provides that the Company is entitled to recoup its advances from future gamingdevelopment, even if the Company does not ultimately develop the project. Management believes that the Nambé Pueblo is inthe process of developing a small casino addition to their existing travel center and will likely have the ability to repay theadvances from future cash flows of the project once open. During February 2010, we were advised that the Pueblo had located awilling financial source to fund the gaming development. Funding is expected during the first quarter of 2010 with theexpected facility opening within seven months of receipt of funding. There can be no assurance that a facility will open or thatwe will receive all or any of our reimbursement.GOVERNMENT REGULATIONThe ownership, management, and operation of gaming facilities are subject to many federal, state, provincial, tribal and/orlocal laws, regulations and ordinances, which are administered by the relevant regulatory agency or agencies in eachjurisdiction. These laws, regulations and ordinances are different in each jurisdiction, but primarily deal with the responsibility,financial stability and character of the owners and managers of gaming operations as well as persons financially interested orinvolved in gaming operations.We may not own, manage or operate a gaming facility unless we obtain proper licenses, permits and approvals.Applications for a license, permit or approval may be denied for reasonable cause. Most regulatory authorities license,investigate, and determine the suitability of any person who has a material relationship with us. Persons having materialrelationships include officers, directors, employees, and security holders.Once obtained, licenses, permits, and approvals must be renewed from time to time and generally are not transferable.Regulatory authorities may at any time revoke, suspend, condition, limit, or restrict a license for reasonable cause. Licenseholders may be fined and in some jurisdictions and under certain circumstances gaming operation revenues can be forfeited. Wemay be unable to obtain any licenses, permits, or approvals, or if obtained, they may not be renewed or may be revoked in thefuture. In addition, a rejection or termination of a license, permit, or approval in one jurisdiction may have a negative effect inother jurisdictions. Some jurisdictions require gaming operators licensed in that state to receive their permission beforeconducting gaming in other jurisdictions. 6Table of ContentsThe political and regulatory environment for gaming is dynamic and rapidly changing. The laws, regulations, andprocedures dealing with gaming are subject to the interpretation of the regulatory authorities and may be amended. Anychanges in such laws, regulations, or their interpretations could have a negative effect on our operations and futuredevelopment of gaming opportunities. Certain specific provisions applicable to us are described below.Delaware Regulatory MattersAs the owner of at least 10% of the management company operating video lottery machines in Delaware, we are subject toapproval under the Delaware Video Lottery Code in order for our Delaware joint venture to maintain its license to manage thevideo lottery location of the Harrington Casino. That law authorized the ownership and operation of video lottery machines, asdefined in the law and commonly known as slot machines, by the State Lottery Office through certain licensed agents,including our Delaware joint venture and starting in 2009, the accepting of bets on sporting contests, commonly known assports books. In January 2010, Delaware law was again changed to authorize live table games at the three licensed video lotteryoutlets which are expected to commence operations during 2010.The lottery director has discretion to adopt such rules and regulations as the lottery director deems necessary or desirablefor the efficient and economical operation and administration of the system, including: • type and number of games permitted; • pricing of games; • numbers and sizes of prizes; • manner of payment; • value of bills, coins or tokens needed to play; • requirements for licensing agents and service providers; • standards for advertising, marketing and promotional materials used by licensed agents; • procedures for accounting and reporting; • registration, kind, type, number and location of video lottery (slot) machines on a licensed agent’s premises; • security arrangements for the video lottery system; and • reporting and auditing of financial information of licensed agents.There are continuing licensure requirements for all officers, directors, key employees and persons who own directly orindirectly 10% or more of a licensed agent, which licensure requirements shall include the satisfaction of such security, fitnessand background standards as the lottery director may deem necessary relating to competence, honesty and integrity, such that aperson’s reputation, habits and associations do not pose a threat to the public interest of the State or to the reputation of oreffective regulation and control of the video lottery; it being specifically understood that any person convicted of any felony, acrime involving gambling, or a crime of moral turpitude within 10 years prior to applying for a license or at any time thereaftershall be deemed unfit.The lottery director may revoke or suspend the license of a licensed agent for “cause.” “Cause” is broadly defined andcould potentially include falsifying any application for license or report required by the rules and regulations, the failure toreport any information required by the rules and regulations, the material violation of any rules and regulations promulgated bythe lottery director or any conduct by the licensee which undermines the public confidence in the video lottery system or servesthe interest of organized gambling or crime and criminals in any manner. A license may be revoked for an unintentionalviolation of any federal, state or local law, rule or regulation provided that the violation is not cured within a reasonable time asdetermined by the lottery director. A hearing officer’s decision revoking or suspending the license shall be appealable to theDelaware Superior Court under the provisions of the Administrative Procedures Act. All existing or new officers, directors, keyemployees and owners of a licensed agent are subject to background investigation. Failure to satisfy the backgroundinvestigation may constitute cause for suspension or revocation of the license. 7Table of ContentsThe license of our Delaware joint venture may also be revoked or suspended in the event that we do not maintain ourapproval to own at least 10% of the joint venture. The same standard of “cause” defined above applies to our approval.Currently, our officers have filed the required application forms and have been found suitable by the Delaware State Police,which is empowered to conduct the security, fitness and background checks required by the lottery director.Nevada Regulatory MattersIn order to acquire and own Stockman’s Casino or any other gaming operation in Nevada, we are subject to the NevadaGaming Control Act and to the licensing and regulatory control of the Nevada State Gaming Control Board, the NevadaGaming Commission, and various local, city and county regulatory agencies.The laws, regulations and supervisory procedures of the Nevada gaming authorities are based upon declarations of publicpolicy which are concerned with, among other things: • the character of persons having any direct or indirect involvement with gaming to prevent unsavory or unsuitablepersons from having a direct or indirect involvement with gaming at any time or in any capacity; • application of appropriate accounting practices and procedures; • maintenance of effective control over the financial practices and financial stability of licensees, including proceduresfor internal controls and the safeguarding of assets and revenues; • record-keeping and reporting to the Nevada gaming authorities; • fair operation of games; and • the raising of revenues through taxation and licensing fees.In May 2006, we applied for registration with the Nevada Gaming Commission as a publicly traded corporation, which wasgranted on January 25, 2007. The registration is not transferable and requires periodic payment of fees. The Nevada gamingauthorities may limit, condition, suspend or revoke a license, registration, approval or finding of suitability for any causedeemed reasonable by the licensing agency. If a Nevada gaming authority determines that we violated gaming laws, then theapprovals and licenses we hold could be limited, conditioned, suspended or revoked, and we, and the individuals involved,could be subject to substantial fines for each separate violation of the gaming laws at the discretion of the Nevada GamingCommission. Each type of gaming device, slot game, slot game operating system, table game or associated equipmentmanufactured, distributed, leased, licensed or sold in Nevada must first be approved by the Nevada State Gaming Control Boardand, in some cases, the Nevada Gaming Commission. We must regularly submit detailed financial and operating reports to theNevada State Gaming Control Board. Certain loans, leases, sales of securities and similar financing transactions must also bereported to or approved by the Nevada Gaming Commission.Certain of our officers, directors and key employees are required to be, and have been, found suitable by the NevadaGaming Commission and employees associated with gaming must obtain work permits which are subject to immediatesuspension under certain circumstances. An application for suitability may be denied for any cause deemed reasonable by theNevada Gaming Commission. Changes in specified key positions must be reported to the Nevada Gaming Commission. Inaddition to its authority to deny an application for a license, the Nevada Gaming Commission has jurisdiction to disapprove achange in position by an officer, director or key employee. The Nevada Gaming Commission has the power to require licensedgaming companies to suspend or dismiss officers, directors or other key employees and to sever relationships with other personswho refuse to file appropriate applications or whom the authorities find unsuitable to act in such capacities. 8Table of ContentsThe Nevada Gaming Commission may also require anyone having a material relationship or involvement with us to befound suitable or licensed, in which case those persons are required to pay the costs and fees of the Nevada State GamingControl Board in connection with the investigation. Any person who acquires more than 5% of our voting securities must reportthe acquisition to the Nevada Gaming Commission; any person who becomes a beneficial owner of 10% or more of our votingsecurities is required to apply for a finding of suitability. Under certain circumstances, an “institutional investor,” as such termis defined in the regulations of the Nevada Gaming Commission, which acquires more than 10% but not more than 15% of ourvoting securities, may apply to the Nevada Gaming Commission for a waiver of such finding of suitability requirements,provided the institutional investor holds the voting securities for investment purposes only. The Nevada Gaming Commissionhas amended its regulations pertaining to institutional investors to temporarily allow an institutional investor to beneficiallyown more than 15%, but not more than 19%, if the ownership percentage results from a stock repurchase program. Theseinstitutional investors may not acquire any additional shares and must reduce their holdings within one year from constructivenotice of exceeding 15%, or must file a suitability application. An institutional investor will be deemed to hold votingsecurities for investment purposes only if the voting securities were acquired and are held in the ordinary course of business asan institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of our board ofdirectors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming affiliates, orany other action which the Nevada Gaming Commission finds to be inconsistent with holding our voting securities forinvestment purposes only.Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do soby the Nevada Gaming Commission may be found unsuitable based solely on such failure or refusal. The same restrictionsapply to a record owner if the record owner, when requested, fails to identify the beneficial owner. Any security holder foundunsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock beyond such period of time asmay be prescribed by the Nevada Gaming Commission may be guilty of a gross misdemeanor. We are subject to disciplinaryaction if, after we receive notice that a person is unsuitable to be a security holder or to have any other relationship with us, we: • pay that person any dividend or interest upon our voting securities; • allow that person to exercise, directly or indirectly, any voting right conferred through securities held by that person;or • give remuneration in any form to that person.If a security holder is found unsuitable, then we may be found unsuitable if we fail to pursue all lawful efforts to requiresuch unsuitable person to relinquish his or her voting securities for cash at fair market value.The Nevada Gaming Commission may also, in its discretion, require any other holders of our debt or equity securities tofile applications, be investigated and be found suitable to own the debt or equity securities. The applicant security holder isrequired to pay all costs of such investigation. If the Nevada Gaming Commission determines that a person is unsuitable to ownsuch security, then pursuant to the regulations of the Nevada Gaming Commission, we may be sanctioned, including the loss ofour approvals, if, without the prior approval of the Nevada Gaming Commission, we: • pay to the unsuitable person any dividends, interest or any distribution whatsoever; • recognize any voting right by such unsuitable person in connection with such securities; • pay the unsuitable person remuneration in any form; or • make any payment to the unsuitable person by way of principal, redemption, conversion; exchange, liquidation orsimilar transaction.We are required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Commissionat any time, and to file with the Nevada Gaming Commission, at least annually, a list of our stockholders. The Nevada GamingCommission will have the power to require our stock certificates to bear a legend indicating that the securities are subject to theNevada Gaming Control Act and the regulations of the Nevada Gaming Commission. 9Table of ContentsAs a licensee or registrant, we may not make certain public offerings of our securities without the prior approval of theNevada Gaming Commission. Also, changes in control of us through merger, consolidation, acquisition of assets, managementor consulting agreements or any form of takeover cannot occur without prior investigation by the Nevada State Gaming ControlBoard and approval by the Nevada Gaming Commission.The Nevada legislature has declared that some repurchases of voting securities, corporate acquisitions opposed bymanagement, and corporate defense tactics affecting Nevada gaming licensees, and registered companies that are affiliated withthose operations, may be harmful to stable and productive corporate gaming. The Nevada Gaming Commission has establisheda regulatory scheme to reduce the potentially adverse effects of these business practices upon Nevada’s gaming industry and tofurther Nevada’s policy to: • assure the financial stability of corporate gaming licensees and their affiliates; • preserve the beneficial aspects of conducting business in the corporate form; and • promote a neutral environment for the orderly governance of corporate affairs.Because we are a registered company, approvals may be required from the Nevada Gaming Commission before we canmake exceptional repurchases of voting securities above their current market price and before a corporate acquisition opposedby management can be consummated. The Nevada Gaming Control Act also requires prior approval of a plan of recapitalizationproposed by a registered company’s board of directors in response to a tender offer made directly to its stockholders for thepurpose of acquiring control.Any person who is licensed, required to be licensed, registered, required to be registered, or who is under common controlwith those persons, collectively, “licensees,” and who proposes to become involved in a gaming venture outside of Nevada, isrequired to deposit with the Nevada Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000to pay the expenses of investigation by the Nevada Gaming Control Board of the licensee’s participation in foreign gaming. Wecurrently comply with this requirement. The revolving fund is subject to increase or decrease at the discretion of the NevadaGaming Commission. Licensees are required to comply with the reporting requirements imposed by the Nevada GamingControl Act. A licensee is also subject to disciplinary action by the Nevada Gaming Commission if it: • knowingly violates any laws of the foreign jurisdiction pertaining to the foreign gaming operation; • fails to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required ofNevada gaming operations; • engages in any activity or enters into any association that is unsuitable because it poses an unreasonable threat to thecontrol of gaming in Nevada, reflects or tends to reflect, discredit or disrepute upon the State of Nevada or gaming inNevada, or is contrary to the gaming policies of Nevada; • engages in activities or enters into associations that are harmful to the State of Nevada or its ability to collect gamingtaxes and fees; or • employs, contracts with or associates with a person in the foreign operation who has been denied a license or a findingof suitability in Nevada on the ground of unsuitability.In May 2006, we adopted a compliance plan and appointed a compliance committee which currently consists of Companydirectors and officers, Ken Adams (Chair), Carl Braunlich (Director), Kathleen Caracciolo (Director) and Mark Miller (CFO andCOO), in accordance with Nevada Gaming Commission requirements. Our compliance committee meets quarterly and isresponsible for implementing and monitoring our compliance with Nevada regulatory matters. This committee will also reviewinformation and reports regarding the suitability of potential key employees or other parties who may be involved in materialtransactions or relationships with us. 10Table of ContentsIndian GamingGaming on Indian Lands (lands over which Indian tribes have jurisdiction and which meet the definition of Indian Landsunder the Indian Gaming Regulatory Act of 1988, (the “Regulatory Act’)) is regulated by federal, state and tribal governments.The regulatory environment regarding Indian gaming is always changing. Changes in federal, state or tribal law or regulationsmay limit or otherwise affect Indian gaming or may be applied retroactively and could then have a negative effect on ouroperations.The terms and conditions of management agreements or other agreements, and the operation of casinos on Indian Land, aresubject to the Regulatory Act, which is implemented by the NIGC. The contracts also are subject to the provisions of statutesrelating to contracts with Indian tribes, which are supervised by the Department of the Interior. The Regulatory Act isinterpreted by the Department of the Interior and the NIGC and may be clarified or amended by the judiciary or legislature.Under the Regulatory Act, the NIGC has the power to: • inspect and examine certain Indian gaming facilities; • perform background checks on persons associated with Indian gaming; • inspect, copy and audit all records of Indian gaming facilities; • hold hearings, issue subpoenas, take depositions, and adopt regulations; and • penalize violators of the Regulatory Act.Penalties for violations of the Regulatory Act include fines, and possible temporary or permanent closing of gamingfacilities. The Department of Justice may also impose federal criminal sanctions for illegal gaming on Indian Lands and for theftfrom Indian gaming facilities.The Regulatory Act also requires that the NIGC review tribal gaming ordinances. Such ordinances are approved only ifthey meet certain requirements relating to: • ownership; • security; • personnel background; • record keeping and auditing of the tribe’s gaming enterprises; • use of the revenues from gaming; and • protection of the environment and the public health and safety. 11Table of ContentsThe Regulatory Act also regulates Indian gaming and management agreements. The NIGC must approve managementagreements and collateral agreements, including agreements like promissory notes, loan agreements and security agreements. Amanagement agreement can be approved only after determining that the contract provides for: • adequate accounting procedures and verifiable financial reports, copies of which must be furnished to the tribe; • tribal access to the daily operations of the gaming enterprise, including the right to verify gross revenues and income; • minimum guaranteed payments to the tribe, which must have priority over the retirement of development andconstruction costs; • a ceiling on the repayment of such development and construction costs; and • a contract term not exceeding five years and a management fee not exceeding 30% of profits and a determination bythe chairman of the NIGC that the fee is reasonable considering the circumstances; provided that the NIGC mayapprove up to a seven year term and a management fee not to exceed 40% of net revenues if the NIGC is satisfied thatthe capital investment required or the income projections for the particular gaming activity justify the larger profitallocation and longer term.Under the Regulatory Act, we must provide the NIGC with background information, including financial statements andgaming experience, on: • each person with management responsibility for a management agreement; • each of our directors; and • the ten persons who have the greatest direct or indirect financial interest in a management agreement to which we are aparty.The NIGC will not approve a management company and may void an existing management agreement if a director, keyemployee or an interested person of the management company: • is an elected member of the Indian tribal government that owns the facility being managed; • has been or is convicted of a felony or misdemeanor gaming offense; • has knowingly and willfully provided materially false information to the NIGC or a tribe; • has refused to respond to questions from the NIGC; • is a person whose prior history, reputation and associations pose a threat to the public interest or to effective gamingregulation and control, or create or enhance the chance of unsuitable, unfair or illegal activities in gaming or thebusiness and financial arrangements incidental thereto; or • has tried to influence any decision or process of tribal government relating to gaming.Contracts may also be voided if: • the management company has materially breached the terms of the management agreement, or the tribe’s gamingordinance; or • a trustee, exercising the skill and diligence to which a trustee is commonly held, would not approve such managementagreement.The Regulatory Act divides games that may be played on Indian Land into three categories. Class I Gaming includestraditional Indian games and private social games and is not regulated under the Regulatory Act. Class II Gaming includesbingo, pull tabs, lotto, punch boards, tip jars, instant bingo, and other games similar to bingo, if those games are played at alocation where bingo is played. Class III Gaming includes all other commercial forms of gaming, such as video casino games(e.g., video slots, video blackjack), so-called “table games” (e.g., blackjack, craps, roulette), and other commercial gaming (e.g.,sports betting and pari-mutuel wagering). 12Table of ContentsClass II Gaming is allowed on Indian Land if performed according to a tribal ordinance which has been approved by theNIGC and if the state in which the Indian Land is located allows such gaming for any purpose. Class II Gaming also mustcomply with several other requirements, including a requirement that key management officials and employees be licensed bythe tribe.Class III Gaming is permitted on Indian Land if the same conditions that apply to Class II Gaming are met and if thegaming is performed according to the terms of a written gaming compact between the tribe and the host state. The RegulatoryAct requires states to negotiate in good faith with Indian tribes that seek to enter into tribal-state compacts. Should the state notnegotiate in good faith, regulations of the Department of Interior allow the Secretary of the Interior to impose the terms of agaming compact on the state.The negotiation and adoption of tribal-state compacts is vulnerable to legal and political changes that may affect ourfuture revenues and securities prices. Accordingly, we cannot predict: • which additional states, if any, will approve casino gaming on Indian Land; • the timing of any such approval; • the types of gaming permitted by each tribal-state compact; • any limits on the number of gaming machines allowed per facility; or • whether states will attempt to renegotiate or take other steps that may affect existing compacts.Under the Regulatory Act, Indian tribal governments have primary regulatory authority over gaming on Indian Landwithin the tribe’s jurisdiction unless a tribal-state compact has delegated this authority. Therefore, persons engaged in gamingactivities, including us, are subject to the provisions of tribal ordinances and regulations on gaming.Tribal-State compacts have been litigated in several states, including Michigan. In addition, many bills have beenintroduced in Congress that would amend the Regulatory Act, including bills introduced in 2005 that seek to limit “offreservation” gaming by Indian tribes. Although this legislative attempt was rejected, the Department of the Interior under theBush administration in January 2008 issued a “guidance memorandum” immediately followed by a series of decisions whichgave effect to the defeated legislation, placing limitations on the distance a tribal casino could be from the tribe’s reservation. Ifthe Regulatory Act were amended or this department policy remain in effect, then the governmental structure and requirementsby which Indian tribes may conduct gaming could be significantly changed, which could have an impact on our futureoperations and development of tribal gaming opportunities. Furthermore, in 2009, the United States Supreme Court issued adecision which interpreted the Indian Reorganization Act, enacted in 1934, and found that the Secretary of the Interior was onlyauthorized to take land into trust for Indian Tribes recognized as of the date of that Act. Thus, an indian tribe receiving federalrecognition after 1934 was not allowed to have land taken into trust for its benefit. While the decision was entered after theNottawaseppi Huron Band of Potawatomi’s Firekeepers Casino site was taken into trust by the Secretary of the Interior, nojudicial action has been brought and no ruling has been made as to the retroactive effect of the United States Supreme Courtdecision.Huron Tribal Gaming CommissionThe Michigan Tribe has adopted a gaming ordinance to regulate gaming at the FireKeepers Casino. Part of the gamingordinance establishes and authorizes a Gaming Commission to oversee the regulation of gaming at FireKeepers Casino. TheGaming Commission shall license the management contractor, (which is GEM), all gaming employees, gaming equipmentvendors and others, pursuant to the standards of the ordinance (which are substantially similar to those contained in IndianGaming Regulatory Act, “IGRA” and NIGC regulation), including a review of the honesty and integrity of the applicant and itsfinancial stability. 13Table of ContentsIn conjunction with the issuance of the license to GEM, we were approved by the Huron Tribal Gaming Commission onApril 4, 2008. This license is renewable annually. We were granted a license renewal in 2009 and we have submitted therequisite renewal application for 2010. The Gaming Commission is also responsible for the regulation of gaming operations,including oversight and audits to ensure compliance with minimum internal controls established to ensure patron safety and thesafeguarding of income and assets. Violations of internal controls and Gaming Commission imposed standards can result inpenalties, fines, loss of employment and loss or denial of gaming licenses.Costs and Effects of Compliance with Environmental LawsIn order to have land taken into trust or otherwise be approved for use by an Indian tribe for gaming purposes by the federalBureau of Indian Affairs (BIA), as a federal agency, the BIA is required to comply with the National Environmental Policy Act(NEPA). Likewise, in order for the NIGC to approve a management agreement for us to manage an Indian gaming casino asrequired by the Indian Gaming Regulatory Act, the NIGC, as a federal agency, is required to comply with NEPA. For thesepurposes NEPA requires a federal agency to consider the effect on the human, physical and natural environment of adevelopment project as part of its approval process. Compliance with NEPA begins with conducting an environmentalassessment, which considers the factors identified in NEPA, as implemented by the Council on Environmental Quality, anddetermines whether the development will cause a significant impact on the environment. If not, the federal agency may issue afinding of no significant impact (“FONSI”). If the federal agency determines the development project may cause a significantimpact on the environment, then it will conduct a further study resulting in an environmental impact statement, which considersall impacts on the environment and what can be done to mitigate those impacts. Since this constitutes action by a federalagency, any of these determinations can be the subject of litigation.Appropriate environmental reviews were conducted by the BIA and NIGC reviewing the impacts caused by the FirekeepersCasino project in Michigan as part of their approval process. The land was taken into trust in 2007 and the managementagreement was approved in December 2007 and an amendment was approved in April 2008.During 2005 and 2006, we also funded environmental assessments related to the casino development project for theNambé Pueblo and for the Northern Cheyenne Tribe. The environmental assessment related to the Northern Cheyenne Tribe ison behalf of the BIA in conjunction with its approval of the land chosen by the tribe for its casino site for use for gaming. TheSecretary of the Interior acting for the BIA approved the land for gaming use in October 2008, subject to the concurrence of theGovernor of the State of Montana, which was granted in 2009.COMPETITIONThe gaming industry is highly competitive. Gaming activities include traditional land-based casinos; river boat anddockside gaming, casino gaming on Indian land, state-sponsored lotteries, video poker in restaurants, bars and hotels, pari-mutuel betting on horse racing, dog racing and jai alai, sports bookmaking, card rooms, and casinos at racetracks. TheFireKeepers Casino and the Indian-owned casinos that we are developing and plan to manage compete with all these forms ofgaming, and will compete with any new forms of gaming that may be legalized in additional jurisdictions, as well as with othertypes of entertainment. Some of our competitors have more personnel and greater financial or other resources.Stockman’s is located on the west side of Fallon on Highway 50, approximately 60 miles east of Reno, Nevada, and is thelargest of several casinos in the Churchill County area. The county’s population is roughly 25,000 with a nearby naval air basewhich has a significant economic impact on our business. Of the nine casinos currently operating in the Fallon, Nevada market,our major competitors are three other casinos that are smaller than Stockman’s in size and the number of gaming machines. AtDecember 31, 2009, Stockman’s share of the slot units in the Churchill County market was approximately 23.6% and our shareof slot revenues for 2009 was approximately 36.9%. While we are not aware of any planned expansion to gaming capacity inthe Churchill County area, additional competition may adversely affect our financial condition or results of operations.The closest competition to the FireKeepers Casino is located in Detroit, approximately 100 miles east of the Battle Creekarea and the Four Winds Casino in the New Buffalo, Michigan area approximately 100 miles to the southwest. The Gun LakeTribe has commenced building a casino development in Wayland, Michigan, approximately a one hour drive northwest of oursite. Litigation over the trust land for the casino being developed by the Gun Lake Tribe was recently resolved in favor of thecasino project and the Michigan state legislature in early February 2009 approved a gaming compact with the Gun Lake tribe.Although the Gun Lake tribe commenced construction efforts in September 2009, it is unclear at this time exactly when the GunLake project will be prepared to commence gaming operations or how significant the impact may be on casino revenues and ourrelated management fees when the project ultimately commences gaming operations. 14Table of ContentsThe Harrington Casino is one of three facilities currently operating in Delaware. The facility draws a significant number ofcustomers from Maryland and we believe that competitive gaming in Maryland will have a negative impact on the facility. Themagnitude will depend on both the form of gaming that is authorized, and the locations of competing facilities.During 2008, the Maryland legislature approved casino-type gaming in certain designated counties of the State. Recently,bids were submitted to the State for authorization by private contractors to conduct gaming in Maryland. While we can expectthere to be an adverse impact on the revenues of Harrington Casino from this added competition, as well as the currenteconomic climate, we expect to be insulated from the effect of such competitive and economic factors by the guaranteedminimum payment paid to us, which guarantees us a 5% increase, except for 2008 when the increase was 8% over 2007, in themanagement fees we receive from the operation over those received in the previous year. The annual growth rate in 2009through the expiration of the GED management contract in August 2011 will be 5% per year.Additionally, during 2009, Delaware authorized its three licensed casinos to operate sports books for the taking of bets onsporting events. A federal court ruled that such bets must be parlay or multiple-contest bets and not bets on individual contests.This ruling is being appealed. Then, in January 2010, the legislature authorized live table games at the three licensed Delawarecasinos, which are expected to commence operations during 2010. Neither form of wagering is permitted in Maryland. Whileincreased types of wagering are expected to enhance revenues, the impact of these additional forms of legalized wagering hasyet to be determined.In 2004, the Pennsylvania legislature passed a law authorizing gambling. Included in the authorized types of games areslot machines similar to those operated in Delaware to be conducted at racetracks, selected stand-alone facilities and selectedresort hotel sites. During 2006 and in January 2007, the Pennsylvania Gaming Control Board issued licenses for operators andgaming equipment suppliers. Several of the “racino” licensed facilities and casinos have subsequently opened. HarringtonRaceway is located the furthest south of the three authorized gaming locations in Delaware and does not attract a substantialpatronage from Pennsylvania. We have not seen and do not anticipate that the commencement of gaming operations inPennsylvania has or will have a material adverse effect on our operations. Additionally, we are in constant competition withother companies in the industry to acquire other legal gaming sites and for opportunities to develop and manage casinos onIndian land. Many of our competitors are larger in terms of potential resources and personnel. Competition in the gamingindustry could adversely affect our ability to attract customers and thus, adversely affect future operating results. In addition,further expansion of gaming into new jurisdictions could also adversely affect our business by diverting customers from ourmanaged casinos to competitors in those jurisdictions.EMPLOYEESAs of March 1, 2010, we have twelve full-time corporate employees, four of whom are executive officers and an additionaltwo are senior management. Our Stockman’s Casino has approximately 98 full-time employees and our Delaware joint ventureand FireKeepers management contracts oversees approximately 516 and 1,339 full-time employees, respectively at theHarrington Casino and FireKeepers Casino, none of which are direct employees of the Company. Management believes that itsrelationship with its employees is good. None of our employees are currently represented by a labor union, although suchrepresentation could occur in the future.Item 1A. Risk Factors.As a smaller reporting company, the Company is not required to provide the information required by this item.Item 1B. Unresolved Staff Comments.As a smaller reporting company, the Company is not required to provide the information required by this item. 15Table of ContentsItem 2. Properties.On August 5, 2009, the FireKeepers Casino, which is managed by GEM on behalf of the Michigan tribe, commencedoperations. FireKeepers Casino is located at Exit 104 directly off Interstate 94 in Battle Creek, Michigan. FireKeepers has a107,000 square foot gaming floor with 2,680 slot machines, 78 table games, a 120-seat poker room and a bingo hall. Inaddition, the property features five restaurants, including a 70-seat fine dining signature restaurant, a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spaces including an enclosed 2,080-space parking garage attached tothe casino.Stockman’s, a wholly-owned subsidiary, owns the site on which Stockman’s Casino operates in Fallon, Nevada.Stockman’s has approximately 8,400 square feet of gaming space with approximately 265 slot machines, four table games andkeno. There is also a bar, a fine dining restaurant and a coffee shop. Until February 20, 2008, the facility included a Holiday InnExpress, which had 98 guest rooms, indoor and outdoor pools, sauna, a fitness center and meeting room. The hotel wassubsequently sold. Management considers Stockman’s Casino to be in good condition and well maintained. The loan revolveris guaranteed by Stockman’s and is secured by a pledge of the stock and the assets of Stockman’s.The Company owned a 12-acre parcel in McKinley County, New Mexico, which was previously intended to be a futuregaming development site for the Navajo Nation project. Since this project has been discontinued, the land was sold onOctober 15, 2009. The land held for the development of this project was included in assets held for sale and valued at $45,000as of December 31, 2008.We lease the office space in Las Vegas, Nevada pursuant to the amended lease agreement dated November 1, 2009. Weoccupy approximately 2,569 square feet of office space in the same location we have occupied for the past several years. Thelease agreement expires September 31, 2013.Item 3. Legal Proceedings.On June 19, 2009, Harrington Raceway, Inc. filed a demand for arbitration, disputing the formula for computing theminimum payment of our share of the management fee pursuant to the Management Reorganization Agreement dated June 18,2007. Harrington Raceway’s demand would require the Company to refund $1.5 million in management fees. We have appearedin the matter and intend to vigorously defend the proceeding. A hearing date was held on February 15 and 16, 2010 and adecision is not expected until sometime in April. Management believes that it is more likely than not that the Company willprevail in the arbitration, but we cannot guarantee that the arbitrator will not rule in favor of HRI based on the record. As of theMarch 23, 2010 filing date, the arbitrator’s decision was not yet received.On October 20, 2008, the Company was served with a complaint in the Second Judicial District Court of Nevada in and forWashoe County by RAM and Robert A. Mathewson alleging breach of contract and other claims related to the resolution ofclaims by GEC, a consolidated investee of the Company, against the Torres-Martinez Tribe of California. Certain officers werenamed as individual defendants as well. Following a mediation session, the lawsuit was settled by the company agreeing to paya total of $0.5 million to the plaintiffs (included in impairment and settlement losses), payable $0.2 million on execution of thesettlement documents and $0.3 million within 30 days of the opening of the FireKeepers Casino but no later than December 15,2009. All claims against the individuals were dismissed outright and the claims against the company were dismissed. As ofDecember 31, 2009, $0.5 million was paid to the plaintiffs in this case.From time to time, in the ordinary course of business, we receive notices of claims which are not material or are withoutmerit. We investigate and review each claim and vigorously defend all meritless claims.Item 4. Submission of Matters to a Vote of Security Holders.No matters were submitted to a vote of our security holders during the fourth quarter of 2009. 16Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our stock trades on the NYSE Amex under the symbol FLL. Set forth below are the high and low sales prices of thecommon stock as reported on the American Stock Exchange and the NYSE Amex for the periods indicated. High Low Year Ended December 31, 2009 First Quarter $1.22 $0.90 Second Quarter 2.80 1.15 Third Quarter 2.98 2.10 Fourth Quarter 3.98 2.25 Year Ended December 31, 2008 First Quarter $2.80 $1.26 Second Quarter 2.59 1.44 Third Quarter 2.13 1.35 Fourth Quarter 1.55 0.95 On March 23, 2010, the last sale price of the Common Stock as reported by the NYSE Amex Exchange was $3.07.As of December 31, 2009, we had 137 holders of record of our common stock. We believe that there are over 1,000beneficial owners.We intend to retain future earnings, if any, to provide funds for the operation of our business, retirement of our debt andpursue acquisitions and, accordingly, do not anticipate paying any cash dividends on our common stock in the near future.Item 6. Selected Financial Data.As a smaller reporting company, the Company is not required to provide the information required by this item.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Forward Looking StatementsThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of theSecurities Exchange Act of 1934, as amended, relating to our financial condition, profitability, liquidity, resources, businessoutlook, market forces, corporate strategies, contractual commitments, legal matters, capital requirements and other matters. ThePrivate Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. We note that manyfactors could cause our actual results and experience to change significantly from the anticipated results or expectationsexpressed in our forward-looking statements. When words and expressions such as: “believes,” “expects,” “anticipates,”“estimates,” “plans,” “intends,” “objectives,” “goals,” “aims,” “projects,” “forecasts,” “possible,” “seeks,” “may,” “could,”“should,” “might,” “likely,” “enable,” or similar words or expressions are used in this Form 10-K, as well as statementscontaining phrases such as “in our view,” “there can be no assurance,” “although no assurance can be given,” or “there is noway to anticipate with certainty,” forward-looking statements are being made. 17Table of ContentsIn addition to the risks discussed in Item 1 “Factors That May Affect Our Future Performance,” various other risks anduncertainties may affect the operation, performance, development and results of our business and could cause future outcomesto change significantly from those set forth in our forward-looking statements, including the following factors: • our growth strategies; • our development and potential acquisition of new facilities; • risks related to development and construction activities; • anticipated trends in the gaming industries; • patron demographics; • general market and economic conditions; • access to capital and credit, including our ability to finance future business requirements; • the availability of adequate levels of insurance; • changes in federal, state, and local laws and regulations, including environmental and gaming license legislation andregulations and taxes; • regulatory approvals; • competitive environment; • risks, uncertainties and other factors described from time to time in this and our other SEC filings and reports.We undertake no obligation to publicly update or revise any forward-looking statements as a result of futuredevelopments, events or conditions. New risk factors emerge from time to time and it is not possible for us to predict all suchrisk factors, nor can we assess the impact of all such risk factors on its business or the extent to which any factor, or combinationof factors, may cause actual results to differ significantly from those forecast in any forward-looking statements.OverviewWe own, manage and/or invest in gaming-related opportunities. The Company continues to actively investigate,individually and with partners, new business opportunities. We own and operate Stockman’s Casino in Fallon, Nevada. We alsoown 50% of Gaming Entertainment Michigan, LLC (“GEM”), a joint venture with RAM Entertainment, LLC (“RAM”), wherewe are the primary beneficiary and, therefore, consolidate in our consolidated financial statements. RAM is a privately-heldinvestment company. GEM has a 7-year management agreement with the Nottawaseppi Huron Band of Potawatomi Indians forthe development and management of the FireKeepers Casino near Battle Creek, Michigan. The FireKeepers Casino commencedconstruction in May 2008 and opened on August 5, 2009, which triggered the commencement of the 7-year managementagreement term. We are also a non-controlling 50%-investor in Gaming Entertainment Delaware, LLC (“GED”), a joint venturewith Harrington Raceway Inc. (“HRI”). GED has a management contract through August 2011 with Harrington Casino at theDelaware State Fairgrounds in Harrington, Delaware.Critical Accounting Estimates and PoliciesAlthough our financial statements necessarily make use of certain accounting estimates by management, we believe thatno matters that are the subject of such estimates are so highly uncertain or susceptible to change as to present a significant riskof a material impact on our financial condition or operating performance, except as discussed in the following paragraphs.The significant accounting estimates inherent in the preparation of our financial statements primarily includemanagement’s fair value estimates related to notes receivable from tribal governments, and the related evaluation of therecoverability of our investments in contract rights. Various assumptions, principally affecting the timing and, to a lesser extent,the probability of completing our various projects under development and getting them open for business with successfuloperations, and other factors underlie the determination of these significant estimates. The process of determining significantestimates is fact-and project-specific and takes into account factors such as historical experience and current and expected legal,regulatory and economic conditions. We regularly evaluate these estimates and assumptions, particularly in areas, if any, wherechanges in such estimates and assumptions could have a material impact on our results of operations, financial position and,generally to a lesser extent, cash flows. Where recoverability of these assets or planned investments are contingent upon thesuccessful development and management of a project, we evaluate the likelihood that the project will be completed, theprospective market dynamics and how the proposed facilities should compete in that setting in order to forecast future cashflows necessary to recover the recorded value of the assets or planned investment. In most cases, we engage independentvaluation consultants to assist management in preparing and periodically updating market and/or feasibility studies for use inthe preparation of forecasted cash flows. We review our conclusions as warranted by changing conditions. 18Table of ContentsLong-term assets related to Indian casino projectsWe account for the advances made to tribes as in-substance structured notes at estimated fair value in accordance with theguidance contained in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ (“ASC”) Topic320, “Investments-Debt and Equity Securities” and Topic 820, “Fair Value Measurements and Disclosures.”Because our right to recover our advances and development costs with respect to Indian gaming projects is limited to, andcontingent upon, the future net revenues of the proposed gaming facilities, we evaluate the financial opportunity of eachpotential service arrangement before entering into an agreement to provide financial support for the development of an Indianproject. This process includes (1) determining the financial feasibility of the project assuming the project is built, (2) assessingthe likelihood that the project will receive the necessary regulatory approvals and funding for construction and operations tocommence, and (3) estimating the expected timing of the various elements of the project including commencement ofoperations. When we enter into a service or lending arrangement, management has concluded, based on feasibility analyses andlegal reviews, that there is a high probability that the project will be completed and that the probable future economic benefit issufficient to compensate us for our efforts in relation to the perceived financial risks. In arriving at our initial conclusion ofprobability, we consider both positive and negative evidence. Positive evidence ordinarily consists not only of project-specificadvancement or progress, but the advancement of similar projects in the same and other jurisdictions, while negative evidenceordinarily consists primarily of unexpected, unfavorable legal, regulatory or political developments such as adverse actions bylegislators, regulators or courts. Such positive and negative evidence is reconsidered at least quarterly. No asset, including notesreceivable or contract rights, related to an Indian casino project is recorded on our books unless it is considered probable thatthe project will be built and will result in an economic benefit sufficient for us to recover the asset.In initially determining the financial feasibility of the project, we analyze the proposed facilities and their location inrelation to market conditions, including customer demographics and existing and proposed competition for the project.Typically, independent consultants are also hired to prepare market and financial feasibility reports. These reports are reviewedby management and updated periodically as conditions change.In assessing the probability of completing the project, we also consider the status of the regulatory approval processincluding whether: • the federal Bureau of Indian Affairs, or BIA, recognizes the tribe; • the tribe has the right to acquire land to be used as a casino site; • the Department of the Interior has put the land into trust as a casino site; • the tribe has a gaming compact with the state government; • the NIGC has approved a proposed management agreement; and • other legal or political obstacles exist or are likely to occur.The development phase of each relationship commences with the signing of the respective agreements and continues untilthe casino is open for business. Thereafter, the management phase of the relationship, governed by the management contract,typically continues for a period of between five to seven years. Seven years is the maximum allowed under federal law. Wemake advances to the tribes, recorded as notes receivable, primarily to fund certain portions of the projects, which bear nointerest or below market interest until operations commence. Repayment of the notes receivable and accrued interest is onlyrequired if the casino is successfully opened and distributable profits are available from the casino operations. Under themanagement agreement, we typically earn a management fee calculated as a percentage of the net income of the gaming facility.In addition, repayment of the loans and our management fees are subordinated to certain other financial obligations of therespective operations. Generally, the order of priority of payments from the casinos’ cash flows is as follows: • a certain minimum monthly priority payment to the tribe; • repayment of various senior debt associated with construction and equipping of the casino with interest accruedthereon; • repayment of various debt with interest accrued thereon due to us; • management fee to us; • other obligations; and • the remaining funds distributed to the tribe. 19Table of ContentsNotes receivableWe account for and present our notes receivable from and management agreements with the tribes as separate assets. Underthe contractual terms, the notes do not become due and payable unless and until the projects are completed and operational.However, if our development activity is terminated prior to completion, we generally would retain the right to collect on ournotes receivable in the event a casino project is completed by another developer. Because we ordinarily do not consider thestated rate of interest on the notes receivable to be commensurate with the risk inherent in these projects (prior tocommencement of operations), the estimated fair value of the notes receivable is generally less than the amount advanced. Atthe date of each advance, the difference between the estimated fair value of the note receivable and the actual amount advancedis recorded as either an intangible asset (contract rights) or if the rights were acquired in a separate, unbundled transaction,expensed as period costs of retaining such rights.Subsequent to its effective initial recording at estimated fair value using “Level 3 inputs,” which are defined in ASC Topic820, “Fair Value Measurements and Disclosures” (“Topic 820”) as unobservable inputs that reflect management’s estimatesabout the assumptions that market participants would use in pricing an asset or liability, the note receivable portion of theadvance is adjusted to its current estimated fair value at each balance sheet date, also using Level 3 inputs.We do not adjust notes receivable to an estimated fair value that exceeds the face value of the note plus accrued interest, ifany. Due to the uncertainties surrounding the projects, no interest income is recognized in the consolidated financial statementsduring the development period, but changes in estimated fair value of the notes receivable are recorded as unrealized gains orlosses in our statement of operations.Upon opening of the casino, the difference, if any, between the then-recorded estimated fair value of the notes receivable,subject to any appropriate impairment adjustments made pursuant to ASC Topic 310, “Receivables,” and the amountcontractually due under the notes is amortized into income using the effective interest method over the remaining term of thenote.Contract rightsContract rights are recognized as intangible assets related to the acquisition of the management agreements andperiodically evaluated for impairment based on the estimated cash flows from the management contract on an undiscountedbasis and amortized using the straight-line method over the lesser of seven years or contractual lives of the agreements,typically beginning upon commencement of casino operations. In the event the carrying value of the intangible assets were toexceed the undiscounted cash flow, the difference between the estimated fair value and carrying value of the assets would becharged to operations.The cash flow estimates for each project were developed based upon published and other information gathered pertainingto the applicable markets. We have many years of experience in making these estimates and also utilize independent appraisersand feasibility consultants to assist management in developing our estimates. The cash flow estimates are initially prepared (andperiodically updated) primarily for business planning purposes with the tribes and are secondarily used in connection with ourimpairment analysis of the carrying value of contract rights, land held for development, and other capitalized costs, if any,associated with our tribal casino projects. The primary assumptions used in estimating the undiscounted cash flow from theprojects include the expected number of Class III gaming devices, table games, and poker tables, and the related estimated winper unit per day (“WPUD”). Generally, within reasonably possible operating ranges, our impairment decisions are notparticularly sensitive to changes in these assumptions because estimated cash flows greatly exceed the carrying value of therelated intangibles and other capitalized costs. We believe that the primary competitors to our Michigan project are the FourWinds Casino in southwestern Michigan, five northern Indiana riverboats and three downtown Detroit casinos. The Detroitcasinos published WPUD has consistently averaged above the $255 used in our undiscounted cash flow analysis. In addition,our market analysis assumes the development of another Native American casino of approximately equal size by the Gun LakeTribe approximately 1 hour to the northwest of our facility. However, the facility currently under development by Gun Lake issubstantially smaller than originally anticipated with only 700 machines. Our Michigan project is located approximately 100miles west of Detroit and approximately 100 driving miles northeast of Four Winds Casino, which opened in August 2007 nearNew Buffalo, Michigan. 20Table of ContentsSummary of assets related to Indian casino projectsAt December 31, 2009 and 2008, assets associated with tribal casino projects are summarized as follows, with notesreceivable presented at their estimated fair value: 2009 2008 FireKeepers: Notes receivable, tribal governments $4,682,420 $4,097,002 Contract rights, net 15,617,016 16,636,358 $20,299,436 $20,733,360 Other projects: Notes receivable, tribal governments $430,467 $1,017,765 Contract rights, net — 159,194 430,467 1,176,959 $20,729,903 $21,910,319 As previously noted, the FireKeepers project comprises the majority of long-term assets related to Indian casino projects.We have an approved management agreement with the FireKeepers Development Authority, (the “Authority”) for thedevelopment and operation of the FireKeepers Casino, which provides that we will receive, only from the operations andfinancing of the project, reimbursement for all advances we have made to the Authority and a management fee, after certaindistributions to the Tribe, equal to 26% of the net revenues of the casino (defined effectively as net income prior to managementfees) for a period of seven years commencing upon opening. The terms of an amended management agreement were approvedby the NIGC in April 2008. In May 2008, in connection with the project financing, $9.3 million of the notes receivable wasrepaid, which resulted in an increase in the estimated fair value of the notes receivable of approximately $1.8 million, whichwas recorded as an unrealized gain in the first quarter of 2008. The remaining $5.0 million of the note receivable was repaid inFebruary 2010. As of December 31, 2009 GEM has earned approximately $10.0 million in management fee income related toAugust through December 2009 FireKeepers Casino earnings.We are not obligated to fund the construction phase of our Northern Cheyenne project in Montana. The recent economicrecession and resulting impact on credit availability has significantly decreased the likelihood that financing could be obtainedon favorable terms if at all for the Montana project in the foreseeable future. The company intends to continue working with theNorthern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana, however, based on currenteconomic conditions the company has determined that both the timing and feasibility of this project has become more difficultto determine. As a result, we believe that the project assets are impaired and collectability is doubtful and the notes receivableoriginally valued at $0.6 million and contract rights originally valued at $0.1 million related to the project were written downto zero value as of December, 2009, which resulted in an $0.7 million impairment loss.On March 19, 2008, we announced that we are no longer pursuing the Nambé Pueblo project. As of December 31, 2009, wehave advanced $0.7 million for the development of the project, all of which is expected to be reimbursed by the Pueblo throughrevenues from future gaming operations, if developed. The estimated fair value of the receivable from the Pueblo is now basedon the assumption that the Pueblo will develop a smaller scope project (“Travel Center”) and will repay the advances over afive-year period after the project opens with interest at prime plus 2% as per our agreement. However, the collectabilityultimately depends on the successful development and operation of the project, which we have no influence over, andaccordingly, we have discounted the payment stream using a 23% discount rate. Accordingly, management believes that theNambé Pueblo has the intent and will likely have the ability to repay the advances from future cash flows of the project onceopen. During February 2010, we were advised that the Pueblo had located a willing financial source to fund the gamingdevelopment. Funding is expected during the first quarter of 2010 with the expected facility opening within seven months ofreceipt of funding. There can be no assurance that a facility will open or that we will receive all or part of the reimbursement. 21Table of ContentsDue to the absence of observable market quotes on our notes receivable from tribal governments, management developsinputs based on the best information available, including internally-developed data, such as estimates of future interest rates,discount rates and casino opening dates as discussed below.The estimated fair value of our notes receivable related to tribal casino projects make up approximately 9% of our totalassets, and are the only assets in our financial statements that are reported at estimated fair value. Changes in the estimated fairvalue of our notes receivable are reported as unrealized gains (losses), which affect reported net income, but do not affect cashflows.The key assumptions and information used to estimate the fair value of the notes receivable for all projects at December 31,2008 included a total aggregate face amount of the note receivable of $6.3 million. The estimated years until opening anddiscount rates of the FireKeepers and Montana projects were .75 and 1.75 years and 17% and 23%, respectively. As ofDecember 31, 2009, the fair value of the $5.0 million face amount FireKeepers notes receivable, plus interest at prime plus 1%,accrued from the opening date of August 5, 2009, was estimated assuming a 19% discount rate and payment date ofFebruary 2010. Also as of December 31, 2009, the fair value of the $0.6 million face amount Montana notes receivable,originally valued at $0.6 million and estimated assuming an opening date of 1.5 years and a 27% discount rate, was writtendown to zero value as we believe that the project assets are impaired and collectability is doubtful. Also as of December 31,2009, the fair value of the $0.7 million face amount Nambé notes receivable was estimated assuming an opening date of.75 years and a 23% discount rate.For the portion of the notes not repaid prior to the commencement of operations, management estimates that the statedinterest rates during the loan repayment terms will be commensurate with the inherent risk at that time. The estimatedprobability rates have been re-evaluated and modified accordingly, based on project-specific risks such as delays of regulatoryapprovals for the projects and review of the financing environment. The estimated casino opening dates used in the valuationstake into account project-specific circumstances such as ongoing litigation, the status of required regulatory approvals,construction periods and other factors.Factors that we consider in arriving at a discount rate include discount rates typically used by gaming industry investorsand appraisers to value individual casino properties outside of Nevada and discount rates produced by the widely acceptedCapital Asset Pricing Model, or CAPM, using the following key assumptions: • S&P 500, 10 and 15-year average benchmark investment returns (medium-term horizon risk premiums); • Risk-free investment return equal to the trailing 10-year average for 90-day Treasury Bills; • Investment beta factor equal to the unlevered five-year average for the hotel/gaming industry; and • Project-specific adjustments based on typical size premiums for “micro-cap” and “low-cap” companies using 10and 15-year averages, and the status of outstanding required regulatory approvals and/or litigation, if any.Management believes that under the circumstances, essentially three critical dates and events that impact the projectspecific discount rate adjustment when using CAPM are: (1) the date that management completes its feasibility assessment anddecides to invest in the opportunity; (2) the date that construction financing has been obtained after all legal obstacles havebeen removed; and (3) the date that operations commence.Amortizations of contract rights are on a straight-line basis over the contractual lives of the assets. The contractual livesmay include, or not begin until after, a development period and/or the term of the subsequent management agreement. Prior to2007, the Company acquired an interest in contract rights, related to three joint venture projects for $1.8 million, of which$1.1 million was allocated to the Michigan project for control of the development processes. Accordingly, amortization of theserights commenced immediately with revisions to the development/amortization period accounted for prospectively as changesin estimates. Effective August, 2009, the remaining contract rights have been amortized on a straight-line basis over the sevenyear term of the GEM management contract. The FireKeepers casino opened on August 5, 2009, and as a result, the$16.2 million of contract rights associated with the FireKeepers project began being amortized on August 5, 2009 on a straight-line basis over the seven year term of the GEM management agreement. Due to the financing and development arrangement forthe Michigan project through GEM, a 50%-owned joint venture, we believe we were exposed to the majority of risk ofeconomic loss from the joint venture’s development activities. Therefore, in accordance with ASC Topic 810, Consolidation,we consider the joint venture to be a variable interest entity that requires consolidation in our financial statements. 22Table of ContentsRecently Issued Accounting PronouncementsNo recently issued accounting pronouncements not yet adopted are expected to have a material impact on the Company’sfuture financial position, results of operations or cash flows.Results of OperationsA significant portion of our revenue is generated from our management agreements with the Harrington Casino in Delawareand the FireKeepers Casino in Michigan. The Delaware contract ends in August 2011 and the Michigan contract ends inAugust 2016. There can be no assurance that either contract will be extended.Year Ended December 31, 2009 Compared to Year Ended December 31, 2008Operating revenues from continuing operations. For 2009, total operating revenues from continuing operationsincreased $9.3 million or 96.6%, as compared to 2008, primarily due to the $10.0 million of management fees recognized in2009, related to the operations of FireKeepers Casino, which opened in August 2009. The increase in operating revenues wasoffset by a decrease in casino and food and beverage revenues of $0.6 million or 6.4% We believe the decline in revenues atStockman’s is consistent with and results primarily from the general economic weakness in Churchill County, Nevada, since ourmarket share of slot win increased from 33.9% in 2008 to 36.9% in 2009.Operating costs and expenses from continuing operations. For 2009, total operating costs and expenses increased$0.7 million, or 5.5% as compared to 2008, primarily due to an increase in contract rights amortization of $0.9 million or 72.2%related to FireKeepers beginning in August 2009, offset by a decrease in Stockman’s casino and food and beverage expenses of$0.5 million or 10.2% due to the decline in sales volume and general cost control efforts.Project development costs. For 2009, project development costs increased $67,233 or 44.5%, as compared to 2008,primarily due to an increase of $0.2 million related to new business development, offset by lower project development expensesrelated to GEM of $0.1 million, or 68.2% due to the opening of the project, FireKeepers Casino.Selling, general and administrative expense. For 2009, selling, general and administrative expenses increased$0.2 million, or 3.4%, as compared to 2008 mainly due to increased cash incentive compensation expense at the corporate levelof $0.7 million, offset by reduced stock compensation of $0.5 million. The increase in cash incentive compensation expense isdue to the successful opening of the FireKeepers project and subsequent achievement of management fee targets.Operating gains (losses). For 2009, operating gains decreased by $3.7 million, or 58.7%. The decrease is primarily due tothe $2.1 million GEM Member agreement modification signed in October 7, 2009. In September 2009, payables due from GEMto each member were adjusted to reflect a total payable due to RAM of $8.5 million, including $2.7 million reported as equity,and a total payable due to the Company of $11.9 million, including $2.7 million reported as equity, resulting in the recognitionof a net pre-tax gain of $1.4 million. The net pre-tax gain is distributed gross on the statements of operations for the periodended December 31, 2009, as a $2.1 million charge characterized as a member agreement modification offset by a $3.5 millioncredit attributable to the non-controlling interest. Also operating gains decreased due to lower unrealized gain on notesreceivables by $1.5 million, primarily due to a $1.6 million gain for GEM in the prior year related to the repayment of$9.3 million of the tribal receivable. 23Table of ContentsOther income (expense). For 2009, other income increased by $0.6 million, or 159.7% consisting of an increase of interestand other income of $0.2 million or 126.2%, related to the accrued interest on the $5.0 million receivable from FireKeepers.Interest expense decreased $0.4 million, or 67.4% due to the reduction in interest expense related to the reduction ofoutstanding debt on the Company’s revolving line of credit and the pay off of the promissory note to Peters Family Trust.Income taxes. For 2009, the effective income tax rate is approximately 40%, compared to 45% for the same period in2008. The decrease in the effective tax rate from 2008 is primarily due to equity compensation deductions, along with a reducedproportion of state taxable income when compared to total taxable income. There is no valuation allowance on the deferred taxasset of $136,126 as of December 31, 2009 and management believes the deferred tax asset is fully realizable.Non-controlling interest. For 2009, the income attributable to non-controlling interest in consolidated joint ventureincreased by $0.5 million or 130.9%. The increase is attributable to RAM’s share of the increased net income in GEM of$1.0 million as compared to 2008. The GEM increased net income was due primarily to the approximately $10.0 million inmanagement fee income earned, related to the FireKeepers Casino.Liquidity and Capital ResourcesThe United States has experienced a widespread and severe recession accompanied by, among other things, weakness inthe commercial and investment banking systems resulting in reduced credit and capital financing availability, and highlycurtailed gaming and other recreational activities and general discretionary consumer spending, and is also engaged in war, allof which have far-reaching effects on economic conditions in the country for an indeterminate period. The effects and durationof these conditions and related risks and uncertainties on the Company’s future operations and cash flows, including its accessto capital or credit financing, cannot be estimated at this time, but may likely be significant.Harrington Raceway and Casino, FireKeepers Casino and Stockman’s Casino are currently our primary sources of recurringincome and significant positive cash flow. Our management agreement for the Harrington Casino in Delaware ends inAugust 2011 and our management agreement for the FireKeepers Casino in Michigan end in August 2016. There can be noassurance that either agreement will be extended. Under the management agreement for FireKeepers Casino, certaindistributions must be paid from net revenue prior to the payment of the management fee to us. In addition, although the timingof completion is currently unclear, the Gun Lake Tribe has commenced construction of a casino approximately a one hour drivenorthwest of FireKeepers Casino, which, when completed, may affect the revenues of FireKeepers Casino and ultimately ourmanagement fee.GEM began earning management fees from FireKeepers Casino in the third quarter of 2009, with the first payments madein September. Distributions from the Delaware operation are governed by the terms of the applicable joint venture agreementand management reorganization agreement. The total amount distributed from the Delaware operations for the year endedDecember 31, 2009 and 2008 to us was $4.8 million and $4.6 million, respectively, which is a 6.2% increase from prior year. Weexpect to continue receiving management fees as currently prescribed under the joint venture agreement, with a minimumguaranteed growth factor over the prior year of 5.0% in years 2010 through August 2011. The cash distributions increased 6.2%in 2009, as compared to the 5.0% minimum guaranteed growth factor as prescribed under the joint venture agreement, due tothe fact that the 5.0% growth factor represents cash distributed for the year earned and the 6.2% represents the cash distributedduring the year, reflecting timing differences.On a consolidated basis, for 2009, cash provided by operations increased $9.4 million over prior year primarily due to theFireKeepers management fees. Cash provided by investing activities decreased $13.9 million from the prior year primarily dueto cash proceeds generated from the sale of the Holiday Inn Express in February 2008 of $7.0 million and the repayment oftribal advances related to the FireKeepers project of $9.3 million in May 2008. In the prior-year period, the primary use of cashfor investing activities related to the purchases of contract rights. Cash used in financing activities decreased $11.1 millionprimarily due to decreased repayments of long-term debt. As of December 31, 2009, the Company had approximately$9.2 million in cash and availability on its revolving credit facility of $8.5 million. 24Table of ContentsOur future cash requirements include selling, general and administrative expenses, capital expenditures primarily atStockman’s and debt service. Subject to the economic uncertainties discussed above, we believe that adequate financialresources will be available to execute our current growth plan from a combination of operating cash flows and external debt andequity financing. However, continued downward pressure on cash flow from operations due to, among other reasons, the adverseeffects of the current economic environment and/or the lack of available funding sources due to, among other reasons, the recentunprecedented global contraction in available credit increases uncertainty with respect to our development and growth plans.Long-term debt includes a reducing revolving loan from Nevada State Bank. The maximum committed amount under theRevolver was increased from $8.1 million to $8.9 million, based upon the amendment to the Revolver dated June 25, 2009 andthe repayment terms were amended (as discussed below). The maximum amount permitted to be outstanding under the Revolverdecreased $312,000 on July 1, 2009. Effective January 1, 2010, based upon the amendment to the Revolver, the maximumamount permitted to be outstanding decreases $329,000 semiannually on January 1 and July 1 of each year and anyoutstanding amounts above such reduced maximum must be repaid on each such date. The reducing revolving loan is payableover 15 years at a variable interest rate based on the five-year LIBOR/Swap rate plus 2.1%. This rate, which was 7.24% perannum as of December 31, 2009 and 7.39% per annum as of December 31, 2008, adjusts annually based on the funded debt toEBITDA ratio of Stockman’s, with adjustments based on the five-year LIBOR/Swap rate occurring every five years. With thesale of the Holiday Inn Express in February 2008, the balance on the loan was reduced from $10.9 million to $3.9 million, andthe Company’s availability under the facility increased to approximately $5.3 million. In addition, periodic paymentrequirements were reduced on a pro-rata basis. On October 23, 2008, the Company paid additional principal of $0.6 million. InMarch, 2009, the Company made $2.3 million of voluntary principal payments on its revolving credit line, increasing theavailability under the line to $7.9 million. The remaining balance of $0.2 million was paid on November 23, 2009, and the lineof credit availability as of December 31, 2009 was $8.5 million.The loan agreement with Nevada State Bank also contains customary financial representations and warranties and requiresthat Stockman’s maintain specified financial covenants, including a fixed charge coverage ratio, a funded debt to EBITDA ratioand a minimum tangible net worth. In addition, the loan agreement limits the amount of distributions from and capitalexpenditures by Stockman’s. The loan agreement also provides for customary events of default including payment defaults andcovenant defaults. The Company is in technical default of a loan covenant that requires Stockmans to maintain a minimumtangible net worth based on an annually increasing calculation and has applied for a waiver, which management expects to beapproved based on Stockman Casino’s performance, our cash balance and the fact that we have fully repaid the Nevada StateBank loan. The technical default does not affect our line of credit availability and we have access to the full credit line amount.On June 30, 2009 the Company paid off the Peters Family Trust promissory note of $0.7 million plus $4,477 in accruedinterest with a drawdown of the Revolver. The original amount of the promissory note was $1.25 million, payable to the sellerof Stockman’s over 60 monthly installments of principal and interest and was secured by a second lien in the real estate ofStockman’s. Effective July 9, 2009 the second lien in the real estate of Stockman’s was released.In 2007, GEM acquired all of Green Acres’ interests in GEM for $10.0 million. GEM’s members equally funded an initialdeposit and periodic payments of approximately $0.6 million. The repayment was funded with $9.3 million of proceedsreceived from a partial payment on the notes receivable related to the FireKeepers project, which was tied to the constructionfinancing for the project. The net realizable value of the Michigan receivable has been classified as short term, as the remaining$5.0 million of notes receivable from the Authority was paid from the construction disbursement account on February 12, 2010.Additional projects are considered based on their forecasted profitability, development period, regulatory and politicalenvironment and the ability to secure the funding necessary to complete the development, among other considerations. As partof our agreements for tribal developments, we typically fund costs associated with projects which may include legal, civilengineering, environmental, design, training, land acquisition and other related advances while assisting the tribes in securingfinancing for the construction of the project. The majority of costs are advanced to the tribes and are reimbursable to us,pursuant to management and development agreements, as part of the financing of the project’s development. While each projectis unique, we forecast these costs when determining the feasibility of each opportunity. Such agreements to finance costsassociated with the development and furtherance of projects are typical in this industry and have become expected of tribalgaming developers. 25Table of ContentsAs of December 31, 2009, the Company had $9.2 million of cash. Approximately $1.0 million is on hand for operations,which is insured through Travelers Casualty & Surety Company of America for up to $1.0 million. Through Nevada State Bank,a subsidiary of Zions Bancorporation, $0.9 million is held in a non-interest bearing account, which is currently 100% FDIC-insured through June 30, 2010, and $7.4 million is held in a U. S. Government money market account. The Street.com ratedZions D+ in their January 6, 2010 report stating “the institution currently demonstrates significant weaknesses which couldnegatively impact depositors or creditors. In an unfavorable economic environment, these weaknesses could be magnified”.Bankrate.com rated Nevada State Bank as “below peer group” in its most recent report stating “as of September 30, 2009, thisbank exhibited a below average condition, characterized by substantially lower than normal overall, sustainable profitability,questionable asset quality, but with strong capitalization and seemingly ample liquidity”. As of February 26th, 2010, theCompany moved all of its cash balances held at Nevada State Bank into FDIC-insured accounts.FireKeepers projectGEM, our FireKeepers Casino joint venture, has the exclusive right to arrange the financing and provide casinomanagement services to the Michigan Tribe in exchange for a management fee, after certain other distributions are paid to theTribe, of 26% of net revenues (defined effectively as net income before management fees) for seven years which commencedupon the opening of the FireKeepers Casino on August 5, 2009. The terms of our management agreement were approved by theNIGC in December 2007 and a revised management agreement was approved in April 2008.In 2007, GEM acquired all of Green Acres’ interests in GEM for $10.0 million. GEM’s members equally funded an initialdeposit of $0.5 million in the second quarter of 2007, and the remaining balance was paid in May 2008. The repayment wasfunded with $9.3 million of proceeds received from a partial payment on the notes receivable related to the FireKeepers project,which was tied to the construction financing for the project. The remaining $5.0 million of notes receivable from the Authorityplus interest was paid in February 2010.In 2002, in exchange for funding a portion of the development costs, RAM advanced the Company $2.4 million, whichwas partially convertible into a capital contribution to the GEM joint venture upon federal approval of the land into trustapplication and federal approval of the management agreement with the Authority. Subsequently, RAM exercised itsconversion option on its $2.4 million loan to the Company. As a result, $2.0 million of the loan was converted to a capitalcontribution to the GEM joint venture, and the loan balance of $0.4 million, plus $0.6 million of accrued interest on theoriginal loan, became a liability of GEM. At December 31, 2009, GEM’s total liabilities to RAM were approximately$1.5 million, which bear no interest effective September 30, 2009, and are expected to be fully repaid in the first half of 2010.For the twelve month period ending December 31, 2009, the Company had loaned $0.4 million and RAM had loaned$0.4 million to GEM to fund current operating expenses and $4.3 million has been repaid to RAM from distributable GEMincome.On October 9, 2009, effective September 30, 2009, an agreement was reached between the Company and RAM (GEMFinancial Resolution) clarifying the treatment of the following items: • Reimbursable amounts funded by the members, due from the Michigan Tribe before the RAM buy-in as the prioragreements were silent on reimbursements to members. • Non-reimbursable amounts funded by the Company, related to the Michigan Tribe, as the prior agreements wereunclear if these were reimbursable by GEM to the Company. • Repayments of disproportionate advances by the Company as prior agreements were unclear as to whatpercentages would be used regarding repayment. 26Table of ContentsAs a result, payables due from GEM to each member were adjusted to reflect a total payable due to RAM of $8.5 million,including $2.7 million reported as equity, and a total payable due to the Company of $11.9 million, including $2.7 millionreported as equity, resulting in the recognition of a net pre-tax gain $1.4 million, which was recorded in September 2009. Thenet pre-tax gain is distributed gross on the statements of operations for the period ended September 30, 2009, as a $2.1 millioncharge characterized as a member agreement modification offset by a $3.5 million credit attributable to the non-controllinginterest. In addition, the GEM members agreed that distributions to the members will be made on a 50/50 basis to both membersuntil such time RAM’s member payable has been fully repaid and thereafter 70% to the Company and 30% to RAM until suchtime as the remaining payable to the Company has been repaid. Thereafter, distributions to members will be made on a 50/50basis. Also, no further interest accruals will be made on any member’ payables. As a result of the GEM member agreement, theCompany has reclassified the due to joint venture affiliate of $1.5 million as current portion of long-term debt with the balanceof the RAM payable classified as joint venture equity. For the twelve month period ending December 31, 2009, $4.3 million hasbeen repaid to RAM from GEM’s approximately $10.0 million management fee income.The FireKeepers Casino commenced operations on August 5, 2009. FireKeepers Casino is located at Exit 104 directly offInterstate 94 in Battle Creek, Michigan. FireKeepers has a 107,000 square foot gaming floor with 2,680 slot machines, 78 tablegames, a 120-seat poker room and a bingo hall. In addition, the property features five restaurants, including a 70-seat finedining signature restaurant, a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spacesincluding an enclosed 2,080-space parking garage attached to the casino. Although certain distributions (including a minimumguaranteed monthly payments to the Tribe of $50,000, a preferred payment to the Tribe of $0.2 million and repayment of loanprincipal to be paid out of the Tribe’s share of net revenues) will be paid from net revenue prior to the payment to the Companyof the management fee, the Company believes the property will generate sufficient revenues to pay the management fee equal to26% of net revenues on a monthly basis.Other projectsSince 2005, we have been party to development and management agreements with the Montana tribe for a proposed casinoto be built approximately 28 miles north of Sheridan, Wyoming. The Montana tribe currently operates the Charging Horsecasino in Lame Deer, Montana, consisting of 100 gaming devices, a 300-seat bingo hall and restaurant. As part of theagreements, we have committed on a best efforts basis to arrange financing for the costs associated with the development andfurtherance of this project up to $15.0 million. As of December 31, 2009, our advances to the Northern Cheyenne Tribe total$0.7 million.We are not obligated to fund the construction phase of our Northern Cheyenne project in Montana. The recent economicrecession and resulting impact on credit availability has significantly decreased the likelihood that financing could be obtainedon favorable terms if at all for the Montana project in the foreseeable future. The company intends to continue working with theNorthern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana, however, based on currenteconomic conditions the Company has determined that both the timing and feasibility of this project have become moredifficult to determine. As a result, we believe that the project assets are impaired and collectability is doubtful and the notesreceivable originally valued at $0.6 million and contract rights originally valued at $0.1 million related to the project werewritten down to zero value as of December, 2009, which resulted in an $0.7 million impairment loss.On March 19, 2008, we announced that we are no longer pursuing the Nambé Pueblo project. As of December 31, 2009, wehave advanced $0.7 million for the development of the project, all of which is expected to be reimbursed by the Pueblo throughrevenues from future gaming operations, if developed. The estimated fair value of the receivable from the Pueblo is now basedon the assumption that the Pueblo is in the process of developing a small casino addition to their existing travel center and willlikely have the ability to repay the advances from future cash flows of the project, once open, over a five-year period withinterest at prime plus 2% as per our agreement. However, the collectability ultimately depends on the successful developmentand operation of the project, which we have no influence over, and accordingly, we have discounted the payment stream using a23% discount rate. Accordingly, management believes that the Nambé Pueblo has the intent and will likely have the ability torepay the advances from future cash flows of the project once open. During February 2010, we were advised that the Pueblo hadlocated a willing financial source to fund the gaming development. Funding is expected during the first quarter of 2010 withthe expected facility opening within seven months of receipt of funding. There can be no assurance that a facility will open orthat we will receive all or part of the reimbursement. 27Table of ContentsAdditional projects are considered based on management’s forecasts of their profitability, development period, regulatoryand political environment and the ability to secure the funding necessary to complete the development, among otherconsiderations. As part of our agreements for tribal developments, we typically fund costs associated with projects which mayinclude legal, civil engineering, environmental, design, training, land acquisition and other related advances while assisting thetribes in securing financing for the construction of the project. The majorities of these costs are advanced to the tribes and arereimbursable to us, pursuant to management and development agreements, as part of the financing of the project’s development.While each project is unique, we forecast these costs when determining the feasibility of each opportunity. Such agreements tofinance costs associated with the development and furtherance of projects are typical in this industry and have become expectedof tribal gaming developers.Our agreements with the various Indian tribes contain limited waivers of sovereign immunity and, in many cases, providefor arbitration to enforce the agreements. Generally, our only recourse for collection of funds under these agreements is fromrevenues, if any, of prospective casino operations.At December 31, 2009, the notes receivable from Indian tribes have been discounted approximately $0.6 million below thecontractual value of the notes and the related contract rights are valued substantially below the anticipated cash flow from themanagement fees of the projects.On May 6, 2008, the Authority closed on the sale of $340.0 million of Senior Secured Notes and a $35.0 millionequipment financing facility to fund the development and construction of the tribe’s FireKeepers Casino in Michigan. On thesame date, GEM received a payment of approximately $9.3 million on its notes receivable from the Authority and the remaining$5.0 million was paid February 12, 2010. On May 6, 2008, GEM funded $2.1 million in financing costs on behalf of theAuthority, as required by the management agreement, which was recorded as additional gaming rights related to the Michiganproject. The Company and RAM each contributed one-half of the funds to GEM for GEM to make this funding. The FireKeepersCasino commenced operations on August 5, 2009.The Company continues to actively investigate, individually and with partners, new business opportunities. Managementbelieves they will have sufficient cash and financing available to fund acquisitions and development opportunities in thefuture.Item 7A. Quantitative and Qualitative Disclosures about Market Risk.As a smaller reporting company, the Company is not required to provide the information required by this item.Item 8. Financial Statements and Supplementary Data. Page Report of Independent Registered Public Accounting Firm 29 Consolidated Balance Sheets 30 Consolidated Statement of Operations 31 Consolidated Statements of Shareholder’s Equity 32 Consolidated Statements of Cash Flows 33 Notes to Consolidated Financial Statements 34 28Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of DirectorsFull House Resorts, Inc.Las Vegas, NVWe have audited the accompanying consolidated balance sheets of Full House Resorts, Inc. and Subsidiaries (the “Company”)as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and cash flowsfor the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility isto express an opinion on these financial statements based on our audits.We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit ofits internal control over financial reporting. Our audits included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinionon the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financialposition of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the yearsthen ended in conformity with accounting principles generally accepted in the United States./s/ Piercy Bowler Taylor & KernPiercy Bowler Taylor & KernCertified Public AccountantsLas Vegas, NevadaMarch 23, 2010 29Table of ContentsFULL HOUSE RESORTS, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2009 AND 2008 2009 2008 ASSETS Current assets Cash and equivalents $9,198,399 $5,304,755 Notes receivable related to tribal casino project 4,682,420 — Accounts receivable, net of allowance for doubtful accounts of $1,072 and $20,000 1,802,100 597,848 Prepaid expenses 372,735 504,021 Deferred tax asset 136,126 293,598 Deposits and other 90,685 98,209 Asset held for sale — 45,000 16,282,465 6,843,431 Property and equipment, net of accumulated depreciation, of $5,940,540 and $4,985,766 7,961,734 8,630,024 Long-term assets related to tribal casino projects Notes receivable 430,467 5,114,767 Contract rights, net of accumulated amortization of $1,748,570 and $729,228 15,617,016 16,795,552 16,047,483 21,910,319 Other assets Goodwill 10,308,520 10,308,520 Deposits and other 985,384 775,829 11,293,904 11,084,349 $51,585,586 $48,468,123 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt to joint venture affiliate $1,450,087 $— Current portion of long-term debt, other — 225,224 Accounts payable 136,485 239,059 Income taxes payable 2,273,777 115,485 Accrued expenses 1,012,226 906,332 4,872,575 1,486,100 Long-term debt due to joint venture affiliate, including accrued interest of $153,610 in2008, net of current portion — 3,137,600 Long-term debt, other, net of current portion — 3,066,639 Deferred tax liability 1,756,085 1,594,424 6,628,660 9,284,763 Stockholders’ equity Common stock, $.0001 par value, 25,000,000 shares authorized; 19,358,276 sharesissued in 2009 and 19,350,276 shares issued in 2008 1,936 1,935 Additional paid-in capital 42,665,390 42,356,098 Treasury stock, 1,356,595 and 1,210,414 common shares (1,654,075) (1,502,182)Deficit (1,504,320) (6,272,559) 39,508,931 34,583,292 Non-controlling interest in consolidated joint venture 5,447,995 4,600,068 44,956,926 39,183,360 $51,585,586 $48,468,123 See notes to consolidated financial statements. 30Table of ContentsFULL HOUSE RESORTS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 2009 2008 Revenues Casino $7,194,476 $7,483,644 Food and beverage 1,775,623 2,099,222 Management fees 9,953,009 — Other 89,575 89,075 19,012,683 9,671,941 Operating costs and expenses Casino 2,271,337 2,399,012 Food and beverage 1,970,309 2,321,907 Project development costs 218,353 151,120 Selling, general and administrative 6,473,117 6,262,084 Depreciation and amortization 2,090,094 1,213,636 13,023,210 12,347,759 Operating gains (losses) Equity in net income of unconsolidated joint venture, and related guaranteed payments 4,929,337 4,772,248 Unrealized gains on notes receivable, tribal governments 567,348 2,103,630 Member agreement modification (2,147,327) — Impairment and settlement losses (752,899) (585,000) 2,596,459 6,290,878 Operating income 8,585,932 3,615,060 Other income (expense) Interest and other income 389,008 171,962 Interest expense, including amortization of debt costs of $8,395 and $12,391 (173,819) (532,499)Income from continuing operations before income taxes 8,801,121 3,254,523 Income taxes (3,184,955) (1,307,085)Income from continuing operations net of income taxes 5,616,166 1,947,438 Income from discontinued operations, net of income taxes in 2008 of $23,377 — 38,145 Net income 5,616,166 1,985,583 Income attributable to non-controlling interest in consolidated joint venture (847,927) (367,293)Net income attributable to the Company $4,768,239 $1,618,290 Income from continuing operations per common share attributable to the Company Basic and diluted $0.26 $0.08 Income from discontinued operations per common share attributable to the Company Basic and diluted 0.00 0.00 Net income per common share attributable to the Company Basic and diluted $0.26 $0.08 Weighted-average number of common shares outstanding Basic and diluted 18,025,326 19,116,311 Amounts attributable to the Company: Income from continuing operations, net of tax $4,768,239 $1,580,145 Income from discontinued operations, net of tax — 38,145 Net income attributable to the Company $4,768,239 $1,618,290 See notes to consolidated financial statements. 31Table of ContentsFULL HOUSE RESORTS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 Additional Total Common stock Treasury stock paid-in Non-controlling stockholders’ 2009 Shares Dollars Shares Dollars capital Deficit interests equity Beginningbalances 19,350,276 $1,935 1,210,414 $(1,502,182) $42,356,098 $(6,272,559) $4,600,068 $39,183,360 Previouslydeferredshare-basedcompensationrecognized — — — — 288,893 — — 288,893 Issuances ofcommonstock 8,000 1 — — 20,399 — — 20,400 Purchase oftreasury stock — — 146,181 (151,893) — — — (151,893)Net income — — — — — 4,768,239 847,927 5,616,166 Ending balances 19,358,276 $1,936 1,356,595 $(1,654,075) $42,665,390 $(1,504,320) $5,447,995 $44,956,926 Additional Total Common stock Treasury stock paid-in Non-controlling stockholders’ 2008 Shares Dollars Shares Dollars capital Deficit interests equity Beginningbalances 19,342,276 $1,934 — $— $41,557,043 $(7,890,849) $4,232,775 $37,900,903 Previouslydeferredshare-basedcompensationrecognized — — — — 839,753 — — 839,753 Issuances ofcommonstock 8,000 1 — — 14,399 — — 14,400 Purchase oftreasury stock — — 1,210,414 (1,502,182) — — — (1,502,182)Income taxbenefit ofstock optionsexercised — — — — (55,097) — — (55,097)Net income — — — — — 1,618,290 367,293 1,985,583 Ending balances 19,350,276 $1,935 1,210,414 $(1,502,182) $42,356,098 $(6,272,559) $4,600,068 $39,183,360 See notes to consolidated financial statements 32Table of ContentsFULL HOUSE RESORTS, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 2009 2008 Cash flows from operating activities: Net income $4,768,239 $1,618,290 Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income of unconsolidated investee (3,468,195) (3,691,146)Distributions from unconsolidated investee 3,420,469 3,525,232 Non-controlling interest in consolidated joint venture 847,927 367,293 Unrealized gain on notes receivable, tribal governments (567,348) (2,103,630)Depreciation 1,070,752 1,155,334 Amortization of gaming and other rights 1,019,342 58,301 Impairment loss adjustments 752,899 85,000 Share-based compensation 309,293 799,056 Member agreement modification 2,147,327 — Increases and decreases in operating assets and liabilities: Accounts receivable (1,204,252) (277,983)Prepaid expenses 131,286 (152,362)Deferred tax asset 157,472 46,891 Deposits and other current assets 7,524 73,909 Other assets (156,263) 13,132 Accounts payable and accrued expenses 98,481 (250,829)Income taxes payable 2,158,292 115,485 Deferred tax liability 161,661 894,912 Net cash provided by operating activities 11,654,906 2,276,885 Cash flows from investing activities: Advances to tribal governments — (86,123)Net proceeds from sale of hotel — 6,961,020 Acquisition of contract rights and other assets — (2,092,720)Collection of tribal note receivable — 9,253,467 Purchase of property and equipment (404,679) (549,389)Proceeds from sale of assets 20,569 — Other 854 — Net cash provided by (used in) investing activities (383,256) 13,486,255 Cash flows from financing activities: Repayment of long-term debt (7,616,863) (18,660,575)Borrowings 395,000 1,728,512 Purchase of treasury stock (151,893) (1,502,182)Loan acquisition costs (4,250) — Net cash used in financing activities (7,378,006) (18,434,245)Net increase (decrease) in cash and equivalents 3,893,644 (2,671,105)Cash and equivalents, beginning of year 5,304,755 7,975,860 Cash and equivalents, end of year $9,198,399 $5,304,755 2009 2008 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $102,764 $440,561 Cash paid for income taxes $671,485 $815,210 NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital expenditures financed with accounts payable — $8,856 Debt refinanced through line of credit $705,989 — See notes to consolidated financial statements. 33Table of ContentsFULL HOUSE RESORTS, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. ORGANIZATION, NATURE AND HISTORY OF OPERATIONSNature of operations and key relationships. Full House Resorts, Inc. (“we,” “us,” “our,” “Full House” or the “Company”),develops, manages and/or invests in gaming related opportunities. The Company continues to actively investigate,individually and with partners, new business opportunities including commercial and tribal gaming operations. The Companyseeks to expand through acquiring, managing, or developing casinos in profitable markets.GED. We are a noncontrolling 50% investor in Gaming Entertainment (Delaware), LLC (“GED”), a joint venture withHarrington Raceway, Inc. (“HRI”). GED has a management contract through August 2011 with Harrington Raceway and Casino,at the Delaware State Fairgrounds in Harrington, Delaware (“Harrington Casino”). Harrington Casino has approximately 2,100gaming devices, a 450-seat buffet, a 50-seat diner, a gourmet steakhouse and an entertainment lounge area.Under the terms of a restructured management agreement with HRI, the Company is to receive the greater of 50% of GED’s prioryear management fees as prescribed under the management agreement or a 5% increase in our share of GED’s management feespaid in the prior year. The annual growth rate in 2009 through the expiration of the GED management contract in August 2011is 5% per year. (Note 3).GEM. We own 50% of Gaming Entertainment Michigan, LLC (“GEM”), a joint venture with RAM Entertainment, LLC(“RAM”), where we are the primary beneficiary and, therefore, consolidate in our consolidated financial statements. RAM is aprivately-held investment company. GEM has a management agreement with the Nottawaseppi Huron Band of PotawatomiIndians (the “Michigan Tribe”), for the development and management of the FireKeepers Casino near Battle Creek, Michigan.More specifically, our joint venture has the exclusive right to arrange the financing and provide casino management services tothe Michigan tribe in exchange for 26% of net profits for seven years and certain other specified consideration from any futuregaming or related activities conducted by the Michigan Tribe. The governing management agreement was approved by theNational Indian Gaming Commission (“NIGC”) in 2007 and an amended version containing provisions required by the projectfinancing investors was approved by the NIGC on April 21, 2008. In connection with the FireKeepers Development Authority(the “Authority”) financing of the FireKeepers Casino development, GEM funded its portion of the financing costs totaling$2.1 million which was recorded as additional contract rights related to the FireKeepers project in the second quarter of 2008.The financing costs were funded equally by the Company and RAM.On August 5, 2009, the FireKeepers Casino commenced operations. FireKeepers Casino is located at Exit 104 directly offInterstate 94 in Battle Creek, Michigan. FireKeepers has a 107,000 square foot gaming floor with 2,680 slot machines, 78 tablegames, a 120-seat poker room and a bingo hall. In addition, the property features five restaurants — including a 70-seat finedining signature restaurant — a 300-seat buffet and 150-seat 24-hour cafe, as well as approximately 3,000 parking spacesincluding an enclosed 2,080-space parking garage attached to the casino.In 2002, the Company entered into a joint venture membership agreement with RAM, a privately held investment company,whereby RAM was admitted as a 50% member in GEM and Gaming Entertainment (California), LLC, (GEC), consolidatedinvestee of the Company, in exchange for providing a portion of the necessary funding for the development of planned projectsin Michigan and California. Accordingly, RAM loaned Full House $2.4 million to fund the projects. Pursuant to the jointventure membership agreement, effective in 2007, RAM exercised its right to convert the loan into a $2.0 million capitalcontribution in, and a $0.4 million loan to GEM. In addition, accrued interest payable in the amount of $0.6 million, previouslydue on the original promissory note, was also converted into a loan to GEM which will mature no sooner than two years afterthe opening of the Michigan project. 34Table of ContentsOn October 9, 2009 (effective on September 30, 2009), a joint venture membership agreement modification (Note 8) wasreached between the Company and RAM (GEM Financial Resolution) clarifying the treatment of the following items: • Reimbursable amounts funded by the members, due from the Michigan Tribe before the RAM buy-in as the prioragreements were silent on reimbursements to members. • Non-reimbursable amounts funded by the Company, related to the Michigan Tribe, as the prior agreements wereunclear if these were reimbursable by GEM to the Company. • Repayments of disproportionate advances by the Company since prior versions of the agreement were unclear asto what percentages would be used regarding repayment.Stockman’s. In 2007, we acquired all of the outstanding shares of capital stock of Stockman’s Casino (Stockman’s) whichoperates Stockman’s Casino and until February 20, 2008, the Holiday Inn Express in Fallon, Nevada, when we sold the HolidayInn Express assets. Stockman’s has approximately 8,400 square feet of gaming space with approximately 265 slot machines,four table games and keno. The property also has a bar, a fine dining restaurant and a coffee shop.Other. The Company also has development and management agreements with the Northern Cheyenne Nation of Montana (the“Montana Tribe”) for the development and management of a 25,000 square foot gaming facility to be built approximately 28miles north of Sheridan, Wyoming. The management agreement provides for a management fee of 30% of revenues net of prizesand operating expenses and is subject to approval by the NIGC, while the development agreement obligates the Montana Tribeto reimburse any development advances from future gaming revenue in the event the management agreement is not approved.In January 2009, we forwarded to the new council a revised proposal for the casino development taking into account the currentstatus and availability of financing for the development project. The previously estimated fair value of the notes receivable andcontract rights related to the project were written down to zero value as of December, 2009, which resulted in $0.7 millionimpairment loss (Note 4).2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation and accounting. The consolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries, including Stockman’s Casino (“Stockman’s”). GEM, a 50%-owned investee of the Company that isjointly owned by RAM, has been consolidated pursuant to the guidance in Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) Topic 810, “Consolidation”. The Company accounts for its investment in GED(Note 3) using the equity method of accounting. All material intercompany accounts and transactions have been eliminated. Inaddition, on January 1, 2009, the Company retroactively adopted the requirements of ASC Topic 810 for the non-controlling orminority interest in a subsidiary. The adoption of Topic 810 did not have any effect on the Company’s consolidated net incomeor net income per share for the periods presented.Events through March 23, 2010, the date the financial statements were issued, were evaluated by management to determine ifadjustments to or disclosure in these interim consolidated financial statements were necessary (Note 15).The Company has not elected to adopt the option available under ASC Topic 825, “Financial Instruments”, to measure any ofits eligible financial instruments or other items. Accordingly, the Company continues to measure all of its assets and liabilitieson the historical cost basis of accounting except where carried at estimated fair value under other generally accepted accountingprinciples and disclosed herein.Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in theUnited States requires management to make estimates and assumptions that affect reported amounts. Accordingly, actual resultscould differ from those estimates. Estimated fair value of notes receivable and the recoverability of the Company’s investmentin other long-term assets related to Indian casino projects (Note 4) are particularly vulnerable to variation and could changematerially in the next year based on evolving developments.Cash equivalents. Cash in excess of daily requirements is invested in highly liquid short-term investments with initialmaturities of three months or less when purchased and are reported as cash equivalents in the consolidated financial statements. 35Table of ContentsConcentrations and economic risks and uncertainties. The United States is currently experiencing a widespread and severerecession accompanied by, among other things, weakness in the commercial and investment banking systems resulting inreduced credit and capital financing availability, and highly curtailed gaming and other recreational activities and generaldiscretionary consumer spending, and is also engaged in war, all of which are likely to continue to have far-reaching effects oneconomic conditions in the country for an indeterminate period. The Company’s operations are currently concentrated innorthern Nevada, Delaware and Michigan. Accordingly, future operations could be affected by adverse economic conditionsparticularly in those areas and their key feeder markets in neighboring states. The effects and duration of these conditions andrelated risks and uncertainties on the Company’s future operations and cash flows, including its access to capital or creditfinancing, cannot be estimated at this time, but may likely be significant.The Company frequently has cash on deposit substantially in excess of federally-insured limits, and the risk of losses related tosuch concentrations may be increasing as a result of recent economic developments. However, the extent of loss, if any, to besustained as a result of any future failure of a bank or other financial institution is not subject to estimation at this time.Except as discussed in the following paragraph, the Company’s credit risk (or market risk) is concentrated in short-term notesreceivable from tribal governments (Note 4). Advances to tribal governments, including contractual accrued interest, if any, arerecoverable solely from the future cash flows generated by the operations of the gaming facility and, although there can be noassurance that a facility will be opened, management does not believe that there currently is significant risk of loss associatedwith such investment, but considers its assessment of such risk in its fair value estimates. However, the maximum loss that couldbe sustained if such advances prove to be uncollectible is limited to the recorded amount of the receivable and the relatedcontract rights, less any allowances that may be provided.Accounts receivable are uncollateralized and carried, net of an appropriate allowance, at their estimated collectible value basedon customers’ past credit history and current financial condition and on current general economic conditions. Since credit isextended on a short-term basis, accounts receivables do not normally bear interest. The allowances for doubtful accountsrepresent allowances for accounts receivable that are estimated by management to be partially or entirely uncollectible. TheCompany records uncollectible allowances over 90 days old as a charge to selling, general and administrative expenses.Property and equipment. Property and equipment (Note 7) is stated at cost. Depreciation is computed using the straight-linemethod over the estimated useful lives of the assets.Debt issuance costs. Costs incurred in obtaining long-term financing are included in other assets, net of amortization over thelife of the related debt. At December 31, 2009, accumulated amortization of debt issuance costs was $41,864. The amount ofexpected amortization over each of the next five years will be approximately $15,000 per year.Investment in unconsolidated joint venture. The Company accounts for its investment in GED using the equity method ofaccounting (Note 3). The investment in GED was $0.1 million and $59,809 December 31, 2009 and 2008, respectively,included in deposits and other. The amounts due from HRI of $0.6 million and $0.4 million December 31, 2009 and 2008,respectively, are included in accounts receivable.Assets related to Indian casino projects. The Company evaluates the financial opportunity of each potential servicearrangement before entering into an agreement to provide financial support for the development of and subsequent managementservices for an Indian casino project. The Company accounts for its notes receivable from and management contracts with thetribes as separate assets.On January 1, 2008, the Company adopted the methods of fair value accounting described in ASC Topic 820, “Fair ValueMeasurements and Disclosures”, to value financial assets that were previously carried at estimated fair value under othergenerally accepted accounting principles. The adoption of ASC Topic 820 in the first quarter of 2008 did not have any effect onthe Company’s previously used fair value estimation methodology or on net income.Due to the absence of observable market quotes on the Company’s notes receivable from tribal governments (Note 4), theCompany’s financial assets that are recorded and subsequently measured at estimated fair value based only on level 3 inputsfrom among the three levels of the fair value hierarchy set forth in ASC Topic 820. Level 3 inputs are based primarily onmanagement’s estimates of expected cash flow streams, future interest rates, casino opening dates and discount rates. 36Table of ContentsThe estimated casino opening dates used in the valuations take into account project-specific circumstances such as ongoinglitigation, the status of required regulatory approvals, construction periods and other factors. Factors considered in thedetermination of an appropriate discount rate include discount rates typically used by gaming industry investors and appraisersto value individual casino properties in the appropriate regions, and discount rates produced by the widely-accepted CapitalAsset Pricing Model (“CAPM”). The following key assumptions are used in the CAPM: • S&P 500, average benchmark investment returns (medium-term horizon risk premiums); • Risk free investment return equal to the trailing 10-year average for 90-day treasury bills; • Investment beta factor equal to the average of a peer group of similar entities in the hotel and gaming industry; • Project-specific adjustments based on the status of the project (i.e., litigation, regulatory approvals, tribal politics,etc.), and typical size premiums for “micro-cap” and “low-cap” companies.A tabular summary of the current period activity related to notes receivable from tribal governments, is presented in Note 4.Upon opening of the casino, any difference between the then estimated fair value of the notes receivable and the amountcontractually due under the notes is amortized into income using the effective interest method over the remaining term of thenote. Such notes are then evaluated for impairment pursuant to ASC Topic 310, “Receivables”.Intangible assets consisting of contract rights related to the acquisition of the management contracts (contract rights) areperiodically evaluated for impairment based on the estimated cash flows from the management contract on an undiscountedbasis. In the event the carrying value of the intangible assets were to exceed the estimated undiscounted cash flow, thedifference between the estimated fair value and carrying value of the assets would be charged to operations as an impairmentloss. The Company expects to amortize the contract rights using the straight-line method over seven years, or the term of therelated management contract, whichever is shorter, typically beginning upon commencement of casino operations.Goodwill. Goodwill represents the excess of the purchase price over fair market value of net assets acquired in the Stockman’stransaction and relates to its casino operation. The Company performs a quarterly review of goodwill and whenever there mightbe an impairment “triggering” event as described in ASC Topic 360.Revenue recognition and promotional allowances. Casino revenue is the aggregate net difference between gaming wins andlosses, with liabilities recognized for funds deposited by customers before gaming play occurs (commonly called “casino frontmoney”) and for chips and tokens in the customers’ possession (outstanding chip and token liability). Hotel, food and beverage,entertainment and other operating revenues are recognized as services are performed, net of revenue-based taxes. Advance ticketsales are recorded as deferred revenue until services are provided to the customer. Revenues are recognized net of certain salesincentives, and accordingly, cash incentives to customers for gambling activity, including the cash value of points redeemed byPlayers Club members, totaling $0.4 million have been recognized as a direct reduction of casino revenue in 2009. Sales andsimilar revenue-linked taxes collected from customers are excluded from revenue but rather are recorded as a liability payable tothe appropriate taxing authority and included in accrued expenses. Revenue also does not include the retail value ofaccommodations, food and beverage, and other services gratuitously furnished to customers totaling $0.3 million in both 2009and 2008. The estimated cost of providing such gratuities is included primarily in casino expenses as follows: 2009 2008 Food and beverage $222,294 $137,360 Cash incentives 414,813 586,582 Other incentives 909 1,251 $638,016 $725,193 GEM receives a management fee of 26% of net profits from FireKeepers Casino, which is recorded monthly as earned on anaccrual basis. Typically, the payment is received in the following month. 37Table of ContentsShare-based compensation. For 2009 and 2008, share-based compensation expense of approximately $0.3 million and$0.9 million respectively, from stock awards (Note 12) is included in general and administrative expense. Unvested stock grantsmade in connection with the Company’s 2006 Incentive Compensation Plan and a consulting agreement with a director areviewed as a series of individual awards and the related share-based compensation expense has initially been deferred andrecorded as unearned stock-based compensation, shown as a reduction of stockholders’ equity, and will subsequently beamortized into operations as compensation expense as services are provided on a straight-line basis over the vesting period. Thevalue of the restricted stock at the date of grant is amortized through expense over the requisite service period using thestraight-line method. The Company believes the probability of forfeitures for granted shares of restricted stock to be extremelyremote and, therefore, currently estimates zero forfeitures in future periods for the following reasons. The Company grants sharesof restricted stock, rather than options, to key members of management and the Board of Directors. Since 2006, there have beenno forfeitures of such restricted shares granted and none are likely for the foreseeable future since currently, there are onlyunvested stock grants to the Company’s director, CFO and COO that fully vested in February 2010.Legal defense costs. The Company does not accrue for estimated future legal and related defense costs, if any, to be incurred inconnection with outstanding or threatened litigation and other disputed matters but rather, records such as period costs whenthe related services are rendered.Income taxes. Income tax-related interest and penalties, if any, are treated as part of income tax expense (benefit).Income per common share. Basic income or earnings per share (“EPS”) is computed based upon the weighted-average numberof common shares outstanding during the year. Diluted EPS is computed based upon the weighted average number of commonand common equivalent shares if their effect upon exercise would have been dilutive using the treasury stock method. As ofDecember 31, 2009 and 2008, there were no common equivalent shares which would have been dilutive and therefore thecalculations for basic EPS and diluted EPS are equal.Reclassifications. Certain minor reclassifications in prior year balances have been made to conform to the current presentation,which had no effect on previously reported net income.3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURESThe Company’s investment in unconsolidated joint venture is comprised of a 50% ownership interest in GED, a joint venturebetween the Company and Harrington Raceway Inc. (“HRI”). GED has a management agreement with Harrington Raceway andCasino (“Harrington”) (formerly known as Midway Slots and Simulcast), which is located in Harrington, Delaware. GED has nonon-operating income or expenses, is treated as a partnership for income tax purposes and consequently recognizes no federal orstate income tax provision. As a result, income from operations for GED is equal to net income for each period presented, andthere are no material differences between its income for financial and for tax reporting purposes.Under the terms of the joint venture agreement, as restructured in 2007, the Company receives the greater of 50% of GED’smember distribution as currently prescribed under the joint venture agreement, or a 5% growth rate in its 50% share of GED’sprior year member distribution through the expiration of the GED management contract in August 2011.As of the balance sheet dates presented, the Company’s assets and liabilities related to its investment in GED consisted of anaccount receivable from HRI of $0.6 million as of December 31, 2009 and $0.4 million as of December 31, 2008. Theinvestment in GED was $0.1 million and $59,809 December 31, 2009 and December 31, 2008, respectively, included indeposits and other.On June 19, 2009, HRI filed a demand for arbitration with the American Arbitration Association disputing the formula used forcomputing the minimum annual increase in the Company’s share of the management fee. 38Table of ContentsSummary financial information for GED as of and for the years ended December 31, 2009 and 2008 is as follows:CONDENSED BALANCE SHEET INFORMATION 2009 2008 Total assets $420,907 $636,553 Total liabilities 205,838 516,936 Members’ capital 215,069 119,617 CONDENSED STATEMENT OF INCOME INFORMATION 2009 2008 Revenues $24,255,490 $24,816,268 Net income 6,936,391 7,382,290 4. NOTES RECEIVABLE, TRIBAL GOVERNMENTSThe Company has notes receivable related to advances made to, or on behalf of, tribes to fund tribal operations anddevelopment expenses related to potential casino projects. Repayment of these notes is conditioned upon the development ofthe projects, and ultimately, the successful operation of the facilities. Subject to such condition, the Company’s agreementswith the tribes provide for the reimbursement of these advances plus applicable interest, if any, either from the proceeds of anyoutside financing of the development, the actual operation itself or in the event that the Company does not complete thedevelopment, from the revenues of any tribal gaming operation following completion of development activities undertaken byothers.As of December 31, 2009 and 2008, notes receivable from tribal governments were as follows: 2009 2008 Contractual (stated) amount: FireKeepers Development Authority $5,000,000 $5,000,000 Other 1,280,475 1,281,329 $6,280,475 $6,281,329 Estimated fair value of notes receivable: FireKeepers Development Authority $4,682,420 $4,097,002 Other 430,467 1,017,765 $5,112,887 $5,114,767 On May 6, 2008, the Authority closed on the sale of $340.0 million of Senior Secured Notes and a $35.0 million equipmentfinancing facility to fund the development and construction of the FireKeepers Casino in Michigan. On the same date, GEMreceived a payment of approximately $9.3 million on its notes receivable from the Authority which resulted in an increase inthe estimated fair value of the notes receivable of approximately $1.8 million recorded as an unrealized gain in the first quarterof 2008. The estimated net realizable value of the Michigan receivable was classified as short term as of December 31, 2008, asthe remaining $5.0 million was paid February 12, 2010. The FireKeepers Casino opened on August 5, 2009. Although certaindistributions (including a minimum guaranteed monthly payments to the Tribe of $50,000, a preferred payment to the Tribe of$0.2 million and repayment of loan principal to be paid out of the Tribe’s share of net revenues) will be paid from net revenueprior to the payment to the Company of the management fee, the Company believes the property will generate sufficientrevenues to pay the management fee equal to 26% of net revenues monthly.While we are not obligated to fund the construction phase of our Northern Cheyenne project in Montana, our agreements withthe tribe require us to arrange on a best efforts basis up to $15.0 million in tribal financing for the project. As of December 31,2009, our advances to the Northern Cheyenne Tribe total $0.7 million. 39Table of ContentsThe recent economic recession and resulting impact on credit availability has significantly decreased the likelihood thatfinancing could be obtained on favorable terms if at all for the Montana project in the foreseeable future. The company intendsto continue working with the Northern Cheyenne Nation to pursue the development of a casino near Lame Deer, Montana,however, based on current economic conditions management has determined that both the timing and feasibility of this projecthave become more difficult to determine. As a result, we believe that the project assets are impaired and collectability isdoubtful and the fair value of the notes receivable originally valued at $0.6 million and contract rights originally valued at$0.1 million related to the project were written down to zero value as of December 2009, which resulted in a $0.7 millionimpairment loss.In March 2008, management announced that the Company was no longer pursuing the Nambé Pueblo project. However, thePueblo tribe has acknowledged its obligation to repay reimbursable development advances of approximately $0.7 million plusinterest at prime plus 2%, out of any future gaming revenues, if any. Management currently believes that the Nambé Pueblointends to develop a slot machine operation with approximately 200 devices, which would be attached to its travel center andprovide the Pueblo tribe with the financial wherewithal to repay the amounts owed to the Company. The tribe has restated itsintent to repay the development advances from the gaming revenue once the slot machine operation commences operations.During February 2010, we were advised that the Pueblo had located a willing financial source to fund the gaming development.Funding is expected during the first quarter of 2010 with the expected facility opening within seven months of receipt offunding. With due consideration to the foregoing factors, management has estimated the fair value of the note receivable fromthe Nambé Pueblo at $430,467 as of December 31, 2009.During the second quarter of 2008, management formally approved and began executing a plan to sell land purchased for thedevelopment of the Manuelito project. As a result, as of June 30, 2008, the land was classified as a current asset characterized asheld for sale and adjusted to its then estimated net realizable value of $45,000, resulting in an impairment loss of $85,000recognized in the second quarter of 2008. During 2009, the Company recognized an additional $25,331 impairment loss priorto the October 15, 2009, sale of the Manuelito land to an unrelated third party for $24,500 less closing costs of $4,831 (Note 6).The following table summarizes the changes in the estimated fair value of notes receivable from tribal governments, based onlevel 3 inputs, from January 1, 2009, to December 31, 2009: 2009 FireKeepers Development Total Authority Other tribes Balances, January 1, 2009 $5,114,767 $4,097,002 $1,017,765 Other (854) — (854)Impairment loss (568,374) — (568,374)Unrealized gains 567,348 585,418 (18,070)Balances, December 31, 2009 $5,112,887 $4,682,420 $430,467 2008 FireKeepers Development Total Authority Other tribes Balances, January 1, 2008 $12,178,481 $11,189,358 $989,123 Total advances 108,029 — 108,029 Advances allocated to contract rights (24,030) — (24,030)Advances expensed as period costs 2,124 2,124 — Repayment of notes receivable (9,253,467) (9,253,467) — Unrealized gains 2,103,630 2,158,987 (55,357)Balances, December 31, 2008 $5,114,767 $4,097,002 $1,017,765 40Table of Contents5. CONTRACT RIGHTSContract rights are comprised of the following as of December 31, 2009 and 2008: Accumulated 2009 Cost amortization Net FireKeepers project, initial cost $4,155,213 $(247,334) $3,907,879 Firekeepers project, additional 13,210,373 (1,501,236) 11,709,137 $17,365,586 (1,748,570) $15,617,016 Accumulated 2008 Cost amortization Net Firekeepers project, initial cost $4,155,213 $— $4,155,213 Firekeepers project, additional 13,210,373 (729,228) 12,481,145 Other projects 159,194 — 159,194 $17,524,780 $(729,228) $16,795,552 Prior to 2007, the Company acquired the remaining 50% interest in three joint venture projects for $1.8 million, $1.1 millionallocated to the Michigan project for control of the development processes. Accordingly, amortization of these rightscommenced immediately with revisions to the development/amortization period accounted for prospectively as changes inestimates. Effective August, 2009, the remaining contract rights have been amortized on a straight-line basis over the seven yearterm of the GEM management contract.The initial cost of the Michigan contract rights were the result of a 1995 merger agreement whereby LA Associates, Inc. (“LAI”),(then owned 100% by a current director in the Company, Lee A. Iacocca) and Omega Properties, Inc. (then owned 30% byformer director, William P. McComas) merged into a wholly-owned subsidiary of Full House. Pursuant to the merger, theCompany issued a $0.4 million promissory note and 1,750,000 shares of common stock in return for contract rights primarilyrelated to the Michigan project. An independent valuation consultant was retained to assist in the valuation of the merger andthe contributed rights. The initial contract rights relate to the management of the Michigan project and amortization was beguneffective August, 2009, the opening date of the FireKeepers Casino, over the seven-year management contract period.During 2007, the Company executed an agreement to purchase contractual rights related to the Michigan casino from GreenAcres (“Green Acres”) for $10.0 million, which was contingent upon the opening of the Michigan casino project. The additionalcontract rights are amortized over the management contract period (seven years) commencing effective August, 2009, theopening date of the FireKeepers Casino.In connection with the Authority’s financing of the FireKeepers Casino development, GEM funded its portion of the financingcosts totaling $2.1 million which was recorded as additional contract rights related to the FireKeepers project in the secondquarter of 2008 as it is considered part of the cost of acquiring the management contract. The financing costs were fundedequally by the Company and RAM. The additional contract rights are amortized over the management contract period (sevenyears) commencing effective August, 2009, the opening date of the FireKeepers Casino. The estimated amortization expense ofcontract rights for each of the next five years is expected to be $2.4 million per year.6. FAIR VALUE OF FINANCIAL INSTRUMENTSThe carrying value of the Company’s cash and equivalents and accounts payable approximate fair value because of the shortmaturity of those instruments. Substantially all of the Company’s receivables are carried at estimated fair value determinedbased on level 3 inputs. As discussed in Notes 2 and 4, above. The estimated values of the Company’s debt approximate theirrecorded values at December 31, 2009, based on level 2 inputs consisting of interest rates offered to the Company for loans ofthe same or similar remaining maturities and bearing similar risks. 41Table of Contents7. PROPERTY AND EQUIPMENTAt December 31, 2009 and 2008, property and equipment consists of the following: Estimated useful lives 2009 2008 Land $1,885,400 $1,885,400 Buildings and improvements 10-39 5,580,045 5,580,045 Furniture and equipment 5-7 6,436,829 6,150,345 13,902,274 13,615,790 Less accumulated depreciation (5,940,540) (4,985,766) $7,961,734 $8,630,024 8. LONG-TERM DEBTAt December 31, 2009 and 2008, long-term debt consists of the following: 2009 2008 Long-term debt, due to co-venturer (RAM): Promissory notes, currently expected to be due in 2010, (no interest at December 31, 2009,and interest at 4.25% at December 31, 2008) $1,450,087 $3,137,600 Less current portion (1,450,087) — $— $3,137,600 Other: Reducing revolving loan, initial $16.0 million limit on January 31, 2007, due January 31,2022, interest at 2.1% above the five-year LIBOR/swap rate, adjusted annually (7.24% atDecember 31, 2009, and 7.39% at December 31, 2008) $2,469,275 Promissory note to Peter’s Family Trust, $1.25 million on January 31, 2007, paid in full asof June 30, 2009, interest at a fixed annual rate of 7.44% 822,588 3,291,863 Less current portion (225,224) $3,066,639 Long-term debt, due to co-venturer (RAM). As a result of the joint venture membership agreement modification discussed inNote 1, payables due from GEM to each member were adjusted to reflect a total payable due to RAM of $8.5 million, including$2.7 million reported as equity, and a total payable due to FHR of $11.9 million, including $2.7 million reported as equity,resulting in the recognition of a net pre-tax gain of $1.4 million in September 2009. The GEM members agreed thatdistributions to the members will be made on a 50/50 basis to both members until such time RAM’s member payable has beenfully repaid and thereafter 70% to the Company and 30% to RAM until such time as the remaining payable to the Company hasbeen repaid. Thereafter, distributions to members will be made on a 50/50 basis. Also, no further interest accruals will be madeon any member’ payables. As a result of the GEM Financial Resolution, the Company has reclassified the debt to joint ventureaffiliate of $1.5 million as current portion of long-term debt with the balance of the RAM payable classified as joint ventureequity. 42Table of ContentsReducing revolving loan (the “Revolver”). The maximum committed amount under the Revolver was increased from$8.1 million to $8.9 million, based upon the amendment to the Revolver dated June 25, 2009, and the repayment terms wereamended (as discussed below). The maximum amount permitted to be outstanding under the Revolver decreased $312,000 onJuly 1, 2009, and any outstanding amounts above such reduced maximum must be repaid. Effective January 1, 2010, basedupon the amendment to the Revolver, the maximum amount permitted to be outstanding decreases $329,000 semiannually onJanuary 1 and July 1 of each year and any outstanding amounts above such reduced maximum must be repaid on each suchdate. Draws on the Revolver are payable over 15 years at a variable interest rate based on the five year LIBOR/Swap rate plus2.1%. This rate adjusts annually based on the funded debt to EBITDA ratio of Stockman’s with adjustments based on the five-year LIBOR/Swap rates. Stockman’s assets are pledged as collateral for the loan. The Revolver also contains certain customaryfinancial representations and warranties and requires that Stockman’s maintain specified financial covenants, including a fixedcharge coverage ratio, a funded debt to EBITDA ratio and a minimum tangible net worth. In addition, the loan agreement limitsthe amount of distributions from and capital expenditures by Stockman’s. The loan agreement also provides for customaryevents of default including payment defaults and covenant defaults. The Company is in technical default of a loan covenantthat requires Stockmans to maintain a minimum tangible net worth based on an annually increasing calculation and has appliedfor a waiver, which management expects to be approved based on Stockman Casino’s performance, our cash balance and thefact that we have fully repaid the Nevada State Bank loan. The technical default does not affect our line of credit availabilityand we have access to the full credit line amount.During the first quarter of 2008, proceeds from the sale of the Hotel in Fallon, Nevada, were applied against outstandingbalances payable on the Revolver. The outstanding balance was reduced from $10.9 million to $3.9 million and the Company’savailability under the Revolver increased to approximately $4.8 million. In addition, periodic payment requirements werereduced on a pro-rata basis. As of June 30, 2009, the Company funded $0.7 million from the Revolver to pay off the amount dueon the Peters’ Family Trust Promissory Note (see below). As of November 23, 2009, the Revolver was paid in full. As ofDecember 31, 2009, the Company had $8.5 million available and unused under its revolving credit line.Peters Family Trust Promissory Note. On June 30, 2009, the Company paid off the Peters Family Trust promissory note of$0.7 million plus $4,477 in accrued interest with a drawdown of the Revolver. The original amount of the promissory note was$1.25 million and was payable to the seller of Stockman’s in 60 monthly installments of principal and interest and secured by asecond lien on the real estate of Stockman’s, which was released effective July 9, 2009.9. STOCKHOLDERS’ EQUITYOn July 7, 2008, the Company announced a stock repurchase plan (the “Repurchase Plan”). The Repurchase Plan did notobligate the Company to acquire any particular amount of common stock and could have been suspended at any time atmanagement’s discretion. The Repurchase Plan expired April 30, 2009 and is no longer in effect.Under the Repurchase Plan, the Company’s board of directors authorized the repurchase of up to $1.0 million of the Company’scommon stock in the open market or in privately negotiated transactions from time to time, in compliance with Rule 10b-18 ofthe Securities and Exchange Act of 1934, subject to market conditions, applicable legal requirements and other factors. OnOctober 14, 2008, the Company’s board of directors authorized the repurchase of an additional $1.0 million of the Company’scommon stock, and extended the expiration of the Repurchase Plan to April 30, 2009. Through December 31, 2009, theCompany had repurchased 1,356,595 shares at a weighted average-price per share of $1.22 ($1.6 million, includingcommissions and other related transaction costs).10. INCOME TAXESThe income tax provision consists of the following: 2009 2008 Current: Federal $2,255,965 $241,907 State 609,857 396,695 2,865,822 638,602 Deferred: Federal 223,572 691,860 State 95,561 319,133 691,860 3,184,955 1,330,462 Less discontinued operations (23,377)Continuing operations $3,184,955 $1,307,085 43Table of ContentsA reconciliation of the income tax provision relative to continuing operations with amounts determined by applying thestatutory U.S. Federal income tax rate of 34% to consolidated income before income taxes is as follows: 2009 2008 Tax provision at U.S. statutory rate $2,704,086 $981,658 State taxes, net of federal benefit 519,203 262,469 Other (benefit) (38,334) 62,958 $3,184,955 $1,307,085 At December 31, 2009 and 2008, the Company’s deferred tax assets (liabilities) consist of the following: 2009 2008 Deferred tax assets: Deferred compensation $37,186 $161,146 Prepaid expenses and accruals 84,479 84,280 Allowance for doubtful accounts 364 6,800 Depreciation of fixed assets 36,931 20,224 Other 53,487 41,371 212,447 313,821 Deferred tax liabilities: Interest in partnerships (74,743) — Amortization of gaming rights and unrealized gain on tribal receivables (946,274) (1,153,989)Amortization of goodwill (694,830) (460,658)Other (116,559) — (1,832,406) (1,614,647)Net deferred tax liability $(1,619,959) $(1,300,826)Management has made an analysis of its state and federal tax returns that remain subject to examination by major authorities(consisting of tax years 2006 through 2008) and concluded that the Company has no recordable liability for unrecognized taxbenefits as a result of uncertain tax positions taken.11. COMMITMENTSOperating leases. In November 2009, the Company entered into an agreement to lease office space as lessee throughSeptember 31, 2013. Effective February 1, 2009, Stockman’s entered into a lease agreement as lessee for its primary outdoorcasino sign until February 1, 2014.The total rent expense for all operating leases as of December 31, 2009 and 2008 was $133,978 and $139,815.Future minimum lease payments are as follows: 2010 $112,679 2011 119,782 2012 116,178 2013 95,177 2014 4,602 $448,418 Financing of Indian gaming projects. Through our management or development agreements, we are obligated to use our bestefforts to arrange financing for the Montana Tribe based on the project’s planned size and costs. Currently, it is estimated thatthe Montana project will require approximately $15.0 million in financing. 44Table of ContentsGEM distributions to member. Noninterest-bearing advances of $2.8 million in years prior to 2008 by RAM to GEM havebeen accounted for in the accompanying financial statements as capital contributions to the joint venture due to the uncertaintyas to GEM’s ability to repay the advances. It is the intent of GEM’s management to distribute these amounts upon thecommencement of receipt of management fees. The $2.8 million is composed of RAM’s funding of 50% the cost of acquiringthe land for the Michigan project in the amount of $1.9 million and additional advances of $0.9 million to fund GEMdevelopment expenditures.Employment agreements. The Company is obligated under employment agreements with certain key employees that providethe employee with a base salary, bonus, restricted stock grants and other customary benefits and severance in the event theemployee is terminated without cause or due to a “change of control,” as defined in the agreements. The severance amountsvary with the term of the agreement and can be up to two years’ base salary and an average bonus calculated as earned in theprevious three years. If such termination occurs within two years of a change of control, as defined in the agreements, or by theCompany without cause, the employee will receive a lump sum payment equal to no less than one year’s annual base salary, alump sum cash payment equal the average bonus earned in the previous three years, and the acceleration and vesting of allunvested shares and stock-based grants awarded upon the date of change of control, along with insurance costs, 401(k)matching contributions and certain other benefits total ranging from $1.4 million to $1.7 million, in the aggregate. In the eventthe employee’s employment terminates due to illness, incapacity or death, the severance amounts vary with the term of theagreement and can be up to two years’ base salary, an amount equal to the prior year bonus on a pro-rata basis to date oftermination, reimbursement of expenses incurred prior to date of termination, and applicable insurance and other group benefitproceeds, including those due under any Company long-term disability plan with an expected cost ranging from $0.1 million to$0.7 million per employee. In the event that the employee terminates his employment, with a minimum notice, the employeewill receive base salary, benefits and reimbursable expense that have been accrued and unpaid at the termination date; and anyearned, unpaid annual bonus declared by the Board at an expected cost of less than $50,000 per employee. If the Companyproperly terminates the executive’s employment for cause, the Company will be without further liability to the employee,except for payment of all base salary and benefits accrued but not paid through the date of such termination at an expected costof less than $50,000 per employee.Defined Contribution Pension Plan. The Company sponsors a defined contribution pension plan for all eligible employeesproviding for voluntary contributions by eligible employees and matching contributions by the Company. Matchingcontributions made by the Company were $107,083 and $93,488 for 2009 and 2008, respectively, excluding nominaladministrative expenses assumed by the Company.12. SHARE-BASED COMPENSATION PLANSIn 2006, the Company’s stockholders approved the 2006 Incentive Compensation Plan (the “Plan”), authorizing the issuance ofup to 1,100,000 restricted shares of the Company’s common stock as incentive compensation to officers, directors andconsultants. At that time, the Company’s compensation committee also approved the issuance of 668,000 shares of restrictedstock pursuant to the Plan, then valued at the closing price of the Company’s stock ($3.25), with no discount. Of the total sharesgranted, 145,500 immediately vested and the remaining 522,500 vested through February 2010, upon certain conditionsincluding continuous service of the recipient. The unvested grants are viewed as a series of individual awards and the relatedshare-based compensation expense has initially been recorded as deferred compensation expense, reported as a reduction ofstockholder’s equity, and will subsequently be amortized into compensation expense on a straight-line basis as services areprovided over the vesting period.Also in 2006, the Company entered into a consulting agreement with Lee Iacocca, one of its directors, under the terms of whichMr. Iacocca was to provide consulting services to the Company related to marketing and advertising through 2009. Inconsideration of these services, the Company granted Mr. Iacocca 300,000 restricted shares of the Company’s common stock in2006 valued at the closing price on the grant date with no discount, which vested in equal amounts over the three-year term ofthe agreement. Based upon the closing price of $3.73, the Company amortized $1.1 million of share-based compensationexpense though 2009. In addition, as part of the agreement, in 2008, Mr. Iacocca forfeited 250,000 options to purchase theCompany’s common stock at an exercise price of $3.69 per share that had previously been granted and vested. The restrictedstock grant was recorded as deferred compensation expense, reported as a reduction of stockholders’ equity and has beenamortized into compensation expense on a straight-line basis as services were provided, over the vesting period. The forfeitureof the 250,000 of options had no effect on the financial statements, since the options were fully vested. 45Table of ContentsIn 2007, the Company’s issued 110,000 shares of restricted stock, valued at the closing price of the Company’s stock ($3.64),with no discount. The shares vest annually through February 19, 2010, upon certain conditions including continuous service ofthe recipient. The unvested grants are viewed as a series of individual awards and the related share-based compensation expenseof $0.4 million has initially been recorded as deferred compensation, reported as a reduction of stockholder’s equity, and willsubsequently be recognized as compensation expense on a straight-line basis as services are provided over the vesting period.On May 29, 2008, the shareholders approved an additional allocation of 100,000 shares to the Plan. On July 11, 2008, theCompany issued 8,000 shares of unrestricted stock in conjunction with director compensation, which was valued at $14,400based on the closing price of the Company’s stock ($1.80), with no discount. Since the shares were fully vested at the date ofgrant, the Company recognized share-based compensation expense of $14,400 related to this grant during the third quarter of2008.On May 29, 2009, the Company issued 8,000 shares of unrestricted stock in conjunction with director compensation, which wasvalued at $20,400 based on the closing price of the Company’s stock ($2.55), with no discount. Since the shares were fullyvested at the date of grant, the Company recognized share-based compensation expense of $20,400 related to this grant duringthe second quarter of 2009.Included in 2008 share-based compensation expense is the amortization of $0.02 million for shares in 2008 not vested upontermination of employees and affiliates. At December 31, 2009, the Company has recorded deferred share-based compensationof $16,683, which is expected to be amortized through February 2010.The following table summarizes the Company’s restricted stock activity for the 2009 and 2008: 2009 2008 Weighted Weighted average average grant date grant date value (per value (per Shares share) Shares share) Unvested at beginning of year 275,419 $3.53 514,169 $3.52 Vested (238,752) 3.51 (238,750) 3.51 Forfeited Unvested at end of year 36,667 $3.64 275,419 $3.53 A summary of the status of Full House’s stock option plan as of December 31, 2008, and changes during the year then ended arepresented below: 2008 Weighted-average exercise Options Price Outstanding at beginning of year 75,000 $2.25 Exercised — — Forfeited (75,000) 2.25 Outstanding at end of year — — Exercisable at year-end — — 46Table of Contents13. CONTINGENCIESOn June 19, 2009, Harrington Raceway, Inc. filed a demand for arbitration, disputing the formula for computing the minimumpayment of our share of the management fee pursuant to the Management Reorganization Agreement dated June 18, 2007.Harrington Raceway’s demand would require the Company to refund $1.5 million in management fees. We have appeared in thematter and intend to vigorously defend the proceeding. A hearing date was held on February 15 and 16, 2010 and a decision isnot expected until sometime in April. Management believes that it is more likely than not that the Company will prevail in thearbitration, but we cannot guarantee that the arbitrator will not rule in favor of HRI based on the record. As of the March 23,2010 filing date, the arbitrator’s decision was not yet received.On October 20, 2008, the Company was served with a complaint in the Second Judicial District Court of Nevada in and forWashoe County by RAM and Robert A. Mathewson alleging breach of contract and other claims related to the resolution ofclaims by GEC, a consolidated investee of the Company, against the Torres-Martinez Tribe of California. Certain officers werenamed as individual defendants as well. Following a mediation session, the lawsuit was settled by the company agreeing to paya total of $0.5 million to the plaintiffs (included in impairment and settlement losses), $0.2 million payable on execution of thesettlement documents and $0.3 million payable within 30 days of the opening of the FireKeepers Casino but no later thanDecember 15, 2009. All claims against the individuals were dismissed outright and the claims against the company weredismissed. As of December 31, 2009, $0.5 million was paid to the plaintiffs in this case.From time to time, in the ordinary course of business, we receive notices of claims which are not material or are without merit.We investigate and review each claim and vigorously defend all meritless claims.14. SEGMENT REPORTINGThe Company’s operations are composed of three primary business segments. The casino operations segment includes theStockman’s Casino operation in Fallon, Nevada. Accordingly, the operating results of the hotel are reported as discontinuedoperations in the accompanying statements of operations, and are therefore excluded from the table below. Thedevelopment/management segment includes costs associated with tribal casino development and management projects and theMichigan and Delaware joint ventures and includes the current year impairment loss on Montana’s receivable and contractrights of approximately $0.7 million. The Corporate segment includes general and administrative expenses of the Company.Selected statement of operations data (excluding discontinued operations of $38,145, net of tax, in 2008) as of and for the yearsended December 31, 2009 and 2008 is as follows: Development/ 2009 Casino operations management Corporate Consolidated Revenues $9,048,686 $9,953,009 $10,988 $19,012,683 Selling, general and administrative expense 1,757,923 586,291 4,128,903 6,473,117 Depreciation and amortization 984,824 1,019,919 85,351 2,090,094 Operating gains — 2,596,459 — 2,596,459 Operating income 2,064,293 10,892,130 (4,370,491) 8,585,932 Income (loss) attributable to Company 1,365,673 6,301,194 (2,898,628) 4,768,239 Development/ 2008 Casino operations management Corporate Consolidated Revenues $9,670,541 $— $1,400 $9,671,941 Selling, general and administrative expense 1,899,791 465,589 3,896,704 6,262,084 Depreciation and amortization 1,086,323 58,637 68,676 1,213,636 Operating gains — 6,290,878 — 6,290,878 Operating income 1,963,511 5,620,319 (3,968,770) 3,615,060 Income (loss) attributable to Company 1,316,264 3,051,940 (2,788,059) 1,580,145 47Table of ContentsSelected balance sheet data for the years ended December 31, 2009 and 2008 is as follows: Development/ 2009 Casino operations management Corporate Consolidated Total assets $19,800,305 $22,790,171 $8,995,110 $51,585,586 Property and equipment, net 7,834,951 818 125,965 7,961,734 Goodwill 10,308,520 — — 10,308,520 Liabilities 1,125,099 2,871,553 2,632,008 6,628,660 Development/ 2008 Casino operations management Corporate Consolidated Total assets $20,468,311 $22,550,532 $5,449,280 $48,468,123 Property and equipment, net 8,443,650 1,394 184,980 8,630,024 Goodwill 10,308,520 — — 10,308,520 Liabilities 955,801 4,475,884 3,853,078 9,284,763 15. SUBSEQUENT EVENTSIn February 2010, GEM received $5.0 million from FireKeepers Casino for payment on the note receivable related to tribalcasino project plus interest. The funds were evenly distributed between the members, eliminating the Company’sDecember 2009 debt balance. 48Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A(T). Controls and Procedures.Evaluation of Disclosure Controls and Procedures — As of December 31, 2009, we completed an evaluation, under thesupervision and with the participation of our management, including our Chief Executive Officer and Chief FinancialOfficer/Chief Operating Officer of the effectiveness of the design and operation of our disclosure controls and procedures (asdefined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer/Chief Operating Officer concluded that our disclosure controls and procedures are effectiveat a reasonable assurance level in timely alerting them to material information relating to us which is required to be included inour periodic Securities and Exchange Commission filings.Evaluation of Internal Control Over Financial Reporting — Management of the Company is responsible forestablishing and maintaining adequate internal control over financial reporting. The Company’s internal control system wasdesigned to provide reasonable assurance to the Company’s management and board of directors regarding the preparation andfair presentation of published financial statements.Management assessed the effectiveness of the Company’s internal control over financial reporting (as defined in theSecurities Exchange Act of 1934 Rule 13a-15(f) and 15d-15(f)) as of December 31, 2009. In making this assessment, it used thecriteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment we believe that, as of December 31, 2009, the Company’s internal control overfinancial reporting is effective based on those criteria.This annual report does not include an attestation report of the Company’s registered public accounting firm regardinginternal control over financial reporting. Management’s report was not subject to attestation by the Company’s registeredpublic accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company toprovide only management’s report in this annual report.Item 9B. Other Information.None.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information required by this Item will be set forth under the captions “Proposal No. 1. Election of Directors” and“Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive Proxy Statement for our 2010 Annual Meeting ofStockholders (our “Proxy Statement”) to be filed with the Securities and Exchange Commission on or before April 30, 2010 andis incorporated herein by this reference.Item 11. Executive Compensation.The information required by this Item will be set forth under the caption “Executive Compensation” in our ProxyStatement and is incorporated herein by this reference. 49Table of ContentsItem 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 “Proposal No. 1. Election of Directors — SecurityOwnership of Certain Beneficial Owners and Management” and “Executive Compensation — Equity Compensation PlanInformation” in our Proxy Statement and is incorporated herein by this reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this Item will be set forth under the caption “Certain Transactions” in our Proxy Statementand is incorporated herein by this reference.Item 14. Principal Accountants’ Fees and Services.The information required by this Item will be set forth under the caption “Independent Registered Public AccountingFirm” in our Proxy Statement and is incorporated herein by this reference. 50Table of ContentsItem 15. Exhibits. (a) Financial statements of the Company (including related notes to consolidated financial statements) filed as part of thisreport are listed below: • Report of Independent Registered Public Accounting Firm; • Consolidated Balance Sheets as of December 31, 2009 and 2008; • Consolidated Statements of Operations for the years ended December 31, 2009 and 2008; • Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2009 and 2008; • Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008; • Notes to Consolidated Financial Statements. (b) Exhibits Exhibit Number Exhibit Description 2.1 Assignment and Sale Agreement dated March 30, 2001 by and among GTECH Corporation, Dreamport,Inc., GTECH Gaming Subsidiary 2 Corporation, Full House Resorts, Inc., and Full House Subsidiary, Inc.(Incorporated by reference to Full House’s Current Report on Form 8-K as filed with the Securities andExchange Commission on April 12, 2001) 2.2 Stock Purchase Agreement, dated April 6, 2006, between Full House Resorts, Inc. and the James R. PetersFamily Trust. (Incorporated by reference to Exhibit 2.1 to Full House’s Current Report on Form 8-K asfiled with the Securities and Exchange Commission on April 10, 2006) 3.1 Certificate of Incorporation as amended to date (Incorporated by reference to Exhibit 3.1 to Full House’sregistration statement on Form SB-2 (#333-136341) filed on August 4, 2006) 3.2 Amended and Restated Bylaws of Full House Resorts Inc. (Incorporated by reference to Exhibit 3.1 toFull House’s Current Report on Form 8-K as filed with the Securities and Exchange Commission onJune 4, 2008) 10.1 Amended and Restated Class III Management Agreement dated November 18, 1996 betweenNottawaseppi Huron Band of Potawatomi and Gaming Entertainment (Michigan) LLC (Incorporated byreference to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 1996) 10.2 Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment, LLC, datedFebruary 15, 2002 (Incorporated by reference to Full House’s Quarterly Report on Form 10-QSB for thequarter ended March 31, 2002) 10.3 Management Agreement by and between Gaming Entertainment (Delaware), LLC and HarringtonRaceway, Inc. dated January 31,1996 (Incorporated by reference to Full House’s Quarterly Report onForm 10-QSB for the quarter ended September 30, 2002) 10.4 Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC andHarrington Raceway, Inc. dated March 18, 1998 (Incorporated by reference to Full House’s QuarterlyReport on Form 10-QSB for the quarter ended September 30, 2002) 10.5 Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC andHarrington Raceway, Inc. dated July 1, 1999 (Incorporated by reference to Full House’s Quarterly Reporton Form 10-QSB for the quarter ended September 30, 2002) 10.6 Amendment to Management Agreement by and between Gaming Entertainment (Delaware), LLC andHarrington Raceway, Inc. dated February 4, 2002 (Incorporated by reference to Full House’s QuarterlyReport on Form 10-QSB for the quarter ended September 30, 2002) 10.7 Amendment to Investor Agreement by and between Full House Resorts, Inc. and RAM Entertainment,LLC, dated May 31, 2005 (Incorporated by reference to Exhibit 10.62 to Full House’s Annual Report onForm 10-KSB for the fiscal ended December 31, 2005) 51Table of Contents Exhibit Number Exhibit Description 10.8 Economic Development Agreement between Full House Resorts, Inc. and Northern Cheyenne Tribe datedMay 24, 2005 (Incorporated by reference to Exhibit 10.63 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) 10.9 Development Agreement by and among Pueblo of Nambé, Nambé Pueblo Gaming Enterprise Board andGaming Entertainment (Santa Fe), LLC dated as of September 20, 2005 (Incorporated by reference toExhibit 10.64 to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) 10.10 Security and Reimbursement Agreement by and among the Nambé Pueblo Gaming Enterprise Board,Gaming Entertainment (Santa Fe), LLC and the Pueblo of Nambé dated as of September 20, 2005(Incorporated by reference to Exhibit 10.65 to Full House’s Annual Report on Form 10-KSB for the fiscalended December 31, 2005) 10.11 Class III Gaming Management Agreement between the Northern Cheyenne Tribe and GamingEntertainment (Montana), LLC dated January 20, 2006 2005 (Incorporated by reference to Exhibit 10.67to Full House’s Annual Report on Form 10-KSB for the fiscal ended December 31, 2005) 10.12 Development Agreement by and between the Northern Cheyenne Tribe and Full House Resorts, Inc.dated May 24, 2005. (Incorporated by reference to Exhibit 10.68 to Full House’s Quarterly Report onForm 10-QSB for the quarter ended March 31, 2006) 10.13 Security and Reimbursement Agreement by and between the Northern Cheyenne Tribe and Full HouseResorts, Inc. dated August 23, 2005. (Incorporated by reference to Exhibit 10.69 to Full House’sQuarterly Report on Form 10-QSB for the quarter ended March 31, 2006) 10.14 Management Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment(Michigan), LLC dated June 12, 2006. (Incorporated by reference to Exhibit 10.70 to Full House’sCurrent Report on Form 8-K as filed with the Securities and Exchange Commission on June 16, 2006) 10.15 Loan Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment(Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.71 to Full House’sRegistration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) 10.16 Security Agreement between Nottawaseppi Huron Band of Potawatomi and Gaming Entertainment(Michigan), LLC dated November 3, 2002. (Incorporated by reference to Exhibit 10.72 to Full House’sRegistration Statement on Form SB-2 (#333-136341) filed on August 4, 2006) 10.17 Promissory Note by the Nottawaseppi Huron Band of Potawatomi dated November 3, 2002. (Incorporatedby reference to Exhibit 10.73 to Full House’s Registration Statement on Form SB-2 (#333-136341) filedon August 4, 2006) 10.18 2006 Incentive Compensation Plan (Incorporated by reference to Appendix E to Full House’s DefinitiveProxy Statement as filed with the Securities and Exchange Commission on May 1, 2006) 10.19 Form of Restricted Stock Agreement. (Incorporated by reference to Exhibit 10.75 to Full House’sQuarterly Report on Form 10-QSB as filed with the Commission on August 14, 2006) 10.20 Consulting Agreement dated September 25, 2006 between Full House and Lee Iacocca. (Incorporated byreference to Exhibit 10.66 to Full House’s Amendment No. 1 to Registration Statement on Form SB-2(#333-136341) filed on September 27, 2006) 10.21 Reducing Revolving Loan Agreement, dated January 31, 2007 between Full House Resorts, Inc. andNevada State Bank. (Incorporated by reference to Exhibit 10.80 to Full House’s Current Report onForm 8-K as filed with the Securities and Exchange Commission on February 5, 2007) 10.22 Reducing Revolving Promissory Note, dated January 31, 2007 by Full House Resorts in favor of NevadaState Bank. (Incorporated by reference to Exhibit 10.81 to Full House’s Current Report on Form 8-K asfiled with the Securities and Exchange Commission on February 5, 2007) 10.23 Promissory Note, dated January 31, 2007 by Full House Resorts in favor of The James R. Peters FamilyTrust Dated October 18, 2002. (Incorporated by reference to Exhibit 10.82 to Full House’s Current Reporton Form 8-K as filed with the Securities and Exchange Commission on February 5, 2007) 52Table of Contents Exhibit Number Exhibit Description 10.24 Purchase and Sale Agreement, dated May 15, 2007, between Gaming Entertainment (Michigan), LLC andGreen Acres Casino Management, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s CurrentReport on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) 10.25 Termination of Consulting Agreement, dated June 4, 2007, between Full House Resort, Inc., and HardRock Cafe International (USA), Inc. (Incorporated by reference to Exhibit 10.2 to Full House’s CurrentReport on Form 8-K as filed with the Securities and Exchange Commission on May 31, 2007) 10.26 Management Reorganization Agreement, dated June 18, 2007 by Gaming Entertainment (Delaware),LLC and Harrington Raceway, Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s CurrentReport on Form 8-K as filed with the Securities and Exchange Commission on June 21, 2007) 10.27 Employment Agreement, dated July 17, 2007, between Full House Resorts, Inc. and Andre Hilliou.(Incorporated by reference to Exhibit 10.1 to Full House’s Current Report on Form 8-K as filed with theSecurities and Exchange Commission on July 20, 2007) + 10.28 Employment Agreement, dated July 17, 2007, between Full House Resorts, Inc. and Mark J. Miller.(Incorporated by reference to Exhibit 10.2 to Full House’s Current Report on Form 8-K as filed with theSecurities and Exchange Commission on July 20, 2007) + 10.29 Employment Agreement, dated April 10, 2007, between Full House Resorts, Inc. and Wes Elam(Incorporated by reference to Exhibit 10.3 to Full House’s Current Report on Form 8-K as filed with theSecurities and Exchange Commission on April 26, 2007) + 10.30 Agreement of Sale and Purchase, dated October 1, 2007 between Stockman’s Casino, Inc. and DhillonHospitality Management Inc. (Incorporated by reference to Exhibit 10.1 to Full House’s Current Reporton Form 8-K as filed with the Securities and Exchange Commission on October 5, 2007) 10.31 Amendment to Reducing Revolving Loan Agreement dated as of the 25th day of June, 2009, by andbetween the Company and Nevada State Bank. (Incorporated by reference to Exhibit 10.1 to Full House’sCurrent Report on Form 8-K as filed with the Securities and Exchange Commission on July 1, 2009) 10.32 Amendment to Reducing Revolving Promissory Note dated as of the 25th day of June, 2009, by andbetween the Company and Nevada State Bank. (Incorporated by reference to Exhibit 10.2 to Full House’sCurrent Report on Form 8-K as filed with the Securities and Exchange Commission on July 1, 2009) 21 List of Subsidiaries of Full House Resorts, Inc. * 23 Consent of Piercy Bowler Taylor & Kern Certified Public Accountants* 31.1 Certification of principal executive officer pursuant to 18 U.S.C. section 1350, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 * 31.2 Certification of principal financial officer pursuant to 18 U.S.C. section 1350, as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 * 32.1 Certification of principal executive and financial officers pursuant to 18 U.S.C. section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * * Filed herewith. + Executive compensation plan or arrangement. 53Table of ContentsSIGNATURESIn accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to besigned on its behalf by the undersigned thereunto duly authorized. FULL HOUSE RESORTS, INC. Date: March 23, 2010 By: /s/ ANDRE M. HILLIOU Andre M. Hilliou, Chief Executive Officer In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons onbehalf of the Registrant and in the capacities and on the dates indicated. Name and Capacity Date /s/ J. MICHAEL PAULSONJ. Michael Paulson, Director March 23, 2010 /s/ ANDRE M. HILLIOUAndre M. Hilliou, Chief Executive Officer and DirectorChairman of the Board(Principal Executive Officer) March 23, 2010 /s/ LEE A. IACOCCALee A. Iacocca, Director March 23, 2010 /s/ KEN ADAMSKen Adams, Director March 23, 2010 /s/ CARL G. BRAUNLICHCarl G. Braunlich, Director March 23, 2010 /s/ KATHLEEN CARACCIOLOKathleen Caracciolo, March 23, 2010Director /s/ MARK J. MILLERMark J. Miller, Chief Financial Officer and COO(Principal Financial and Accounting Officer) March 23, 2010 54EXHIBIT 21LIST OF SUBSIDIARIES OF FULL HOUSE RESORTS, INC. NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION Full House Subsidiary, Inc. Delaware Full House Subsidiary II, Inc. Nevada Gaming Entertainment (Delaware), LLC* Delaware Gaming Entertainment (Michigan), LLC* Delaware Gaming Entertainment (Santa Fe) LLC Nevada Gaming Entertainment (Montana) LLC Nevada Stockman’s Casino Inc. Nevada * 50% owned. EXHIBIT 23CONSENT OF PIERCY BOWLER TAYLOR & KERN CERTIFIED PUBLIC ACCOUNTANTSBoard of DirectorsFull House Resorts, Inc.Las Vegas, NevadaWe consent to the incorporation by reference in the registration statement of Full House Resorts, Inc. on Form S-8 (File No. 333-29299) of our report dated March 23, 2010, included in this Annual Report on Form 10-K, on the consolidated financialstatements of Full House Resorts, Inc. and Subsidiaries as of and for the years ended December 31, 2009 and 2008./s/ Piercy Bowler Taylor & KernPiercy Bowler Taylor & Kern,Certified Public AccountantsLas Vegas, NevadaMarch 23, 2010 Exhibit 31.1CERTIFICATIONI, Andre M. Hilliou, certify that: 1. I have reviewed this annual report on Form 10-K of Full House Resorts, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the small business issueras of, and for, the periods presented in this report; 4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the small business issuer,including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting thatoccurred during the small business issuer’s most recent quarter (the small business issuer’s fourth quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially effect the smallbusiness issuer’s internal control over financial reporting; and 5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the small business issuer’s auditors and the audit committee of the smallbusiness issuer’s board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financialreporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process,summarize and report financial information; and b) Any fraud, whether or not material, that involves management of other employees who have a significant role inthe small business issuer’s internal controls over financial reporting. Dated: March 23, 2010 By: /s/ ANDRE M. HILLIOU Andre M. Hilliou Chief Executive Officer Exhibit 31.2CERTIFICATIONI, Mark Miller, certify that: 1. I have reviewed this annual report on Form 10-K of Full House Resorts, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairlypresent in all material respects the financial condition, results of operations and cash flows of the small business issueras of, and for, the periods presented in this report; 4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosurecontrols and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f)) and internal control over financial reporting (asdefined in Exchange Act Rules 13a-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the small business issuer,including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reportingto be designed under our supervision, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles; c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented inthis report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of theperiod covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting thatoccurred during the small business issuer’s most recent quarter (the small business issuer’s fourth quarter in thecase of an annual report) that has materially affected, or is reasonably likely to materially effect the smallbusiness issuer’s internal control over financial reporting; and 5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation ofinternal control over financial reporting, to the small business issuer’s auditors and the audit committee of the smallbusiness issuer’s board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financialreporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process,summarize and report financial information; and b) Any fraud, whether or not material, that involves management of other employees who have a significant role inthe small business issuer’s internal controls over financial reporting. Dated: March 23, 2010 By: /s/ MARK MILLER Mark Miller Chief Financial Officer and Chief Operating Officer  Exhibit 32.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERPURSUANT TO 18 U.S.C. SECTION 1350In connection with the Annual Report on Form 10-K of Full House Resorts, Inc. for the year ended December 31, 2009 as filedwith the Securities and Exchange Commission (the “Report’), I, Andre M. Hilliou, Chief Executive Officer of Full HouseResorts, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Actof 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of Full House Resorts, Inc. Dated: March 23, 2010 By: /s/ ANDRE M. HILLIOU Andre M. Hilliou Chief Executive Officer  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350In connection with the Annual Report on Form 10-K of Full House Resorts, Inc. for the year ended December 31, 2009 as filedwith the Securities and Exchange Commission (the “Report”) I, Mark Miller, Chief Financial Officer and Chief OperatingOfficer of Full House Resorts, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of Full House Resorts, Inc. Dated: March 23, 2010 By: /s/ MARK MILLER Mark Miller Chief Financial Officer and Chief Operating Officer 

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