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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our results of operations and financial condition should be read together with the other financial information and consolidated financial statements included in this Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from the results anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Item 1A. “Risk Factors” and elsewhere in this report. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House,” the “Company,” “we,” “our” or “us.”

Executive Overview

Our primary business is the ownership and/or operation of casino and related hospitality and entertainment facilities, which includes offering casino gambling, hotel accommodations, dining, golfing, RV camping, sports betting, entertainment and retail outlets, among other amenities. We own or operate five casino properties in four states – Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada

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properties as one operating segment. We also benefit from six permitted sports “skins” that we are allowed to operate, three in Colorado and three in Indiana. We have contracted with other companies to operate these online sports wagering sites under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. As of today, two of our three permitted betting “skins” are live in Colorado, and one of our three permitted “skins” is live in Indiana. We expect our three remaining “skins” to begin operation within the next few months.

Our portfolio consists of the following:

Property Location

Silver Slipper Casino and Hotel ​ Hancock County, MS(near New Orleans)

Bronco Billy’s Casino and Hotel ​ Cripple Creek, CO(near Colorado Springs)

Rising Star Casino Resort ​ Rising Sun, IN(near Cincinnati)

Stockman’s Casino ​ Fallon, NV(one hour east of Reno)

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Our financial results are dependent upon the number of patrons that we attract to our properties and the amounts those guests spend per visit. While we provide credit at some of our casinos where permitted by gaming regulations, most of our revenues are cash-based, through customers wagering with cash or paying for non-gaming services with cash or credit cards. Our revenues are primarily derived from slot machines, but also include other gaming activities, including table games, keno and sports betting. In addition, we derive a significant amount of revenue from our hotels and our food and beverage outlets. We also derive revenues from our golf course and ferry boat service at Rising Star, our recreational vehicle parks (“RV parks”) owned at Rising Star and managed at Silver Slipper, and retail outlets and entertainment.

We set minimum and maximum betting limits for our slot machines and table games based on market conditions, customer demand and other factors. Our gaming revenues are derived from a broad base of guests that includes both high- and low-stakes players. At Silver Slipper, our sports book operations are in partnership with a company specializing in race and sports betting. At both Rising Star and Bronco Billy’s, we have contracted with other companies to operate our on-site and online sports wagering skins under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. Our operating results may also be affected by, among other things, overall economic conditions affecting the disposable income of our guests, weather conditions affecting access to our properties, achieving and maintaining cost efficiencies, taxation and other regulatory changes, and competitive factors, including but not limited to, additions and improvements to the competitive supply of gaming facilities, as well as pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases such as the coronavirus.

We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of results in future periods.

Our market environment is highly competitive and capital-intensive. We rely on the ability of our properties to generate operating cash flow to pay interest, repay debt, and fund maintenance and certain growth-related capital expenditures. We continuously focus on improving the operating margins of our existing properties through a combination of revenue growth and expense management. We also assess growth and development opportunities, which include capital investments at our existing properties, the development of new properties, and the acquisition of existing properties.

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Recent Developments

COVID-19 Pandemic. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, the number of newly-reported cases has declined from levels seen in late 2020 and early 2021. Additionally, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed throughout the world. At the start of the pandemic and continuing through today, COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties began reopening when permitted by local authorities. We reopened the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020. During the shutdown period, we evaluated labor, marketing and other costs at our businesses so that, upon reopening, our properties could reopen with significantly lower operating costs. As a result, our operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout our casinos and in our restaurants. The extent to which our financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; increased operating costs in light of social distancing requirements as a result of COVID-19; and general economic conditions, among others.

As of December 31, 2020, we believe we had a strong balance sheet and sufficient liquidity in place, including total cash and cash equivalents of $38 million. In February 2021, we issued the 2028 Notes, which further increased our cash balances. As of February 28, 2021, we had total cash and cash equivalents of approximately $232 million, which includes $180 million of restricted cash reserved to fund the Cripple Creek Project.

Debt Refinancing. On February 12, 2021, we issued $310 million of new 2028 Notes. The proceeds were used to redeem all $106.8 million of our senior secured notes due 2024 (the “Prior Notes”) and to repurchase all outstanding warrants totaling approximately 1.0 million shares. Additionally, $180 million of bond proceeds were placed in a construction reserve account to fund the Cripple Creek Project, including designing, developing, constructing, equipping and opening the project. Proceeds were also used to pay the transaction fees and expenses related to the offering, leaving approximately $8 million added to our unrestricted cash balances.

Sports Wagering in Indiana and Colorado. In late 2020, an affiliate of Wynn Resorts launched its mobile sports offering in Colorado through the use of one of our permitted sports wagering “skins.” As of today, two of our three permitted skins are live in Colorado and one of our three permitted skins is live in Indiana. We expect our three remaining skins to go live in the next few months. We receive a percentage of defined revenues of each skin, subject to annual minimums. When all six skins are in operation, we should receive at least $7 million per year of sports gaming revenues. Since we incur very little expense related to these operations, almost all of such revenues should result in income.

Cripple Creek Project. In 2018, we began planning and design work on our Cripple Creek Project, a new and distinct luxury hotel and casino located adjacent to our existing Bronco Billy’s. Reflecting changes made to the state’s gaming laws in November 2020, including the elimination of betting limits and the approval of new table games, we increased the size of our planned Cripple Creek expansion by 67% to approximately 300 luxury guest rooms and suites, from our previously planned 180 guest rooms. Such plans were approved by the Cripple Creek Historic Preservation Commission and Cripple Creek City Council in January and February 2021. The expected investment to complete the Cripple Creek expansion is $180 million, which we funded in February 2021 through the issuance of the 2028 Notes. With the funding complete, we started construction of the expanded luxury casino and hotel in late February 2021. We had previously intended to build the smaller project in two stages. In light of the regulatory changes and our ability to fund the entire expanded project, we now intend to build the Cripple Creek Project all at once, with completion expected in the fourth quarter of 2022.

Waukegan Proposal. On October 29, 2019, we submitted an Owners Gaming License Application to the Illinois Gaming Board (“IGB”) to develop and operate American Place, a casino and entertainment destination in Waukegan, Illinois. We continue to be one of three bidders for the Waukegan gaming license, which addresses an area midway between Chicago and

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Milwaukee with high population density and no existing casino. If awarded the license by the IGB, we intend to develop and operate a temporary casino on that site while American Place is being constructed. American Place would include a world-class casino with a state-of-the-art sportsbook; a premium boutique hotel comprised of twenty luxurious villas, each ranging from 1,500 to 2,500 square feet with full butler service; a 1,500-seat live entertainment venue; and various food and beverage outlets. American Place was one of three proposals certified by the Waukegan City Council in late 2019. At that time, the city’s consultant ranked American Place the top proposal amongst the various submissions on numerous different criteria.

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In October 2020, we signed a commitment letter with a multi-billion-dollar investment management firm that has experience with casino construction projects. The commitment letter anticipates fully funding the project with non-recourse development capital. Under terms of the commitment letter, we would be required to invest $25 million into the project as equity, will own no less than 60% of the project, and will receive management fees for operating the casino and related amenities. The commitment letter is conditioned upon us being awarded the Waukegan casino license by the IGB and the investment firm’s further due diligence review, among other items. No assurance can be given that we will be awarded the license by the IGB or that we will meet the other conditions under the commitment letter.

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According to the IGB, the process for it to choose the preferred developer has been slowed by the pandemic. In December 2020, the IGB issued a request for proposals for an investment bank or similar consultant to advise the IGB in assessing the various proposals. In January 2021, the IGB indicated that it received no responses to its RFP and was considering next steps, including the possible issuance of a revised RFP. The IGB Administrator has indicated that he believes the IGB can make a preliminary suitability determination within six months of hiring an appropriate financial consultant.

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Key Performance Indicators

We use several key performance indicators to evaluate the operations of our properties. These key performance indicators include the following:

Gaming revenue indicators:

Slot coin-in is the gross dollar amount wagered in slot machines and table game drop is the total amount of cash or credit exchanged into chips at table games for use by our customers. Slot coin-in and table game drop are indicators of volume.

Slot win is the difference between customer wagers and customer winnings on slot machines. Table game hold is the difference between the amount of money or markers exchanged into chips at the tables and customer winnings paid. Slot win and table game hold percentages represent the relationship between slot win and coin-in and table game win and drop.

Room revenue indicators:

Hotel occupancy rate is an indicator of the utilization of our available rooms. Complimentary room sales, or the retail value of accommodations furnished to customers free of charge, are included in the calculation of the hotel occupancy rate.

Adjusted EBITDA, Adjusted Property EBITDA and Adjusted Property EBITDA Margin:

Management uses Adjusted EBITDA as a measure of our performance. For a description of Adjusted EBITDA see “Non-GAAP Measure.” We utilize Adjusted Property EBITDA as the measure of segment profit in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 12 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data.” Additionally, we use Adjusted Property EBITDA Margin, which is calculated by dividing Adjusted Property EBITDA by the property’s revenues.

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Results of Operations – 2020 Compared to 2019

Consolidated operating results

The following summarizes our consolidated operating results for the years ended December 31, 2020 and 2019, and reflects the mandatory closure of all of our properties for approximately three months beginning in March 2020 due to the pandemic.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​

(In thousands) ​ December 31, ​ Percent

Interest and other non-operating expenses, net ​ 10,421 ​ 11,958 (12.9) %

Income tax (benefit) expense ​ (92) ​ 80 (215.0) %

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The following table details the components of our total revenues for the twelve months ended December 31, 2020 and 2019, which are comprised of casino and non-casino operations.

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Years Ended ​ ​ ​

(In thousands) ​ December 31, ​ Percent

Casino revenues ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-casino revenues, net ​ ​ ​

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The following discussion is based on our consolidated financial statements for the years ended December 31, 2020 and 2019, unless otherwise described. Because all of our operations were closed from mid-March 2020 through much of the second quarter of 2020, the comparisons for these years are not particularly meaningful. For further discussions, refer to “Operating results – reportable segments” below.

Revenues. Consolidated revenues decreased by 24.1%, primarily due to the mandatory closure of all of our properties in March 2020 for approximately three months, as well as capacity restrictions upon reopening. The first of our properties reopened on May 21, 2020, and all of our properties had reopened by June 15, 2020. Upon our reopening, our properties have been constrained by efforts to maintain “social distancing” during the pandemic, including reductions in the number of slot machines we are permitted to operate, the number of people that we can accommodate at each table game, the seating capacity of our bars and restaurants, and restrictions on the types of food service we can offer. Those restrictions continued through the end of 2020. Partially offsetting this, our contracted mobile sports operations generated $2.2 million and $0.1 million of revenue in 2020 and 2019, respectively, and are included in “Other Non-casino Revenues.” See “Recent Developments – Sports Wagering in Colorado and Indiana” for details.

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Operating expenses. Consolidated operating expenses decreased 27.7%, primarily due to the prolonged closures in the first half of 2020, as discussed above. This affected payroll and related expenses across all of our departments, as well as numerous volume-related costs, such as gaming taxes, device fees and our cost of the food and beverages served to guests. We also opted to significantly reduce our marketing expenses during the closure period, although some of such expenses, such as some contracted billboards, could not be reduced. Certain other costs continued despite the closures, thereby affecting income, including utility costs, real estate taxes, a much-limited payroll, much of our rent, and the costs to secure our properties and meet certain gaming regulatory requirements.

When permitted to reopen our casinos in mid-2020, we reopened them cautiously, with limited hours of operation of many amenities and minimal staffing, as we were unsure as to the customer response. As the capacity of our restaurants was limited in order to ensure social distancing, we chose to eliminate certain promotions. We reduced the number of slot machines we operate, again to ensure social distancing and, in some cases, as required to do so by the gaming authorities. This resulted in reductions in certain taxes based on the number of machines, as well as the amounts we pay for certain leased games. We have been limited in terms of the numbers of people who can participate at each table game, again to ensure social distancing, and we offset this by increasing the minimum wagers on our table games to help cover the operating costs associated with each game. Meanwhile, we expanded the number of stadium gaming and similar machines in the vicinity of our table games, to accommodate customers who may not want to play at higher table game minimums. We also used the closure period to revamp much of our marketing programs, particularly at Rising Star and Bronco Billy’s, which had recently installed new, state-of-the-art slot machine systems and therefore had much better marketing data than was available previously. The improved marketing data allowed us to focus our attention and benefits on our most important customers, while we were also able to identify groups of customers who had historically been receiving benefits that were not justified by their levels of play.

As a result, our operating expenses in the second half of 2020 declined significantly, much more so than our revenues. This resulted in significant increases in income across our most important properties, as well as in our margins across all segments.

Interest and other non-operating expense, net.

Interest Expense

​ ​ ​ ​ ​ ​ ​

(In thousands) ​ For the Years Ended

​ ​ December 31,

Interest cost (excluding loan fee amortization) ​ $ 9,400 ​ $ 10,316

Amortization of debt issuance costs and discount ​ 1,276 ​ 1,092

Change in fair value of interest rate cap agreement ​ — ​ 92

Capitalized interest ​ (853) ​ (772)

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Interest expense decreased primarily due to the decline in the three-month London Interbank Offered Rate (“LIBOR”), which affected the total interest rate due for the Prior Notes.

On February 12, 2021, we issued the 2028 Notes. The proceeds were used to, among other things, refinance all of the Prior Notes. Unlike the floating interest rate for the Prior Notes, the interest rate for the 2028 Notes is fixed. See Note 6 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data,” for a more detailed discussion.

Other non-operating expense, net

We incurred $0.6 million and $1.2 million of other non-operating expense from the fair value adjustment of our common stock warrant liability in 2020 and 2019, respectively. The common stock warrant liability is adjusted to fair value each quarter, with such increases in fair value during both years primarily related to the increases in our share price.

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Using a portion of the proceeds from the issuance of the 2028 Notes, we retired all outstanding warrants for $4 million in the first quarter of 2021. See Note 6 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for a more detailed discussion.

Income taxes. Our effective income tax rate for the years ended December 31, 2020 and 2019 was (167.3)% and (1.4)%, respectively. Our tax rate differs from the statutory rate of 21.0% primarily due to the effects of changes in tax law, changes in valuation allowance, and items that are permanently treated differently for GAAP and tax purposes. During 2020, we continued to provide a valuation allowance against our deferred tax assets, net of any available deferred tax liabilities. In future years, if it is determined that we meet the “more likely than not” threshold of utilizing our deferred tax assets, then we may reverse some or all of our valuation allowance against our deferred tax assets.

We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 2020 results. Taxable income generated in 2020 results in the utilization of historical net operating losses carrying forward, which are able to offset 100% of taxable income. Due to the level of uncertainty regarding sufficient prospective income as measured under GAAP, we maintain a valuation allowance against our deferred tax assets, as mentioned above.

See Note 8 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data,” for a more detailed discussion.

Operating results – reportable segments

We manage our casinos based on geographic regions within the United States. Accordingly, Stockman’s and Grand Lodge Casino comprise our Northern Nevada business segment, while Silver Slipper, Bronco Billy’s and Rising Star are currently distinct segments. Our Rising Star segment includes results for our ferry boat operations between Indiana and Kentucky, as well as our three contracted sports skins in Indiana. The Bronco Billy’s segment includes the Christmas Casino in Cripple Creek, Colorado, which operated from November 2018 through September 2020, as well as our three contracted sports skins in Colorado.

The following table presents detail by segment of our consolidated revenue and Adjusted EBITDA. Management uses Adjusted Property EBITDA as its measure of segment profit.

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​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) For the Years Ended ​ ​

​ December 31, ​ Percent

Revenues ​ ​ ​

Adjusted Property EBITDA and Adjusted EBITDA ​ ​

​

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Silver Slipper Casino and Hotel

Pursuant to an order from the state gaming commission, we temporarily suspended operations on March 16, 2020, until we were permitted to reopen on May 21, 2020. Due primarily to this pandemic-related closure lasting more than two months, revenues decreased by 14.6% during 2020. Casino revenue decreased by 5.1% due to the extended closure period, though casino revenue grew in the second half of 2020 despite capacity restrictions after reopening. Those constraints included a reduction in the number of available slot machines and gaming positions at table games.

Non-casino revenue decreased by 29.7% during 2020, also due to impacts of the casino closure and limited operations upon our reopening. The majority of our non-casino revenue is from our food and beverage outlets. Food and beverage revenues declined by 33.1%, due to fewer buffet covers following protocols for socially-distanced tables, the elimination of “two-for-one” and other buffet promotions, and the decision to not initially reopen the Oyster Bar. Hotel revenues decreased by 19.3%, with relatively flat hotel occupancy and average daily room rates as compared to 2019. Total occupied room-nights fell by 19.9% to 32,017 room-nights in 2020, as the hotel was also closed in Spring 2020 due to the pandemic.

Adjusted Property EBITDA increased by 11.5%, reflecting a focus on marketing and labor improvements. During the shutdown period, we reexamined our cost structure, specifically focusing on labor and marketing efficiencies company-wide. Upon reopening, we ensured that the hours of operations of our amenities were appropriately matched to our business levels. Additionally, Silver Slipper’s operational performance reflects the benefit of numerous investments in the property in recent years. Such investments included a substantial renovation of the casino and the buffet, a renovated porte cochere and other sense-of-arrival improvements, the Beach Club, the Oyster Bar, and the introduction of on-site sports betting. Other efforts to reduce costs included cancelling free entertainment acts to comply with social distancing limitations on gatherings. Volume-related costs were also lower, such as lower food costs at the buffet, due to fewer covers in light of capacity constraints.

Rising Star Casino Resort

Pursuant to an order from the state gaming commission, we temporarily suspended operations on March 16, 2020 until we were permitted to reopen on June 15, 2020. Due to this pandemic-related closure for approximately three months, as well as

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operating restrictions throughout the property upon reopening, revenues decreased by 32.0%. An increase in competition also affected results, as a casino near Louisville replaced its original casino boat with a large new casino in December 2019. Additionally, in January 2020, racetrack casinos near Indianapolis began offering live table games. As a result, casino revenue decreased by 31.3%, with slot revenues declining by 27.3% and table games revenues decreasing by 47.0%.

Non-gaming revenues decreased by 33.3% during 2020 due to lower guest volumes. Food and beverage revenues decreased by 61.6% during 2020, reflecting the permanent closure of Rising Star’s buffet and limited operating hours for its other restaurants since being permitted to reopen. Hotel revenues also decreased due to lower occupancy. Total occupied room-nights decreased 49.3% to 40,575 in 2020.

Other non-casino revenues rose in 2020, reflecting a full year of operations from the first of our three sports skins in Indiana. As this sports skin did not commence operations until December 30, 2019, sports wagering revenue in 2019 was only $0.1 million. We expect our two remaining skins in Indiana to go live within the next few months. Other non-casino revenues also includes sales of “free play” that the state’s casinos are permitted to transfer to other casino operators within Indiana. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers, as it is permitted to do under state law. Such sales resulted in $2.1 million and $1.0 million of revenue in the fourth quarters of 2020 and 2019, respectively.

Adjusted Property EBITDA increased to $3.8 million in 2020 from $1.3 million in 2019, despite approximately three months of closure in Spring 2020 due to the pandemic. The improvement reflected our focus on controlling costs and our revamped marketing approach, as well as capital investments made in recent years. Such capital investments included the ferry boat service, renovations of the pavilion and much of the hotel, conversion of a deli into a new restaurant, the RV park and the new slot machine management system. Efforts to control costs included reducing staff, decreasing marketing expenses, cancelling free entertainment acts to comply with social distancing limitations on gatherings, and replacing our buffet with more efficient food and beverage service options. Volume-related costs were also lower, such as lower food costs in our dining outlets, due to fewer covers in light of capacity constraints. Adjusted Property EBITDA in 2020 also reflects the positive impact from the sports skin and the sale of “free play,” both of which have few related expenses.

On July 1, 2021, new Indiana gaming legislation, including a reduction in certain gaming taxes for Rising Star and other casino operators in the state, is expected to go into effect.

Bronco Billy’s Casino and Hotel

Pursuant to state government orders, we temporarily closed Bronco Billy’s on March 17, 2020 until we were permitted to reopen on June 15, 2020. Due to this pandemic-related closure for approximately three months, as well as operating restrictions throughout the property upon reopening, revenues decreased by 26.1% during 2020. Casino revenue decreased by 22.4%, reflecting the citywide shutdown of all table games from Spring 2020 through February 2021 and a steep reduction in the number of available slot machines. While table games are currently allowed, capacity at table games has been restricted to ensure social distancing.

Also due to state- and city-mandated operating restrictions in response to the pandemic, non-gaming revenues decreased by 41.3%. Food and beverage revenues decreased by 60.4% due to the temporary closure, limitations on seating, fewer available food outlets upon reopening, and reduced operating hours. Hotel revenues decreased by 33.4%, reflecting a 59.6% decline in total occupied room-nights. Other non-casino revenues tripled to $0.9 million in 2020, including $0.7 million of revenue from two of our three permitted sports skins in Colorado. Our first sports skin launched operations in Colorado on June 4, 2020, followed by the second skin on December 22, 2020. In 2019, other non-casino revenues were $0.3 million. We expect that our third permitted sports skin will launch in Colorado within the next few months.

Adjusted Property EBITDA increased to $4.5 million in 2020 from $3.0 million in 2019, despite nearly three months of closed operations. The increase in Adjusted Property EBITDA was due to an improved customer experience and analytics from Bronco Billy’s new slot marketing system, labor controls (partially offset by certain labor expenses related to the pandemic), a $424,000 benefit in the third quarter of 2020 from the elimination of point redemption liabilities that accrued under the property’s prior loyalty program, and the launch of the two sports skins noted above, which have few related expenses. Results also benefited from the closure of the small, free-standing Christmas Casino, which operated from November 2018 to September 2020. While

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the unique decor of the small casino resulted in an increase in overall revenues, the increase was not sufficient to offset the additional costs of operations. The Christmas Casino did not have any convenient parking and was physically removed from our Bronco Billy’s operation.

Northern Nevada

The Northern Nevada segment consists of the Grand Lodge and Stockman’s casinos and is historically the smallest of the Company’s segments. Our Northern Nevada operations are seasonal, with the summer months accounting for a disproportionate share of annual revenues. Additionally, snowfall levels during the winter months can often affect operations, as Grand Lodge Casino is located near several ski resorts, including Alpine Meadows, Northstar and Squaw Valley. We typically benefit from a “good” snow year, resulting in extended periods of operation at the nearby ski areas. In 2020, this business segment was more negatively affected by the COVID-19 pandemic than our other business segments.

Grand Lodge, for example, is located within the Hyatt Lake Tahoe luxury resort in Incline Village, Nevada. Its customer base includes the local community, as well as visitors to the Hyatt Lake Tahoe. The pandemic has adversely affected the Hyatt Lake Tahoe, including its meeting and convention business. The pandemic also affected the capacity of nearby ski areas this winter. To ensure social distancing, ski areas are currently required to operate their lifts at substantially less than full capacity. Many ski areas have also limited lift ticket sales to attempt to control the resultant lift lines. This has affected visitation to the region, including to the Hyatt Lake Tahoe and our casino.

Stockman’s Casino is in Fallon, Nevada, home to a large Naval Air Station, where Navy pilots and crews visit for training, often while their aircraft carriers are in port. To protect the health of both its service members and the host community, the Navy has restricted much of its personnel from leaving the base.

Pursuant to state government orders on March 17, 2020, we temporarily closed both Grand Lodge and Stockman’s until we were permitted to reopen on June 4, 2020. Due to this pandemic-related closure for nearly three months, as well as visitation declines noted above after reopening, revenues decreased by 38.6%. Similarly, casino revenues decreased by 36.2% in 2020 due to lower guest counts at both properties, as well as extended closures for our table games operations. While we resumed table games operations starting in the third quarter of 2020 at Grand Lodge, such operations remain closed at Stockman’s. Electronic table games have been installed as an alternative to meet this demand at Stockman’s, and the initial customer response appears positive, appealing to a potential new clientele. Slot volumes at Grand Lodge and Stockman’s declined 28.5% and 43.3%, respectively, in 2020. Food and beverage revenue at Stockman’s Casino decreased by 59.4% in 2020.

Adjusted Property EBITDA decreased by $2.7 million, reflecting the $7.4 million decline in revenues, due primarily to the effects of the state-mandated closure of casinos, the continuing constraints of safety protocols, and reductions in the number of guests. Similar to our other properties, we also focused on labor efficiencies at both properties upon reopening in mid-2020. Management’s decision to not yet reopen table games at Stockman’s Casino – which requires significantly higher labor levels than our slot operations – helped to meaningfully reduce labor expense in the second half of 2020 at Stockman’s Casino. As a result, the impact of lower casino revenues during the year was partially offset by the reduction in labor, helping to mitigate the overall decline in Adjusted Property EBITDA.

Corporate

Corporate expenses decreased by 19.6% in 2020, primarily due to decreases in professional fees, payroll and related expenses; the allocation of costs for corporate services to our properties beginning in April 2020; and, to a lesser extent, a reduction in taxes and travel expenses. In Spring 2020, when our casinos were closed, we temporarily reduced our corporate staff to a small group of necessary employees.

As noted above, in April 2020, we began allocating the cost of certain corporate services to our properties, consistent with the practice of other casino companies. Previously, such costs were carried at the corporate level. In 2020, a total of $773,000 was allocated, consisting of $235,000 of additional costs at Silver Slipper, $181,000 at Bronco Billy’s, $194,000 at Rising Star and $163,000 for Northern Nevada. The allocations were proportionally based on the segment’s revenue relative to total revenue in 2019. Management believes that such allocations are appropriate and that they make our financial results more comparable to other casino companies.

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Non-GAAP Measure

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, and non-cash stock-based compensation expense. Adjusted EBITDA information is presented solely as supplemental disclosure to measures reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”) because management believes this measure is (i) a widely used measure of operating performance in the gaming and hospitality industries and (ii) a principal basis for valuation of gaming and hospitality companies. In addition, a version of Adjusted EBITDA (known as Consolidated EBITDA) is utilized in the covenants within our indenture, although not necessarily defined in the same way as above. Adjusted EBITDA is not, however, a measure of financial performance or liquidity under GAAP. Accordingly, this measure should be considered supplemental and not a substitute for net income (loss) or cash flows as an indicator of the Company’s operating performance or liquidity.

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA:

​ ​ ​ ​ ​ ​ ​

(In thousands) ​ For the Years Ended

​ ​ December 31,

Net income (loss) ​ $ 147 ​ $ (5,822)

Income tax (benefit) expense ​ ​ (92) ​ ​ 80

Interest expense, net of amounts capitalized ​ ​ 9,823 ​ ​ 10,728

Adjustment to fair value of warrants ​ ​ 598 ​ ​ 1,230

Project development costs ​ ​ 423 ​ ​ 1,037

Depreciation and amortization ​ ​ 7,666 ​ ​ 8,331

Loss on disposal of assets, net ​ ​ 684 ​ ​ 8

Stock-based compensation ​ ​ 405 ​ ​ 348

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The following tables present reconciliations of operating income (loss) to Adjusted Property EBITDA and Adjusted EBITDA:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

For the Year Ended December 31, 2020

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property

​ ​ Operating ​ Depreciation ​ Loss on ​ Project ​ Stock- ​ EBITDA and

​ ​ Income ​ and ​ Disposal ​ Development ​ Based ​ Adjusted

​ (Loss) Amortization of Assets Costs Compensation EBITDA

Casino properties ​ ​ ​ ​ ​ ​

Rising Star Casino Resort ​ 1,363 ​ 2,478 ​ — ​ — ​ — ​ 3,841

Bronco Billy’s Casino and Hotel ​ 3,025 ​ 1,450 ​ 4 ​ — ​ — ​ 4,479

Other operations ​ ​ ​ ​ ​

​

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​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

For the Year Ended December 31, 2019

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Property

​ ​ Operating ​ Depreciation ​ Loss on ​ Project ​ Stock- ​ EBITDA and

​ ​ Income ​ and ​ Disposal ​ Development ​ Based ​ Adjusted

​ (Loss) Amortization of Assets Costs Compensation EBITDA

Casino properties ​ ​ ​ ​ ​ ​

Silver Slipper Casino and Hotel ​ $ 9,700 ​ $ 3,454 ​ $ 5 ​ $ — ​ $ — ​ $ 13,159

Rising Star Casino Resort ​ (1,096) ​ 2,426 ​ — ​ — ​ — ​ 1,330

Bronco Billy’s Casino and Hotel ​ 1,297 ​ 1,700 ​ 3 ​ — ​ — ​ 3,000

Northern Nevada Casinos ​ 2,562 ​ 599 ​ — ​ — ​ — ​ 3,161

Other operations ​ ​ ​ ​ ​

​

Operating expenses deducted to arrive at operating income (loss) in the above tables include facility rents related to: (i) Silver Slipper of $1.6 million in 2020 and $1.7 million in 2019, (ii) Northern Nevada segment of $1.8 million in 2020 and $1.9 million in 2019, and (iii) Bronco Billy’s of $0.6 million in both 2020 and 2019. Finance lease payments of $0.7 million in 2020 and $0.8 million in 2019 related to Rising Star’s smaller hotel are not deducted, as such payments are accounted for as interest expense and amortization of debt related to the finance obligation.

Liquidity and Capital Resources

Cash Flows

As of December 31, 2020, we had $37.7 million of unrestricted cash and equivalents. We currently estimate that between $7 million and $9 million of cash is required for our day-to-day operations, including for on-site cash in our slot machines, change and redemption kiosks, and cages.

In May 2020, we received approximately $5.6 million of unsecured loan proceeds under the CARES Act (the “CARES Act Loans”). At that time, we were unsure as to the potential length of the closure period, the operating restrictions under which we might be allowed to reopen, and the response that our customers would have to the situation and those operating restrictions. Capital was otherwise generally not available to us at the time. Two of our subsidiaries, one in Colorado and one in Indiana, qualified under the Payroll Protection Plan aspect of the CARES Act and utilized the proceeds of such loans to put employees back to work and to pay certain other costs, such as utilities, as was permitted under the CARES Act.

Cash flows – operating activities. On a consolidated basis, cash provided by operations during 2020 was $9.0 million compared to $10.5 million in 2019. Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but are also affected by changes in working capital accounts, such as receivables, prepaid expenses, and payables. The decrease in our operating cash flows during 2020 compared to 2019 was primarily due to the receipt of $6.0 million in 2019 for one-time market access fees related to our sports betting contracts in Indiana and Colorado. In 2020, cash was reduced by the outstanding receivables not yet received from the sale of $2.1 million of “free play” at Rising Star.

Cash flows – investing activities. On a consolidated basis, cash used in investing activities during 2020 was $2.6 million, which primarily related to the Cripple Creek Project. Cash used in investing activities during 2019 was $8.7 million, which primarily related to capital expenditures for maintenance and certain growth-related projects, including the Cripple Creek Project, the renovation and rebranding of a casual restaurant at Rising Star into the new Ben’s Bistro, the remodeling of the Silver Slipper casino, and the renovation of the Stockman’s Steakhouse.

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Cash flows – financing activities. On a consolidated basis, cash provided by financing activities during 2020 was $1.5 million, while cash provided by financing activities during 2019 was $7.4 million. Comparing both years, we received proceeds totaling $5.6 million related to the CARES Act Loans, and we issued an additional $10 million of the Prior Notes in May 2019, partially offset in both periods by debt costs and principal payments on the Prior Notes, and principal payments for the finance lease at Rising Star.

Other Factors Affecting Liquidity

We have significant outstanding debt and contractual obligations in addition to planned capital expenditures. Subject to the effects of the economic uncertainties discussed herein, we expect to continue to generate sufficient cash flow to meet our interest requirements and maintain our properties. In February 2021, we refinanced our debt with the 2028 Notes. Certain capital expenditures designed to grow the Company, including our proposed casino in Waukegan, may require additional financing. While, as noted, we have tentatively arranged for most of such financing with a significant investment firm, we may still require additional financing to fund our portion of the project funding. Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. If we are unable to generate sufficient operating cash flow and/or access the capital markets, we could be required to adopt one or more alternatives, such as reducing, delaying, or eliminating certain planned capital expenditures, selling assets, obtaining additional equity financing, or borrowing at higher costs of capital.

Long-Term Debt. At December 31, 2020, we had $106.8 million of principal indebtedness outstanding under the Prior Notes. Additionally, in the midst of the pandemic when all operations were suspended, we obtained the CARES Act Loans. We also owe $3.8 million related to our finance lease of a hotel at Rising Star.

As discussed in the “Executive Overview” above, in February 2021, we issued the 2028 Notes and used the proceeds to repay all of the Prior Notes (including a small call premium); redeem all outstanding warrants totaling 1,006,568 shares; pay transaction fees and expenses related to the bond issuance; fund a construction disbursement account with $180 million to complete the Cripple Creek Project; and add approximately $8 million to our existing Unrestricted Cash and Equivalents.

Hyatt Option to Purchase our Leasehold Interest and Related Assets. Our lease with Hyatt to operate the Grand Lodge Casino currently has an option for Hyatt to purchase our leasehold interest and related casino operating assets. See Note 7 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for further information about this option and related rental commitments that could affect our liquidity and capital resources.

Capital Investments. Thoughpandemic-related closures caused us to suspend our larger projects from March 2020 through the end of the year, we resumed our capital investments in 2021. These investments are designed to improve the guest experience and to drive visitation at our properties, revenue and income growth.

Cripple Creek Project - As discussed above in the “Executive Overview,” we recently augmented our plans to build a new luxury hotel and casino adjacent to our existing Bronco Billy’s property in Cripple Creek, Colorado. To fund the project, we issued the 2028 Notes, which included $180 million of proceeds to fully fund the remaining expected investment. Of such total, we currently expect to invest $50 million in 2021 and the remaining $130 million in 2022. Such amounts exclude capitalized interest. In February 2021, we commenced construction on the expanded project and completion is expected in the fourth quarter of 2022.

Other Capital Expenditures - Additionally, we may fund various other capital expenditure projects, depending on our financial resources. Our capital expenditures may fluctuate due to decisions regarding strategic capital investments in new or existing facilities, and the timing of capital investments to maintain the quality of our properties. No assurance can be given that any of our planned capital expenditure projects will be completed or that any completed projects will be successful. Our annual capital expenditures typically include some number of new slot machines and related equipment; to some extent, we can coordinate such purchases to match our resources.

We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or

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acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.

Principal Debt Arrangements

Senior Secured Notes due 2024

As of December 31, 2020, we owed $106.8 million under the Prior Notes. On February 12, 2021, we refinanced all of our outstanding Prior Notes, as further discussed below.

Senior Secured Notes due 2028

On February 12, 2021 we refinanced all of our outstanding Prior Notes through the issuance of $310 million of new senior secured notes due 2028. The 2028 Notes are secured by liens on substantially all of our assets and are guaranteed by all of our restricted subsidiaries. We placed $180 million of the debt proceeds into a construction reserve account dedicated to the construction of the Cripple Creek Project.

The 2028 Notes bear interest at a fixed rate of 8.25% per year and mature on February 15, 2028. There is no mandatory debt amortization prior to the maturity date. Interest on the 2028 Notes is payable on February 15 and August 15 of each year.

On or prior to February 15, 2024, we may redeem up to 35% of the original principal amount of the 2028 Notes with proceeds of certain equity offerings at a redemption price of 108.25%, plus accrued and unpaid interest to the redemption date. In addition, we may redeem some or all of the 2028 Notes prior to February 15, 2024 at a redemption price of 100% of the principal amount of the 2028 Notes, plus accrued and unpaid interest to the redemption date and a “make-whole” premium. Thereafter, the 2028 Notes may be prepaid at 104.125% of par through February 14, 2025, 102.063% through February 14, 2026, and 100% thereafter.

Unsecured Loans Under the CARES Act

On May 8, 2020, two of our wholly-owned subsidiaries obtained the CARES Act Loans in the aggregate amount of $5.6 million. Such funds were principally used to rehire several hundred employees at Rising Star and Bronco Billy’s in advance of, and subsequent to, their reopenings in mid-June 2020 from the mandated closures. The CARES Act Loans bear interest at a fixed rate of 1.00% per year, and are set to mature on May 3, 2025. After a 15-month deferment period for principal and interest payments, we are required to make loan payments of $128,557 each month, beginning in September 2021. The CARES Act Loans may be prepaid at any time prior to maturity with no prepayment penalties. Such unsecured loans may be forgiven, either in whole or in part, depending on the amount of such proceeds that are used for certain eligible expenses over a 24-week period, including primarily the payroll and health benefits of employees who might otherwise have been without jobs or health benefits. We intend to seek forgiveness of these loans, as permitted by the legislation, but there is no certainty that any or all of such loans will be forgiven.

Covenants

The indenture governing the Prior Notes contained customary representations and warranties, events of default, and positive and negative covenants, including financial covenants. As defined in the indenture, we were required to maintain a total leverage ratio, which measured “Consolidated EBITDA” against outstanding net debt. Additionally, we were allowed to deduct up to $15 million of our cash and equivalents (beyond estimated cash utilized in daily operations) in calculating the numerator of such ratio. Due to the refinancing of the Prior Notes in February 2021, no total leverage ratio covenant was applicable as of December 31, 2020. However, we believe that we satisfied such covenants at the end of the fourth quarter, had the debt not been refinanced.

As noted above, we refinanced the Prior Notes in February 2021 with proceeds from the issuance of the 2028 Notes. The 2028 Notes also contain customary representations and warranties and customary financial covenants. Unlike the Prior Notes, the 2028 Notes do not have a quarterly leverage ratio that we are required to maintain.

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See Note 6 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for more information.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Securities and Exchange Commission Regulation S-K, that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Estimates and Policies

Our consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America. Certain of our accounting policies require that we apply significant judgment in defining the appropriate assumptions for calculating estimates that affect reported amounts and disclosures. By their nature, judgments are subject to an inherent degree of uncertainty, and therefore, actual results may differ from our estimates. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Impairment of Long-lived Assets, Goodwill and Indefinite-Lived Intangibles

Our long-lived assets include property and equipment, goodwill, and indefinite-lived intangibles, and are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment testing is warranted might include, as applicable, an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which we operate, or a significant long-term decline in historical or forecasted earnings or cash flows or the fair value of our property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, we consider: (i) the length of time and the extent to which the fair value or market value has been less than cost; (ii) the financial condition and near-term prospects of the casino property, including any specific events which may influence the operations; (iii) our intent related to the asset and ability to retain it for a period of time sufficient to allow for any anticipated recovery in fair value; (iv) the condition and trend of the economic cycle; (v) historical and forecasted financial performance; and (vi) trends in the general market.

We review the carrying value of our property and equipment used in our operations whenever events or circumstances indicate that the carrying value of an asset may not be recoverable from estimated future undiscounted cash flows expected to result from its use and eventual disposition. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset. Fair value is typically measured using a discounted cash flow model whereby future cash flows are discounted using a weighted-average cost of capital, developed using a standard capital-asset pricing model, based on guideline companies in our industry.

We test our goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or when a triggering event occurs. For our 2020 and 2019 annual impairment tests, we utilized the option to perform a qualitative analysis for our goodwill and indefinite-lived intangibles and concluded it was more likely than not that the fair values of such intangibles exceeded their carrying values. Any impairment charges incurred are not reversed if a subsequent evaluation concludes a higher valuation than the carrying value.

Fixed Asset Capitalization and Depreciation Policies

We define a fixed asset as a unit of property that (i) has an economic useful life that extends beyond 12 months and (ii) was acquired or produced for a cost greater than $2,500 for a single asset or greater than $5,000 for a group of assets. Property and equipment are stated at cost. For the majority of our property and equipment, cost was determined at the acquisition date based on estimated fair values. We acquired Bronco Billy’s in May 2016, Silver Slipper in October 2012, Rising Star in April 2011 and Stockman’s in January 2007. Project development costs, which are amounts expended on the pursuit of new

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business opportunities, and acquisition-related costs are expensed as incurred. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are also expensed as incurred. Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. When we construct assets, we capitalize direct costs of the project, including fees paid to architects and contractors and property taxes. Salaries are capitalized only for employees working directly on the project. In addition, interest cost associated with major development and construction projects is capitalized as part of the cost of the project. Interest is typically capitalized on amounts expended on the project using the weighted-average cost of our outstanding borrowings. Capitalization of interest starts when construction activities begin and ceases when construction is substantially complete or development activity is suspended for more than a brief period.

We must make estimates and assumptions when accounting for capital expenditures. Whether an expenditure is considered a maintenance expense or a capital asset is sometimes a matter of judgment. When constructing or purchasing assets, we must determine whether existing assets are being replaced or otherwise impaired, which also may be a matter of judgment. In addition, our depreciation expense is highly dependent on the assumptions we make about our assets’ estimated useful lives. We determine the estimated useful lives based on our experience with similar assets, engineering studies, and our estimate of the usage of the asset. Whenever events or circumstances occur, which would change the estimated useful life of an asset, we account for the change prospectively.

Goodwill and Business Combinations

Goodwill represents the excess of the purchase price over fair value of net tangible and other intangible assets acquired in connection with business combinations. We accounted for our acquisitions of casino properties for Bronco Billy’s, Silver Slipper and Rising Star as business combinations. In a business combination, we determine the fair value of acquired assets, including identifiable intangible assets, assumed liabilities, and non-controlling interests, if any. The fair value of the acquired business is allocated to the acquired assets, assumed liabilities, and non-controlling interests based on their fair value, with any remaining fair value allocated to goodwill. This allocation process requires use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets.

Intangible Assets

Our indefinite-lived intangible assets primarily include the cost of gaming licenses and trade names. Gaming licenses represent the rights to conduct gaming in certain jurisdictions, and trade names represent the fair value of the casino name’s brand recognition. The values of our gaming licenses were primarily estimated using a derivation of the income approach to valuation. The value of the Bronco Billy’s trade names utilized the “relief from royalty” method, which primarily utilizes comparable royalty agreements to determine value. Indefinite-lived intangible assets are not amortized, unless it is determined that their useful life is no longer indefinite. We periodically review our indefinite-lived assets to determine whether events and circumstances continue to support an indefinite useful life. If it is determined that an indefinite-lived intangible asset has a finite useful life, then the asset is tested for impairment and is subsequently accounted for as a finite-lived intangible asset.

Our finite-lived intangible assets include customer loyalty programs, land leases, payments for a lease option and water rights. Finite-lived intangible assets are amortized over the shorter of their contractual or economic useful lives.

Customer loyalty programs represent the value of repeat business associated with the casinos’ loyalty programs when we acquired the properties. Such values were determined using a derivation of the income approach to valuation. The valuation analyses for the active-rated players were based on estimated revenues and attrition rates. Silver Slipper and Rising Star maintain historical information for the proportion of revenues attributable to the rated play, which acquisition costs were allocated to such customer loyalty programs. The combined value of the customer loyalty programs has since been fully-amortized over their assumed economic useful life, but remains a component of gross intangible assets other than goodwill, and comprises a majority of the related accumulated amortization. See Note 4 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for more information.

Revenue Recognition

Accrued Club Points: Operating Revenues and Related Costs and Expenses. Our revenue recognition policies follow casino industry practices. Casino revenue is the aggregate net difference between gaming wins and losses, with certain liabilities

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recognized, including progressive jackpots, earned customer loyalty incentives, funds deposited by customers before gaming play occurs, and for certain chips and tokens in the customers’ possession. Key performance indicators related to gaming revenue are slot coin-in and table game drop (volume indicators) and “win” or “hold” percentage.

Revenue for food and beverage, hotel, and other revenue transactions is typically the net amount collected from the customer for such goods and services, plus the retail value of (i) discretionary comps and (ii) comps provided in return for redemption of loyalty points. We record such revenue as the good or service is transferred to the customer. Additionally, we may collect deposits in advance for future hotel reservations or entertainment, among other services, which represent obligations to us until the service is provided to the customer. Sales and similar revenue-linked taxes (except for gaming taxes) collected from customers on behalf of, and submitted to, taxing authorities are also excluded from revenue and recorded as a current liability.

Deferred Revenues: Market Access Fees from Sports Wagering Agreements. We entered into several agreements with various unaffiliated companies allowing for online sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star and at Bronco Billy’s (the “Sports Agreements”). As part of these Sports Agreements, we received one-time market access fees in cash, which were recorded as a long-term liability in the same amount and will be recognized as revenue ratably over the initial term length of the agreements of 10 years, beginning with the commencement of operations. See Note 2 to the consolidated financial statements set forth in “Item 8. Financial Statements and Supplementary Data” for more information.

Customer Loyalty Programs

We have separate customer loyalty programs at each of our properties – the Slipper Rewards Club, the Bronco Billy’s Mile High Rewards Club, the Rising Star VIP Club, the Grand Lodge Players Advantage Club®, and the Stockman’s Winner’s Club. Under these programs, customers earn points based on their volume of wagering that may be redeemed for various benefits, such as free play, complimentary dining, or hotel stays, among others, depending on each property’s specific offers. We also occasionally offer sweepstakes and other promotions for tracked customers that do not require redemption of points.

As points are accrued, we defer a portion of our gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points for program benefits as described above. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time.

Loyalty programs are a part of the total marketing program. The amount of marketing reinvestment (complimentaries to players, promotional awards, entertainment, etc.) is based on the specific property and competitive assumptions. We track the percentage of promotional and marketing costs, compared to gaming revenue, for an efficient use and return on our marketing investment. Our properties operate in highly-competitive promotional environments due to the high amounts of incentives offered by our competition.

Accounts Receivable Allowance for Doubtful Accounts

Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. The allowances for doubtful accounts are estimated based on specific review of customer accounts, as well as, historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be uncollectible, and recoveries of accounts previously written off are recorded when received.

Income Taxes

We are subject to federal and state taxes in the United States. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are

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consistent with our future plans. Tax laws, regulations, and administrative practices may be subject to change due to economic or political conditions, including fundamental changes to the applicable tax laws.

Our income tax returns are subject to examination by the IRS and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold. It is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Common Stock Warrant Liability

We measure the fair value of our common stock warrants at each reporting period based on Level 3 inputs as determined by GAAP. Due to the variable terms regarding the timing of the settlement of the warrants, the Company utilizes a “Monte Carlo” simulation approach, a mathematical technique used to model the probability of different outcomes, to measure the fair value of the warrants. The simulation included certain estimates by Company management regarding the estimated timing of the settlement of the warrants. Significant increases or decreases in those management estimates would result in a significantly higher or lower fair value measurement. Changes in the fair value measurement of our warrant liability are measured quarterly, including changes caused by increases or decreases in our stock price, and are expensed or credited to income during the measurement period.

Stock-based Compensation

We have granted shares of common stock and stock options to key members of management and the board of directors. Accounting standards require us to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize that cost over the service period. Stock-based compensation expense from stock awards is included in general and administrative expense. Vesting is contingent upon certain conditions, including continuous service of the individual recipients. We use the Black-Scholes valuation model to determine the estimated fair value for each option grant issued. The Black-Scholes-determined fair value, net of actual forfeitures, is amortized as compensation cost on a straight-line basis over the service period.

Recently Issued Accounting Pronouncements Not Yet Adopted

See Note 2 for a discussion of recently issued accounting pronouncements not yet adopted.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

​

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Item 8. Financial Statements and Supplementary Data.

​ ​

​ Page

Consolidated Statements of Operations 53

Consolidated Balance Sheets 54

Consolidated Statements of Stockholders’ Equity 55

Consolidated Statements of Cash Flows 56

Notes to Consolidated Financial Statements 57

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

To the shareholders and the Board of Directors of Full House Resorts, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Full House Resorts, Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes- Valuation Allowance- Refer to Note 8 to the financial statements

Critical Audit Matter Description

The Company provides valuation allowances against deferred tax assets when it is deemed “more likely than not” that some portion or all of the deferred tax asset will not be realized within a reasonable period of time. Future realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences become deductible. Sources of taxable income include future reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies, collectively referred to herein as “estimated taxable income sources”. The Company’s valuation allowance for its US federal and certain state deferred tax assets was $11 million as of December 31, 2020.

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We identified the Company’s valuation allowance analysis and conclusion as a critical audit matter because of the estimates and judgments required by management in determining estimated taxable income sources. Auditing the estimated taxable income sources required a high degree of auditor judgment and increased audit effort, including the need to involve our income tax specialists in evaluating the appropriateness and reasonableness of such estimates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimated taxable income sources included the following, among others:

o Relevant tax laws and regulations;

o Future reversals of deferred tax liabilities;

o Relevant tax planning strategies; and

​

/s/ Deloitte & Touche LLP

​

Las Vegas, Nevada

March 12, 2021

​

We have served as the Company’s auditor since 2019.

​

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Revenues ​ ​

Other operations, including online/mobile sports ​ 7,601 ​ 5,438

Operating costs and expenses ​ ​

Selling, general and administrative ​ 47,585 ​ 56,052

Project development costs ​ 423 ​ 1,037

Depreciation and amortization ​ 7,666 ​ 8,331

Loss on disposal of assets, net ​ 684 ​ 8

Other expense ​ ​

Adjustment to fair value of warrants ​ (598) ​ (1,230)

Income (loss) before income taxes ​ 55 ​ (5,742)

Income tax (benefit) expense ​ ​ (92) ​ ​ 80

Net income (loss) ​ $ 147 ​ $ (5,822)

​ ​ ​ ​ ​ ​ ​

Basic earnings (loss) per share ​ $ 0.01 ​ $ (0.22)

Diluted earnings (loss) per share ​ $ 0.01 ​ $ (0.22)

​

See notes to consolidated financial statements.

​

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

ASSETS ​ ​ ​ ​ ​ ​

Current assets ​ ​

Restricted cash ​ ​ — ​ ​ 1,000

Prepaid expenses and other ​ 2,461 ​ 3,340

​ ​ ​ ​ ​ ​ ​

Operating lease right-of-use assets, net ​ ​ 17,361 ​ ​ 19,171

LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​

Current liabilities ​ ​ ​ ​ ​ ​

Accrued payroll and related ​ 2,397 ​ 3,044

Current portion of operating lease obligations ​ ​ 3,283 ​ ​ 2,707

Current portion of finance lease obligation ​ ​ 491 ​ ​ 448

Current portion of long-term debt ​ 426 ​ 1,100

Common stock warrant liability ​ ​ 2,653 ​ ​ 2,055

​ ​ ​ ​ ​ ​ ​

Operating lease obligations, net of current portion ​ 14,914 ​ 16,706

Finance lease obligation, net of current portion ​ ​ 3,298 ​ ​ 3,829

Deferred income taxes, net ​ 620 ​ 712

Contract liabilities, net of current portion ​ ​ 5,398 ​ ​ 5,886

Other long-term liabilities ​ ​ 626 ​ ​ —

Commitments and contingencies (Note 9) ​ ​

Stockholders’ equity ​ ​

​

See notes to consolidated financial statements.

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2020 and 2019

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ Total

​ ​ Common Stock ​ Paid-in ​ Treasury Stock ​ Accumulated ​ Stockholders’

December 31, 2020 ​ Shares Dollars Capital Shares Dollars Deficit Equity

Exercise of stock options ​ 8 ​ ​ — ​ ​ 19 ​ (9) ​ ​ 10 ​ ​ — ​ ​ 29

Stock grants ​ 31 ​ ​ — ​ ​ 54 ​ — ​ ​ — ​ ​ — ​ ​ 54

Stock-based compensation ​ — ​ ​ — ​ ​ 351 ​ — ​ ​ — ​ ​ — ​ ​ 351

Net income ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 147 ​ ​ 147

​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ Total

​ ​ Common Stock ​ Paid-in ​ Treasury Stock ​ Accumulated ​ Stockholders’

December 31, 2019 ​ Shares Dollars Capital Shares Dollars Deficit Equity

Exercise of stock options ​ 35 ​ ​ — ​ ​ 119 ​ (87) ​ ​ 106 ​ ​ — ​ ​ 225

Stock grants ​ 22 ​ ​ — ​ ​ 48 ​ — ​ ​ — ​ ​ — ​ ​ 48

Stock-based compensation ​ — ​ ​ — ​ ​ 300 ​ — ​ ​ — ​ ​ — ​ ​ 300

Net loss ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ (5,822) ​ ​ (5,822)

​

See notes to consolidated financial statements.

​

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows from operating activities: ​ ​

Net income (loss) ​ $ 147 ​ $ (5,822)

Depreciation and amortization ​ 7,666 ​ 8,331

Amortization of debt issuance and warrant costs and other ​ 1,276 ​ 1,092

Stock-based compensation ​ 405 ​ 348

Change in fair value of stock warrants ​ 598 ​ 1,230

Change in fair value of interest rate cap ​ ​ — ​ ​ 92

Loss on disposal of assets ​ 684 ​ 8

Increases and decreases in operating assets and liabilities: ​ ​

Accounts receivable ​ (2,698) ​ (171)

Prepaid expenses, inventories and other ​ 1,660 ​ (678)

Deferred taxes ​ (92) ​ 80

Contract liabilities ​ ​ 785 ​ ​ 5,985

Accounts payable and accrued expenses ​ (1,440) ​ (26)

Net cash provided by operating activities ​ 8,991 ​ 10,469

Cash flows from investing activities: ​ ​

Purchase of property and equipment ​ (2,638) ​ (8,088)

Net cash used in investing activities ​ (2,619) ​ (8,670)

Cash flows from financing activities: ​ ​

Proceeds from Senior Secured Notes due 2024 borrowings ​ — ​ 10,000

Proceeds from CARES Act unsecured loans ​ 5,606 ​ —

Payment of debt discount and issuance costs ​ (2,548) ​ (1,188)

Repayment of Senior Secured Notes due 2024 ​ (1,100) ​ (1,075)

Repayment of finance lease obligation ​ ​ (488) ​ ​ (544)

Proceeds from exercise of stock options ​ 29 ​ 225

Other ​ ​ (24) ​ ​ —

Net cash provided by financing activities ​ 1,475 ​ 7,418

​ ​ ​ ​ ​ ​ ​

Net increase in cash, cash equivalents and restricted cash ​ 7,847 ​ 9,217

Cash, cash equivalents and restricted cash, end of period ​ $ 37,698 ​ $ 29,851

​ ​ ​ ​ ​ ​ ​

Supplemental Cash Flow Information: ​ ​

Cash paid for interest, net of amounts capitalized ​ $ 8,514 ​ $ 9,550

Non-Cash Investing Activities: ​ ​

Accounts payable related capital expenditures ​ $ 298 ​ $ 515

​

See notes to consolidated financial statements.

​

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Formed as a Delaware corporation in 1987, Full House Resorts, Inc. owns, leases, operates, develops, manages, and/or invests in casinos and related hospitality and entertainment facilities. References in this document to “Full House,” the “Company,” “we,” “our,” or “us” refer to Full House Resorts, Inc. and its subsidiaries, except where stated or the context otherwise indicates.

The Company currently operates five casinos; four are part of real estate that we own or lease and one is located within a hotel owned by a third party. The Company is currently constructing a new luxury casino hotel adjacent to its existing facility in Cripple Creek, Colorado. We also benefit from six permitted sports “skins” that we are allowed to operate, three in Colorado and three in Indiana. We have contracted with other companies to operate these online sports wagering sites under their own brands in exchange for a percentage of revenues, as defined, subject to annual minimum amounts. The following table identifies our properties along with their locations:

​​​ ​ ​

Property Location

Silver Slipper Casino and Hotel ​ Hancock County, MS(near New Orleans)

Bronco Billy’s Casino and Hotel ​ Cripple Creek, CO(near Colorado Springs)

Rising Star Casino Resort ​ Rising Sun, IN(near Cincinnati)

Stockman’s Casino ​ Fallon, NV(one hour east of Reno)

​

The Company manages its casinos based on geographic regions within the United States. See Note 12 for further information.

Impact of the COVID-19 Pandemic and Company Response. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, the number of newly-reported cases has declined from levels seen in late 2020 and early 2021. Additionally, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed throughout the world. At the start of the pandemic and continuing through today, COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, the Company temporarily closed all of its casino properties. As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities.

The Company reopened the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s Casino and Hotel and Rising Star Casino Resort on June 15, 2020. During the shutdown period, the Company evaluated labor, marketing and other costs at its businesses so that, upon reopening, its properties could reopen with significantly lower operating costs. As a result, the Company’s operating performance since reopening in mid-2020 has been stronger than pre-pandemic levels, despite capacity restrictions throughout its casinos and in its restaurants. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19 will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; any additional actions imposed by governmental authorities to contain COVID-19 or minimize its impact; increased operating costs in light of social distancing requirements as a result of COVID-19; and general economic conditions, among others.

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As of December 31, 2020, the Company had total cash and cash equivalents of $37.7 million. In February 2021, the Company issued the 2028 Notes, which further increased its cash balances, as further described in Note 6 below. Subsequent to such refinancing, as of February 28, 2021, the Company had total cash and cash equivalents of approximately $232 million, which includes $180 million of restricted cash reserved to fund its new Cripple Creek casino hotel, including designing, developing, constructing, equipping and opening the project (the “Cripple Creek Project”).

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Accounting. The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Except when otherwise required by accounting principles generally accepted in the United States of America (“GAAP”) and disclosed herein, the Company measures all of its assets and liabilities on the historical cost basis of accounting.

Use of Estimates. The consolidated financial statements have been prepared in conformity with GAAP. These principles require the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value and the Fair Value Input Hierarchy. Fair value measurements affect the Company’s accounting for net assets acquired in acquisition transactions and certain financial assets and liabilities, such as its common stock warrant liability and interest rate cap. Fair value measurements are also used in its periodic assessments of long-lived tangible and intangible assets for possible impairment, including for property and equipment, goodwill, and other intangible assets. Fair value is defined as the expected price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

GAAP categorizes the inputs used for fair value into a three-level hierarchy:

The Company utilizes Level 2 inputs when measuring the fair value of its interest rate cap and utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Note 11).

Cash Equivalents and Restricted Cash. Cash equivalents include cash involved in operations and cash in excess of daily requirements that is invested in highly liquid, short-term investments with initial maturities of three months or less when purchased.

Restricted cash balances are funds received from certain sports wagering agreements that have not commenced and are contractually required to be separated from the Company’s operating cash. In March 2020, such cash was no longer categorized as restricted, as the Company was approved for its “master license” for sports betting by the Colorado Limited Gaming Control Commission on March 19, 2020.

Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate collection allowance to approximate fair value. Allowances for doubtful accounts are estimated based on specific review of customer accounts including the customers’ willingness and ability to pay and nature of collateral, if any, as well as historical collection experience and current economic and business conditions. Accounts are written off when management deems the account to be uncollectible and recoveries of accounts previously written off are recorded when received.

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​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ ​ December 31,

Accounts receivable ​ ​ $ 5,080 ​ $ 2,347

Accounts receivable allowance ​ ​ (176) ​ (141)

​

In 2020, the increase in accounts receivables reflects the sale of “free play” at Rising Star for $2.1 million, which was not due for collection until the first quarter of 2021. Because Indiana has a progressive gaming tax system and Rising Star is one of the smaller casinos in the state, the property has consistently sold its ability to deduct “free play” in computing gaming taxes to operators in higher tax tiers, as it is permitted to do under state law. In 2019, the Company sold a portion of its “free play” for $1.0 million, which was collected by year-end.

The increase in accounts receivable in 2020 also reflects the launch of the Company’s contracted sports wagering skins. Two of the Company’s three active skins are paid in arrears. As a result, the accounts receivable balance related to those two skins will increase monthly until we receive their annual payments. The third skin was required to prepay its contracted amount upon launch.

Inventories. Inventories consist primarily of food, beverage and retail items, and are stated at the lower of cost or net realizable value. Costs are determined using the first-in, first-out and the weighted average methods.

Property and Equipment. Property and equipment are stated at cost and are capitalized and depreciated, while normal repairs and maintenance are expensed in the period incurred. A significant amount of the Company’s property and equipment was acquired through business combinations, and therefore, were recognized at fair value measured at the acquisition date. Gains or losses on dispositions of property and equipment are included in operating expenses, effectively as adjustments to depreciation estimates.

Certain events or changes in circumstances may indicate that the recoverability of the carrying amount of property, plant and equipment should be assessed, including, among others, a significant decrease in market value, a significant change in the business climate in a particular market, or a current period operating or cash flow loss combined with historical losses or projected future losses. For assets to be held and used, the Company reviews for impairment whenever indicators of impairment exist. When such events or changes in circumstances are present, the Company estimates the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. These estimated future cash flows are consistent with those we use in our internal planning. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, then the Company would recognize an impairment loss based on the fair value of the asset, typically measured using a discounted cash flow model.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is appropriate under the circumstances. The Company determines the estimated useful lives based on our experience with similar assets, estimated usage of the asset, and industry practice. Whenever events or circumstances occur, which change the estimated useful life of an asset, the Company accounts for the change prospectively. Depreciation and amortization is provided over the following estimated useful lives:

​ ​ ​

​ Estimated

Class of Assets ​ Useful Lives

Land improvements 15 to 18 years

Buildings and improvements 3 to 44 years

Furniture, fixtures and equipment 2 to 10 years

​

Capitalized Interest.Interest costs associated with major construction projects are capitalized and included in the cost of the projects. When no debt is incurred specifically for construction projects, interest is capitalized on amounts expended using the weighted average cost of the Company’s outstanding borrowings. Capitalization of interest ceases when the project is substantially complete or construction activity is suspended for more than a brief period.

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Leases. The Company determines if a contract is, or contains, a lease at inception or modification of the agreement. A contract is, or contains, a lease if there are identified assets and the right to control the use of an identified asset is conveyed for a period of time in exchange for consideration. Control over the use of the identified asset means that the lessee has both the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset.

For material leases with terms greater than a year, the Company records right-of-use (“ROU”) assets and lease liabilities on the balance sheet, as measured on a discounted basis. For finance leases, the Company recognizes interest expense associated with the lease liability and depreciation expense associated with the ROU asset; for operating leases, the Company recognizes straight-line rent expense.

The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less. However, costs related to short-term leases with terms greater than one month, which the Company deems material, are disclosed as a component of lease expenses when applicable. Additionally, the Company accounts for new and existing leases containing both lease and non-lease components (“embedded leases”) together as a single lease component by asset class for gaming-related equipment; as a result, the Company will not allocate contract consideration to the separate lease and non-lease components based on their relative standalone prices.

Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate as estimated by third-party valuation specialists in determining the present value of future payments based on the information available at the commencement date and/or modification date. The expected lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term for operating leases. For finance leases, the ROU asset depreciates on a straight-line basis over the shorter of the lease term or useful life of the ROU asset and the lease liability accretes interest based on the interest method using the discount rate determined at lease commencement.

Goodwill and Indefinite-lived Intangible Assets. Goodwill represents the excess of the purchase price of Bronco Billy’s Casino and Hotel, Silver Slipper Casino and Hotel, Rising Star Casino Resort and Stockman’s Casino over the estimated fair value of their net tangible and other intangible assets on the acquisition date, net of subsequent impairment charges. The Company’s other indefinite-lived intangible assets primarily include certain license rights to conduct gaming in certain jurisdictions and trade names. Goodwill and other indefinite-lived intangible assets are not amortized, but are periodically tested for impairment. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value.

The evaluation of goodwill and other indefinite-lived intangible assets requires the use of estimates about future operating results, valuation multiples and discount rates to determine the estimated fair value. Changes in the assumptions can materially affect these estimates. Thus, to the extent that gaming volumes deteriorate in the near future, discount rates increase significantly, or reporting units do not meet projected performance, the Company could have impairments to record in the future and such impairments could be material. These tests for impairment are performed annually during the fourth quarter or when a triggering event occurs.

Finite-lived Intangible Assets. The Company’s finite-lived intangible assets includes customer loyalty programs, land lease acquisition costs and water rights. Finite-lived intangible assets are amortized over the shorter of their contractual or economic lives. The Company periodically evaluates the remaining useful lives of these intangible assets to determine whether events and circumstances warrant a revision to the remaining period of amortization and the possible need for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, then the Company would recognize an impairment loss.

Debt Issuance Costs and Debt Discounts. Debt issuance costs and debt discounts incurred in connection with the issuance of debt have been included as a component of the carrying amount of debt, and are amortized over the contractual term of the debt to interest expense, using the effective interest method. When its existing debt agreements are determined to have been modified, the Company amortizes such costs to interest expense using the effective interest method over the terms of the modified debt agreement.

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Revenue Recognition of Accrued Club Points and Deferred Revenues:

Accrued Club Points and Customer Loyalty Programs: Operating Revenues and Related Costs and Expenses.The Company’s revenues consist primarily of casino gaming, food and beverage, hotel, and other revenues (such as sports wagering, golf, RV park operations, and entertainment). The majority of its revenues are derived from casino gaming, principally slot machines.

Gaming revenue is the difference between gaming wins and losses, not the total amount wagered. The Company accounts for its gaming transactions on a portfolio basis, as such wagers have similar characteristics and it would not be practical to view each wager on an individual basis.

The Company sometimes provides discretionary complimentary goods and services (“discretionary comps”). For these types of transactions, the Company allocates revenue to the department providing the complimentary goods or services based upon its estimated standalone selling price, offset by a reduction in casino revenues.

Many of the Company’s customers choose to earn points under its customer loyalty programs. The Company’s properties have separate customer loyalty programs: the Slipper Rewards Club, the Bronco Billy’s Mile High Rewards Club, the Rising Star VIP Club, the Grand Lodge Players Advantage Club®, and the Stockman’s Winner’s Club. As points are accrued, the Company defers a portion of its gaming revenue based on the estimated standalone value of loyalty points being earned by the customer. The standalone value of loyalty points is derived from the retail value of food, beverages, hotel rooms, and other goods or services for which such points may be redeemed. A liability related to these customer loyalty points is recorded, net of estimated breakage and other factors, until the customer redeems these points under such loyalty programs for various benefits, such as “free casino play,” complimentary dining, or hotel stays, among others, depending on each property’s specific offers. Upon redemption, the related revenue is recognized at retail value within the department providing the goods or services. Unredeemed points are forfeited if the customer becomes and remains inactive for a specified period of time. Liabilities based on the standalone retail value of such benefits were $0.8 million and $1.4 million for December 31, 2020 and 2019, respectively, and these amounts are included in “other accrued liabilities” on the consolidated balance sheets.

Deferred Revenues: Market Access Fees from Sports Wagering Agreements. The Company entered into several agreements with various unaffiliated companies allowing for online sports wagering within Indiana and Colorado, as well as on-site sports wagering at Rising Star Casino Resort and at Bronco Billy’s Casino and Hotel (the “Sports Agreements”). As part of these long-term Sports Agreements, the Company received one-time market access fees totaling $6 million in cash, which were recorded as a long-term liability in the same amount and will be recognized as revenue ratably over the initial term length of 10 years, beginning with the commencement of operations.

Indiana. In the fourth quarter of 2019, one of the Company’s Sports Agreements commenced both its on-site and online sports wagering in Indiana. The two remaining Sports Agreements in Indiana are expected to go live in the next few months.

Colorado. In the second quarter of 2020, one of the Company’s three contracted mobile sports wagering websites in Colorado commenced operations. This was followed by the commencement of the Company’s second contracted mobile sports wagering website in Colorado in December 2020. For this second launch, as contractually required, the Company received a cash payment of $1 million on the launch date. Such payment is for the minimum annual revenue due to the Company over the following year and, accordingly, is included as part of the current portion of deferred revenues. The third contracted party commenced on-site sports wagering at Bronco Billy’s in September 2020, but the market access fees and annual minimum revenue amounts are not recognized until they launch their mobile sports wagering “skin” in Colorado, which is expected go live in the next few months.

Deferred revenues consisted of the following as discussed above:

​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ ​ ​ December 31,

Deferred revenue, current ​ Other accrued liabilities ​ $ 1,372 ​ $ 99

​

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Advertising Costs. Costs for advertising are expensed as incurred, or the first time the advertising takes place, and are included in selling, general and administrative expenses. Total advertising costs were $2.2 million and $4.2 million for the years ended December 31, 2020 and 2019, respectively.

Project Development and Acquisition Costs. Project development and acquisition costs consist of amounts expended on the pursuit of new business opportunities and acquisitions, which are expensed as incurred. During 2020 and 2019, these costs were associated with our pursuit to develop and operate American Place, a casino and entertainment destination in Waukegan, Illinois. Additionally in 2020, project development costs include option deposits paid to purchase land in New Mexico totaling $250,000; management wrote off these option deposits, which expired in July 2020.

Stock-based Compensation. Stock-based compensation costs are measured at the grant date, based on the estimated fair value of the award using the Black-Scholes option pricing model for stock options, and based on the closing share price of the Company’s stock on the grant date for other stock-based awards. The cost is recognized as an expense on a straight-line basis over the employee’s requisite service period (the vesting period of the award) net of forfeitures, which are recognized as they occur.

Legal Defense Costs. We do not accrue for estimated future legal and related defense costs, if any, to be incurred in connection with outstanding or threatened litigation and other disputed matters. Instead, we record such costs as period costs when the related services are rendered.

Income Taxes. We classify deferred tax liabilities and assets, along with any related valuation allowance, as non-current on the consolidated balance sheets. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are provided against deferred tax assets when it is deemed “more likely than not” that some portion or all of the deferred tax asset will not be realized within a reasonable time period.

Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. Positions taken in tax returns are sometimes subject to uncertainty in the tax laws and may not ultimately be accepted by the IRS or other tax authorities. We assess our tax positions using a two-step process. A tax position is recognized if it meets a “more likely than not” threshold, and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized. Additionally, we recognize accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Earnings (loss) per share. Earnings (loss) per share is computed by dividing net income (loss) applicable to common stock by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially-dilutive securities, including stock options and warrants, using the treasury stock method.

​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ Year Ended December 31,

Numerator: ​ ​

Net income (loss) - basic ​ $ 147 ​ $ (5,822)

Adjustment for assumed conversion of warrants ​ ​ — ​ ​ —

Net income (loss) - diluted ​ $ 147 ​ $ (5,822)

​ ​ ​ ​ ​ ​ ​

Denominator: ​ ​

Weighted-average common and common share equivalents - basic ​ 27,094 ​ 26,980

Potential dilution from share-based awards ​ ​ 690 ​ ​ —

Weighted-average common and common share equivalents - diluted ​ 27,784 ​ 26,980

​

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Reclassifications. Certain reclassifications have been made to 2019 amounts to conform to the current-period presentation. Such reclassifications had no effect on the previously reported results of operations or financial position.

Recently Issued Accounting Pronouncements Not Yet Adopted. In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). This standard simplifies the accounting for income taxes and includes removal of certain exceptions to the general principles of ASC 740, Income Taxes, and updates and simplifies certain areas of the codification. ASU 2019-12 is effective for the Company beginning on January 1, 2021. The Company is currently evaluating the update to determine the impact of the adoption on its consolidated financial statements, but does not expect any of the provisions therein to have a material impact.

​

The Company believes that there are no other recently-issued accounting standards not yet effective that are currently likely to have a material impact on its financial statements.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31,

Less: Accumulated depreciation ​ (73,654) ​ (68,071)

​

Property and equipment included assets under finance leases related to our hotel at Rising Star Casino Resort (Note 7) as follows:

​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31,

Leased land and improvements ​ $ 215 ​ $ 215

Leased buildings and improvements ​ ​ 5,787 ​ ​ 5,787

Leased furniture and equipment ​ ​ 1,724 ​ ​ 1,724

Less: Accumulated amortization ​ ​ (2,847) ​ ​ (2,689)

​

​

​

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4. GOODWILL AND OTHER INTANGIBLES

Goodwill:

The following tables set forth changes in the carrying value of goodwill by segment:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31, 2020

​ Gross ​ ​ ​ ​ Balance at

​ ​ Carrying ​ ​ ​ ​ Accumulated ​ End of the

​ ​ Value ​ Additions ​ Impairments ​ Year

Silver Slipper Casino and Hotel ​ $ 14,671 ​ $ — ​ $ — ​ $ 14,671

Rising Star Casino Resort ​ 1,647 ​ — ​ (1,647) ​ —

Bronco Billy’s Casino and Hotel ​ 4,806 ​ — ​ — ​ 4,806

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31, 2019

​ Gross ​ ​ ​ ​ Balance at

​ ​ Carrying ​ ​ ​ ​ Accumulated ​ End of the

​ ​ Value ​ Additions ​ Impairments ​ Year

Silver Slipper Casino and Hotel ​ $ 14,671 ​ $ — ​ $ — ​ $ 14,671

Rising Star Casino Resort ​ 1,647 ​ — ​ (1,647) ​ —

Bronco Billy’s Casino and Hotel ​ 4,806 ​ — ​ — ​ 4,806

​

Other Intangible Assets:

The following tables set forth changes in the carrying value of intangible assets other than goodwill:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31, 2020

​ Estimated Gross ​ ​ Accumulated Other

​ ​ Life ​ Carrying ​ Accumulated ​ Impairments, ​ Intangible

​ ​ (Years) ​ Value ​ Amortization ​ Net ​ Assets, Net

Customer Loyalty Programs 3 ​ $ 7,600 ​ $ (7,600) ​ $ — ​ $ —

Trade Names Indefinite ​ 1,800 ​ — ​ — ​ 1,800

Trademarks Indefinite ​ 118 ​ — ​ — ​ 118

​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In Thousands) ​ December 31, 2019

​ Estimated Gross ​ ​ Accumulated Other

​ ​ Life ​ Carrying ​ Accumulated ​ Impairments, ​ Intangible

​ ​ (Years) ​ Value ​ Amortization ​ Net ​ Assets, Net

Customer Loyalty Programs ​ 3 ​ $ 7,600 ​ $ (7,600) ​ $ — ​ $ —