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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 Part I, Item 1A. “Risk Factors” and elsewhere in this Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods. Full House Resorts, Inc., together with its subsidiaries, may be referred to as “Full House,” the “Company,” “we,” “our” or “us.”

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 currently own or operate five casino properties in four states – Mississippi, Colorado, Indiana and Nevada. We view our Mississippi, Colorado and Indiana properties as distinct operating segments and both of our Nevada properties as one operating segment. 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.

Construction continues for a sixth property, Chamonix, which will be located adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. It is expected to open in the second quarter of 2023 and will be included in our Colorado segment. We are also developing American Place in Waukegan, Illinois, including a temporary casino facility named The Temporary that we intend to open in the summer of 2022. We expect to include American Place as its own segment.

Our portfolio consists of the following:

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)

American Place (under development) ​ Waukegan, IL(northern suburb of Chicago)

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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.

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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.

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, vaccines designed to inhibit the severity and the spread of COVID-19 are now being distributed. At the start of the pandemic, COVID-19 resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures. In March 2020, pursuant to state government orders to prevent the spread of COVID-19, we temporarily closed all of our casino properties. As a result, we experienced a material decline in our revenues until our properties began reopening when permitted by local authorities. We reopened the Silver Slipper Casino and Hotel on May 21, 2020, Grand Lodge Casino and Stockman’s Casino on June 4, 2020, and Bronco Billy’s 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 facilities for portions of 2020 and 2021. 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 or variants 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.

We believe we have a strong balance sheet and sufficient liquidity in place. As of December 31, 2021, we had total cash and cash equivalents of $265.3 million, which includes $176.6 million of restricted cash reserved to fund the construction of Chamonix, and an undrawn revolver. As noted below, we further augmented our liquidity in February 2022 through the issuance of $100.0 million of Additional Notes and an increase in the size of our Credit Facility from $15.0 million to $40.0 million.

American Place. In December 2021, we were selected by the IGB to develop and operate American Place, our proposal for a casino and entertainment destination in Waukegan, Illinois. The permanent American Place facility is expected to 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. While we construct the permanent American Place facility, we will operate a temporary casino facility named The Temporary by American Place. The Temporary is expected to include approximately 1,000 slot machines, 50 table games, a fine-dining restaurant, two additional restaurants, and a center bar. We intend to open The Temporary in Summer 2022, pending customary regulatory approvals.

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Debt Financing. Subsequent to year-end, we successfully completed our funding of The Temporary, which is intended to open in Summer 2022. On February 7, 2022, we closed on our private offering of $100.0 million in Additional Notes. The Additional Notes were sold at a price of 102.0% of the principal amount and were issued pursuant to an indenture, dated as of February 12, 2021, under which we previously issued $310.0 million in 2028 Notes. Also in February 2022, we amended our Credit Facility to, among other things, increase its size from $15.0 million to $40.0 million, all of which is currently available to draw upon.

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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 Segment EBITDA and Adjusted Segment 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 Segment EBITDA as the measure of segment profitability in assessing performance and allocating resources at the reportable segment level. For information regarding our operating segments, see Note 13 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data.” Additionally, we use Adjusted Segment EBITDA Margin, which is calculated by dividing Adjusted Segment EBITDA by the property’s revenues.

Results of Operations — 2021 Compared to 2020

Consolidated operating results

The following summarizes our consolidated operating results for the years ended December 31, 2021 and 2020, and reflects the mandatory closure of all of our properties for approximately three months beginning in March 2020 due to the pandemic.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​

(In thousands) ​ December 31, ​ ​

Interest and other non-operating expenses, net ​ 25,413 ​ 10,421 143.9 %

Income tax expense (benefit) ​ 435 ​ (92) 572.8 %

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended ​ ​ ​

(In thousands) ​ December 31, ​ ​

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, 2021 and 2020, unless otherwise described. Because all of our operations were closed due to COVID-19 government mandates from mid-March 2020 through much of the second quarter of 2020, the comparisons for these years are not particularly meaningful. The periods of closure were:

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● Rising Star Casino Resort ― closed from March 16, 2020 until June 15, 2020.

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Revenues. Consolidated revenues increased by 43.5% in 2021, reflecting approximately three months of closure due to the pandemic in 2020. Growth in 2021 was due to a full year of operations, a gradual relaxation of pandemic-related restrictions, stronger operational performance at Silver Slipper, and contributions from our six contracted sports wagering agreements (compared to three that were live in 2020). “Other Non-casino Revenues” includes $5.9 million of revenue related to our contracted sports wagering agreements in 2021, compared to $2.2 million in 2020. See “Operating Results — Reportable Segments” below for details.

Operating expenses. Consolidated operating expenses increased 23.9% in 2021, primarily due to a partial year of operations during the 2020 period and variable costs that increased along with increases in guest volumes. Such variable costs included higher gaming taxes due to additional gaming revenue, and higher food costs related to additional restaurant covers, which altogether accounted for more than half of the increase in operating expenses in 2021. The remaining increase was from selling, general, and administrative expenses, reflecting additional professional fees, a gradual resumption of activities following the closure period in late 2020, an increase in accrued bonus compensation, and $2.1 million of expenses related to corporate initiatives that are not expected to recur in 2022.

While our operating costs increased in 2021, overall operating margins improved. Upon reopening in mid-2020, we improved operating efficiencies at all of our properties, in part by better matching customer demand with the operating hours of our food and beverage and table games departments. We also significantly reduced our marketing expenses upon reopening, benefiting from analytics provided by new slot marketing systems installed in late 2019. These changes affected marketing, payroll and related expenses across all departments at the Company.

See further information within our reportable segments described below.

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Interest and other non-operating expense, net.

Interest Expense

​ ​ ​ ​ ​ ​ ​

(In thousands) ​ Year Ended

​ ​ December 31,

Interest cost (excluding loan fee amortization) ​ $ 24,179 ​ $ 9,400

Amortization of debt issuance costs and discount ​ 1,349 ​ 1,276

Capitalized interest ​ (1,871) ​ (853)

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Interest expense increased primarily due to an increase in our debt levels. In February 2021, we refinanced all $106.8 million of our outstanding Senior Secured Notes due 2024 (the “Prior Notes”) with $310.0 million of 2028 Notes, in part to fund our Chamonix project (see Part I, Item 1. “Business — Operating Properties — Chamonix Casino Hotel”). See Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a more detailed discussion.

Other non-operating expense, net

We incurred $1.8 million in 2021 and $0.6 million in 2020 of other non-operating expense, primarily from fair value adjustments of our common stock warrant liability. During the period that the warrants were outstanding, increases in our share price resulted in increases in the value of the warrants, causing non-cash expense; conversely, decreases in our share price resulted in decreases in the value of the warrants, causing non-cash income. In 2021, the final fair value adjustment to our outstanding warrants of $1.3 million was made when such warrants were repurchased in February 2021. Using a portion of the proceeds from the issuance of the 2028 Notes, we retired all outstanding warrants for $4.0 million in the first quarter of 2021.

Other non-operating expense in 2021 also includes a net loss of $0.4 million from the extinguishment of debts in 2021. This amount consists of a $6.1 million extinguishment loss related to the February 2021 refinancing of our Prior Notes, and a $5.7 million gain due to the forgiveness of principal and interest in December 2021 for CARES Act loans made to certain qualifying subsidiaries.

See Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a more detailed discussion.

Income taxes. Our effective income tax rate for the years ended December 31, 2021 and 2020 was 3.6% and (167.3)%, 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 2021, we continued to provide a valuation allowance against our deferred tax assets (“DTAs”), 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 DTAs, then we may reverse some or all of our valuation allowance against our DTAs.

We do not expect to pay any federal income taxes or receive any federal tax refunds related to our 2021 results. We expect to use net operating loss carryforwards from previous years to offset all taxable income generated in 2021. Due to the level of uncertainty regarding sufficient prospective income as measured under GAAP, we maintain a valuation allowance against our DTAs, as mentioned above.

See Note 9 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a more detailed discussion.

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Operating results — reportable segments

We manage our casinos based primarily on geographic regions within the United States. Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Colorado and Indiana as a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position. See Part I, Item 1. “Business — Introduction” for additional discussion.

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

​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) Year Ended ​ ​ ​

​ December 31, ​ ​ ​

Revenues ​ ​ ​

Adjusted Segment EBITDA and Adjusted EBITDA ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​

Adjusted Segment EBITDA Margin ​ ​ ​ ​ ​ ​ ​ ​

Contracted Sports Wagering ​ 99.5 % ​ 94.6 % 4.9 pts

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The following table summarizes the consolidated results of our casino activity by key performance indicators as previously defined:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended ​ ​

​ December 31, ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Slot hold percentage(1) ​ 7.6 % ​ ​ 7.4 % ​ 0.2 pts

Table game hold percentage(1) ​ 17.9 % ​ ​ 17.7 % ​ 0.2 pts

__________

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Mississippi

Our Mississippi segment consists of the Silver Slipper Casino and Hotel. Pursuant to a pandemic-related order from the state gaming commission, we temporarily suspended operations for a portion of the prior year, from March 16, 2020 through May 21, 2020. During 2021, we saw the gradual relaxation of various pandemic-related business restrictions. As a result, revenues increased by 45.0% during 2021. Casino revenue increased by 48.5%, driven mainly by higher slot volumes, accompanied by increases to table games volume and hold.

Non-casino revenue increased by 37.5% during 2021, also due to the gradual lifting of pandemic-related business restrictions. The majority of our non-casino revenue is from our food and beverage outlets. Food and beverage revenues rose by 39.4%, due to additional buffet covers and strategic buffet promotions. Hotel revenues increased by 26.5%, wherein total occupied room-nights increased by 33.5% to 42,743 room-nights for 2021, despite lower average daily room rates as compared to 2020.

Adjusted Segment EBITDA increased by 103.4%, reflecting a focus on marketing and labor improvements. During the shutdown period, we reexamined our cost structure, specifically focusing on labor and marketing efficiencies company-wide. Upon reopening, we ensured that the hours of operations of our amenities were appropriately matched to our business levels. Additionally, Silver Slipper’s operational performance reflects the benefit of numerous investments in the property in recent years. Such investments included a substantial renovation of the casino and the buffet, a renovated porte cochère and other sense-of-arrival improvements, the Beach Club, the Oyster Bar, and the introduction of on-site sports betting.

Indiana

Our Indiana segment consists of Rising Star Casino Resort. Pursuant to a pandemic-related order from the state gaming commission, we temporarily suspended operations for a portion of the prior year, from March 16, 2020 through June 15, 2020. Reflecting the gradual relaxation of pandemic-related business restrictions, revenues increased by 40.3% during 2021. Casino revenue rose by 46.3%, with slot revenues increasing by 53.0% and table games revenues increasing by 34.8%. Both our slot and table games departments benefited from relatively flat hold percentages on higher volumes during 2021.

Non-casino revenue increased by 27.1% during 2021 due to higher guest volumes, especially as capacity and operating restrictions continued to ease in 2021. Hotel revenues drove much of this increase, up 35.4%, reflecting an increase in daily average room rates and a 27.9% rise in total occupied room-nights to 51,951 room-nights in 2021. Food and beverage revenues increased by 31.4% during 2021 from increased covers.

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Adjusted Segment EBITDA increased by 257.4%, reflecting our focus on controlling costs and our revamped marketing approach, as well as capital investments made in recent years. Such capital investments included commencement of our ferry boat service, renovations of the pavilion and much of the hotel, conversion of a deli into a new restaurant, the RV park and a new slot machine management system. Efforts to control costs included reducing staff, decreasing marketing expenses, and replacing our buffet with more efficient food and beverage service options. Additionally, new Indiana gaming legislation went into effect on July 1, 2021, including a reduction in certain gaming taxes for Rising Star.

Colorado

Our Colorado segment includes Bronco Billy’s Casino and Hotel and the Chamonix project. Pursuant to pandemic-related state orders, we temporarily closed Bronco Billy’s for a portion of the prior year, from March 17, 2020 through June 15, 2020. Upon reopening, we resumed construction of Chamonix, which adjoins and will be connected to Bronco Billy’s. Such construction has resulted in the loss of all of Bronco Billy’s on-site parking, many of its hotel rooms, and some of its casino and restaurant space. To alleviate the lack of on-site parking, we introduced complimentary valet parking, as well as a free shuttle service to an off-site parking lot. Additionally, with the gradual relaxation of pandemic-related business restrictions and elimination of betting limits, revenues increased by 20.6% during 2021. Casino revenue increased by 18.8%, with slot revenues rising by 17.3% and table games revenues increasing by 109.4%. Both the slot and table games departments had relatively flat hold percentages on higher volumes during 2021.

Non-casino revenue increased by 33.4% during 2021 due to higher guest volumes, especially as capacity and operating restrictions continued to ease in 2021. Food and beverage revenues drove much of this increase, up by 36.9% during 2021 due to increased covers and the reopening of our steakhouse. Hotel revenues followed with an increase of 23.7%, as higher average daily room rights offset the gradual loss of guestrooms due to Chamonix’s construction during 2021 and the impact of the closure period.

Adjusted Segment EBITDA increased by 46.3%, reflecting an improved customer experience and analytics from Bronco Billy’s new slot marketing system and labor controls that were partially offset by certain labor expenses related to the pandemic. Results also benefited from the increase in capacity and operations as described above.

Nevada

The Nevada segment consists of the Grand Lodge and Stockman’s casinos. Our Nevada operations are seasonal, with the summer months accounting for a disproportionate share of annual revenues. Winter is a secondary peak season, as Grand Lodge Casino is located near several ski resorts, including Alpine Meadows, Northstar and Palisades Tahoe. We typically benefit from a “good” snow year, resulting in extended periods of operation at the nearby ski areas.

This business segment was more negatively affected by the COVID-19 pandemic than our other business segments, as pandemic-related restrictions at the nearby ski resorts in late 2020 and early 2021 affected destination travel to the region. Pursuant to pandemic-related state orders, we temporarily closed both Grand Lodge Casino and Stockman’s Casino for a portion of the prior year, from March 17, 2020 through June 4, 2020. Reflecting the gradual relaxation of pandemic-related restrictions, revenues increased by 57.8% during 2021. Casino revenue accounted for most of this increase, rising by 59.0%. Slot revenue increased by 68.2% during 2021 and table games revenues rose by 19.7%, both due to higher slot and table games volumes at Grand Lodge. While we resumed table games operations starting in the third quarter of 2020 at Grand Lodge, such operations remained closed at Stockman’s during 2021. Electronic table games have been installed as an alternative to meet this demand at Stockman’s.

Adjusted Segment EBITDA increased by 986.6%. As restrictions eased in Nevada, both properties improved revenues while continuing to maintain control of overall expenses. Similar to our other properties, we focused on labor efficiencies at Grand Lodge and Stockman’s upon reopening in mid-2020.

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Contracted Sports Wagering

The Contracted Sports Wagering segment consists of our on-site and online sports wagering skins in Colorado and Indiana. Revenues and Adjusted Segment EBITDA were both $5.9 million during 2021, resulting in respective increases of 168.4% and 182.4%, as compared to 2020. Our fourth and fifth sports wagering skins commenced operations on April 1 and April 23, 2021, respectively, resulting in sequential growth in both revenues and Adjusted Segment EBITDA. Our sixth skin contractually went live on December 1, 2021, and subsequently received gaming approval on February 28, 2022. As a result, all of our six permitted sports wagering skins were in operation in the fourth quarter of 2021. We receive a percentage of defined revenues of each skin, subject to annual minimums. Such minimums total $7 million of revenue on an annualized basis under our current agreements, with minimal related expenses.

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In February 2022, one of our contracted parties for sports wagering informed us of its intent to cease operations on May 15, 2022, which will create one available skin in each of Colorado and Indiana. We are currently negotiating with other companies to be the replacement operator for such skins. However, no assurance can be given that we will be able to enter into any replacement contract on similar terms or at all.

Additionally, we expect to have an available sports skin in Illinois, as we were recently chosen by the IGB to develop and operate a casino in Waukegan, Illinois. Illinois law allows one sports skin for each physical casino license, which results in fewer total sports skins than in each of Colorado and Indiana. Illinois is also the sixth most populous state in the country, with approximately 12.8 million residents. As a result, we expect to receive better terms for our expected Illinois skin than for any of our individual skins in Colorado or Indiana. However, no assurance can be given that we will be able to enter into a contract related to such skin, either on better terms than our other skins or at all.

Corporate

Corporate expenses increased by 104.1% in 2021, primarily due to $2.1 million of expenses related to corporate initiatives that are not expected to recur in 2022. Corporate expenses also increased due to additional professional fees, a gradual resumption of activities in late 2020 following the closure period, and an increase in accrued bonus compensation, reflecting our improved operating results. In Spring 2020, when our casinos were closed, we temporarily reduced our corporate staff to a small group of employees.

In 2020, we began allocating certain costs to the properties. Previously, such costs were carried at the corporate level. For 2021, a total of $1.9 million was allocated, compared to $0.8 million in 2020. We believe that such allocations are appropriate, as the corporate team provides additional support to each of our properties, and that such allocations make our segment results more comparable to other casino companies.

Non-GAAP Measure

“Adjusted EBITDA” is earnings before interest and other non-operating income (expense), taxes, depreciation and amortization, preopening expenses, impairment charges, asset write-offs, recoveries, gain (loss) from asset disposals, project development and acquisition costs, and non-cash share-based compensation expense. Adjusted EBITDA information is presented solely as supplemental disclosure to measures reported in accordance with generally accepted accounting principles in the United States of America (“GAAP”) because management believes this measure is (i) a widely used measure of operating performance in the gaming and hospitality industries and (ii) a principal basis for valuation of gaming and hospitality companies. In addition, a version of Adjusted EBITDA (known as Consolidated Cash Flow) is utilized in the covenants within our credit facility, 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 our operating performance or liquidity.

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

​ ​ ​ ​ ​ ​ ​

(In thousands) ​ Year Ended

​ ​ December 31,

Income tax expense (benefit) ​ ​ 435 ​ ​ (92)

Interest expense, net of amounts capitalized ​ ​ 23,657 ​ ​ 9,823

Loss on extinguishment of debt, net ​ ​ 409 ​ ​ —

Adjustment to fair value of warrants ​ ​ 1,347 ​ ​ 598

Project development costs ​ ​ 782 ​ ​ 423

Preopening costs ​ ​ 17 ​ ​ —

Depreciation and amortization ​ ​ 7,219 ​ ​ 7,666

Loss on disposal of assets, net ​ ​ 676 ​ ​ 684

Stock-based compensation ​ ​ 966 ​ ​ 405

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

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

For the Year Ended December 31, 2021

(In thousands)

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment

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

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

​ (Loss) Amortization of Assets Costs Costs Compensation EBITDA

Reporting segments ​ ​ ​ ​ ​ ​ ​

Contracted Sports Wagering ​ ​ 5,890 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 5,890

Other operations ​ ​ ​ ​ ​ ​

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

For the Year Ended December 31, 2020

(In thousands)

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Segment

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

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

​ (Loss) Amortization of Assets Costs Compensation EBITDA

Reporting segments ​ ​ ​ ​ ​ ​

Contracted Sports Wagering ​ ​ 2,086 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,086

Other operations ​ ​ ​ ​ ​

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Operating expenses deducted to arrive at operating income (loss) in the above tables include facility rents related to: (i) Mississippi of $2.3 million in 2021 and $1.6 million in 2020, (ii) Nevada of $1.8 million in both 2021 and 2020, and (iii) Colorado of $0.6 million in both 2021 and 2020. Finance lease payments of $0.7 million in both 2021 and 2020 related to Rising Star’s smaller hotel within the Indiana segment 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, 2021, we had $265.3 million of cash and equivalents, including $176.6 million of restricted cash dedicated to the construction of Chamonix. 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. We believe that current cash balances, together with the available borrowing capacity under our revolving credit facility and cash flows from operating activities, will be sufficient to meet our liquidity and capital resource needs for the next 12 months of operations.

Cash flows – operating activities. On a consolidated basis, cash provided by operations during 2021 was $29.5 million, compared to $9.0 million in 2020. 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. Compared to 2020, the increase in our operating cash flows during 2021 was primarily due to our strong operating performance. Such results were brought on by a combination of higher volumes reflecting the gradual relaxation of pandemic-related business restrictions during the 2021 period, as well as more higher operating margins from the reexamination of our cost structure, specifically focusing on labor and marketing efficiencies company-wide.

Cash flows – investing activities. On a consolidated basis, cash used in investing activities during 2021 was $37.2 million, compared to $2.6 million 2020. Capital expenditures in 2021 primarily related to our Chamonix construction project, which continued to progress in 2021, and real estate purchases in Cripple Creek. This amount also includes approximately $2.0 million for capital expenditures made in 2021 at Silver Slipper to repair damage caused by Hurricane Zeta. Cash used in investing activities during 2020 were primarily related to capital expenditures for Chamonix.

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Cash flows – financing activities. On a consolidated basis, cash provided by financing activities during 2021 was $235.3 million, while cash provided by financing activities during 2020 was $1.5 million. In February and March 2021, respectively, we received $310.0 million of gross proceeds from the issuance of our 2028 Notes and $46.0 million of gross proceeds from our underwritten equity offering. These cash inflows in 2021 were partially offset by the payoff of the Prior Notes (including the related prepayment premiums), as well as expenses related to our debt and offerings. Cash provided by financing activities in 2020 primarily reflect $5.6 million of unsecured loans under the CARES Act, which were forgiven in full in accordance with their terms by the U.S. Small Business Administration in December 2021.

Other Factors Affecting Liquidity

We have significant outstanding debt and contractual obligations, in addition to planned capital expenditures related to the construction of Chamonix and American Place. Our principal debt matures in February 2028. Certain planned capital expenditures designed to grow the Company, such as the permanent American Place facility and the potential expansion of Silver Slipper, may require additional financing and/or temporarily reduce the Company’s ability to repay debt.

Our operations are subject to financial, economic, competitive, regulatory and other factors, many of which are beyond our control. Such factors include the potential effects of COVID-19 and its variants. The extent to which our liquidity in future periods may be affected by COVID-19 and its variants may largely depend on future developments. Such future developments are highly uncertain and cannot be accurately predicted at this time, as discussed under “Recent Developments.”

Long-Term Debt. At December 31, 2021, we had $310.0 million of principal indebtedness outstanding under the 2028 Notes, and no drawn amounts under the Credit Facility or outstanding letters of credit. In December 2021, our qualifying subsidiaries’ $5.6 million of CARES Act Loans were forgiven in full per the terms of such loans. We also owe $3.3 million related to our finance lease of a hotel at Rising Star.

See Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for details on our debt obligations.

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 Part II, 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. In 2021, we resumed construction of Chamonix after temporarily suspending all capital investments in March 2020 after the pandemic-related closure of our properties. Our capital investments are designed to drive revenue and income growth, to improve the guest experience at our properties, and to drive increased visitation.

Chamonix - As previously discussed above in “Operating Properties — Chamonix Casino and Hotel” under Part I, Item 1. “Business,” we increased the size of the Chamonix project’s hotel capacity by 67%, to approximately 300 luxury guest rooms and suites from our previously planned 180 guest rooms. We also revised our construction budget for Chamonix in January 2022, increasing it from $180 million to approximately $250 million to reflect supply chain issues, inflation, and a difficult construction environment. To fund Chamonix’s construction, we issued our 2028 Notes and placed a portion of such proceeds into a restricted cash account dedicated to Chamonix’s construction (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data”). As of February 28, 2022, the balance of such restricted cash account was approximately $221.4 million. We expect to invest approximately half of such amount in 2022 and the remainder in 2023, with an expected opening of Chamonix in the second quarter of 2023.

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American Place - As discussed above in the “Executive Overview,” we were selected by the IGB to develop and operate American Place in Waukegan, Illinois. While the larger permanent facility is under construction, we will operate a temporary casino named The Temporary by American Place. During 2022, we plan to invest approximately $100 million in The Temporary, which includes significant upfront gaming license payments and the purchase of slot machines that are expected to be transferred to the permanent casino once opened. To fund such construction, in February 2022, we issued $100.0 million of Additional Notes and increased the size of our revolving credit facility to $40.0 million, all of which is currently available to draw upon (see Note 6 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data”). We intend to open The Temporary in Summer 2022, pending customary regulatory approvals.

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

We evaluate projects based on a number of factors, including profitability forecasts, length of the development period, the regulatory and political environment, and the ability to secure the funding necessary to complete the development or acquisition, among other considerations. No assurance can be given that any additional projects will be pursued or completed or that any completed projects will be successful.

Principal Debt Arrangements

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

Critical Accounting Estimates and Policies

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

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

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

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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 2021 and 2020 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 fixed assets as certain property and equipment with economic useful lives that extend beyond a year. Such fixed assets 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 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.

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 DTAs. We make these estimates and judgments about our future taxable income that are based on assumptions that are 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.

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Recently Issued Accounting Pronouncements Not Yet Adopted

See Note 2 to the consolidated financial statements set forth in Part II, Item 8. “Financial Statements and Supplementary Data” for a discussion of recently issued accounting pronouncements not yet adopted.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company during the year ended December 31, 2021, as defined by Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

​

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Item 8. Financial Statements and Supplementary Data.

​ ​

Financial Statements: Page

Notes to Consolidated Financial Statements 60

Financial Statement Schedule: ​

Schedule II — Valuation and Qualifying Accounts 88

​

The financial information included in the financial statement schedule should be read in conjunction with the consolidated financial statements. All other financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements or the notes thereto.

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

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

​

Opinion on Internal Control over Financial Reporting

​

We have audited the internal control over financial reporting of Full House Resorts, Inc. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

​

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021 of the Company and our report dated March 15, 2022, expressed an unqualified opinion on those financial statements.

​

Basis for Opinion

​

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

​

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

​

Definition and Limitations of Internal Control over Financial Reporting

​

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

​

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

​

/s/ Deloitte & Touche LLP

​

Las Vegas, Nevada

March 15, 2022

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

To the stockholders 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, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15 (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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2022, expressed an unqualified opinion on the Company’s internal control over financial reporting.

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 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. 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.

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Income Taxes ─ Valuation Allowance ─ Refer to Note 9 to the financial statements

Critical Audit Matter Description

The Company provides valuation allowances against deferred tax assets when it is deemed “more likely than not” that some portion or all of the deferred tax asset will not be realized within a reasonable period of time. Future realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences become deductible. Sources of taxable income include future reversals of deferred tax liabilities, projected future taxable income, ability to carry tax attributes back to prior years, and tax planning strategies, collectively referred to herein as “estimated taxable income sources”. The Company’s valuation allowance for its US federal and certain state deferred tax assets was $9.9 million as of December 31, 2021. We identified the Company’s valuation allowance analysis and conclusion as a critical audit matter because of the estimates and judgments required by management in determining estimated taxable income sources. Auditing the estimated taxable income sources required a high degree of auditor judgment and increased audit effort, including the need to involve our income tax specialists in evaluating the appropriateness and reasonableness of such estimates.

How the Critical Audit Matter Was Addressed in the Audit

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

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 15, 2022

​

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 contracted sports wagering ​ 12,757 ​ 7,601 ​ 5,438

Operating costs and expenses ​ ​ ​

Preopening costs ​ ​ 17 ​ ​ — ​ ​ —

Loss on disposal of assets, net ​ 676 ​ 684 ​ 8

Other expense ​ ​ ​

Loss on extinguishment of debt, net ​ ​ (409) ​ ​ — ​ ​ —

Adjustment to fair value of warrants ​ (1,347) ​ (598) ​ (1,230)

Income (loss) before income taxes ​ 12,141 ​ 55 ​ (5,742)

Income tax expense (benefit) ​ ​ 435 ​ ​ (92) ​ ​ 80

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings (loss) per share ​ $ 0.36 ​ $ 0.01 ​ $ (0.22)

Diluted earnings (loss) per share ​ $ 0.33 ​ $ 0.01 ​ $ (0.22)

​

The accompanying notes are an integral part of these 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 ​ ​ 176,572 ​ ​ —

Prepaid expenses and other ​ 3,726 ​ 2,461

​ ​ ​ ​ ​ ​ ​

Operating lease right-of-use assets, net ​ ​ 15,814 ​ ​ 17,361

LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​

Current liabilities ​ ​ ​ ​ ​ ​

Accrued payroll and related ​ 5,473 ​ 2,397

Accrued interest ​ ​ 9,861 ​ ​ 38

Current portion of operating lease obligations ​ ​ 3,542 ​ ​ 3,283

Current portion of finance lease obligation ​ ​ 514 ​ ​ 491

Current portion of long-term debt ​ — ​ 426

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

​ ​ ​ ​ ​ ​ ​

Operating lease obligations, net of current portion ​ 12,903 ​ 14,914

Finance lease obligation, net of current portion ​ ​ 2,783 ​ ​ 3,298

Deferred income taxes, net ​ 1,055 ​ 620

Contract liabilities, net of current portion ​ ​ 4,714 ​ ​ 5,398

Other long-term liabilities ​ ​ — ​ ​ 626

Commitments and contingencies (Note 10) ​ ​

Stockholders’ equity ​ ​

Retained earnings (accumulated deficit) ​ 5,092 ​ (6,614)

​

The accompanying notes are an integral part of these consolidated financial statements.

​

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FULL HOUSE RESORTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

​

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Accumulated ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ ​ ​ Deficit) ​ Total

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

​ ​ Shares ​ Dollars ​ Capital ​ Shares ​ Dollars ​ Earnings ​ Equity

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

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

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

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

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

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

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

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

Net income ​ — ​ ​ — ​ ​ — ​ — ​ ​ — ​ ​ 11,706 ​ ​ 11,706

Exercise of stock options ​ — ​ ​ — ​ ​ 146 ​ (201) ​ ​ 246 ​ ​ — ​ ​ 392

Stock-based compensation ​ — ​ ​ — ​ ​ 966 ​ — ​ ​ — ​ ​ — ​ ​ 966

​

The accompanying notes are an integral part of these 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: ​ ​ ​

Change in fair value of stock warrants ​ 1,347 ​ 598 ​ 1,230

Loss on disposal of assets, net ​ 676 ​ 684 ​ 8

Proceeds from insurance related to property damage ​ ​ 1,334 ​ ​ — ​ ​ —

Loss on extinguishment of debt, net ​ ​ 409 ​ ​ — ​ ​ —

Increases and decreases in operating assets and liabilities: ​ ​ ​

Prepaid expenses, inventories and other ​ (1,414) ​ 1,660 ​ (678)

Common stock warrant liability ​ ​ (4,000) ​ ​ — ​ ​ —

Accounts payable and accrued expenses ​ 9,500 ​ (1,440) ​ (26)

Cash flows from investing activities: ​ ​ ​

Net cash used in investing activities ​ (37,217) ​ (2,619) ​ (8,670)

Cash flows from financing activities: ​ ​ ​

Proceeds from Senior Secured Notes due 2028 borrowings ​ 310,000 ​ — ​ —

Proceeds from equity offering, net of issuance costs ​ ​ 42,974 ​ ​ — ​ ​ —

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 ​ (9,429) ​ (2,548) ​ (1,188)

Prepayment premiums of Senior Secured Notes due 2024 ​ (1,261) ​ — ​ —

Repayment of finance lease obligation ​ ​ (492) ​ ​ (488) ​ ​ (544)

Proceeds from exercise of stock options ​ 392 ​ 29 ​ 225

Other ​ ​ (51) ​ ​ (24) ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Supplemental Cash Flow Information: ​ ​ ​

Non-Cash Investing Activities: ​ ​ ​

Accounts payable related capital expenditures ​ $ 4,899 ​ $ 298 ​ $ 515

Non-Cash Financing Activities: ​ ​ ​

Gain on extinguishment of CARES Act unsecured loans ​ $ 5,696 ​ $ — ​ $ —

​

The accompanying notes are an integral part of these 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 on real estate that we own or lease and one located within a hotel owned by a third party. Construction continues for a sixth property, Chamonix Casino Hotel (“Chamonix”), adjacent to the Company’s existing Bronco Billy’s Casino and Hotel in Cripple Creek, Colorado. We also benefit from six permitted sports wagering “skins,” three in Colorado and three in Indiana. Other companies operate or will operate these online sports wagering sites under their brands, paying us a percentage of revenues, as defined, subject to annual minimum amounts.

In December 2021, Full House was selected by the Illinois Gaming Board (“IGB”) to develop its American Place project in Waukegan, Illinois, a northern suburb of Chicago. The Company intends to open a temporary casino facility named The Temporary by American Place (“The Temporary”) in Summer 2022, subject to customary regulatory approvals. The Company expects to operate The Temporary until the opening of the permanent American Place facility and intends to include such operations as its own segment, Illinois. Full House also expects to receive one sports skin in Illinois upon the opening of The Temporary.

The following table identifies our segments, along with properties and their locations:

​

​ ​ ​

Segments and Properties ​ Locations

Colorado ​ ​

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

Illinois ​ ​

American Place (under development) ​ Waukegan, IL (northern suburb of Chicago)

Indiana ​ ​

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

Mississippi ​ ​

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

Nevada ​ ​

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

Contracted Sports Wagering ​ ​

Three sports wagering websites (“skins”) ​ Colorado

Three sports wagering websites (“skins”) ​ Indiana

​

The Company manages its casinos based on geographic regions within the United States. Our 2021 results reflect a change in our operating segments. We now break out our on-site and online sports wagering skins in Colorado and Indiana as a standalone segment, Contracted Sports Wagering. Certain reclassifications were made to 2020 amounts to conform to current-period presentation for enhanced comparability. Such reclassifications had no effect on the previously reported results of operations or financial position. See Note 13 for further information.

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COVID-19 Pandemic Update. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus as a pandemic (“COVID-19”). Although COVID-19 continues to spread throughout the U.S. and the world, vaccines and boosters designed to inhibit the severity and the spread of COVID-19 are now being distributed. As a result, the number of newly reported cases has recently been in decline in the U.S., though new variants could result in a reversal of these trends. For example, the Delta and Omicron variants resulted in large increases in the number of COVID-19 cases as it spread globally. COVID-19 has resulted in the implementation of significant, government-imposed measures to prevent or reduce its spread, including travel restrictions, business restrictions, closing of borders, “shelter-in-place” orders and business closures.

In March 2020, pursuant to state government orders, the Company temporarily closed all of its casino properties. As a result, the Company experienced a material decline in its revenues until its properties began reopening when permitted by local authorities. The reopening dates were:

● Silver Slipper Casino and Hotel ― May 21, 2020

● Grand Lodge Casino and Stockman’s Casino ― June 4, 2020

● Bronco Billy’s Casino and Hotel ― June 15, 2020

● Rising Star Casino Resort ― 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 business restrictions throughout its properties and additional pandemic-related costs. The extent to which the Company’s financial and operating results in future periods may be affected by COVID-19, including Delta, Omicron and other variants, will largely depend on future developments, which are highly uncertain and cannot be accurately predicted at this time. Significant uncertainties include the ability to operate; new information which may emerge concerning new strains of COVID-19 and their severity; vaccination rates among the population; the effectiveness of COVID-19 vaccines against variants; any additional actions imposed by governmental authorities to contain or minimize the impact of COVID-19 and any variants (including the potential mandated vaccination or repeated testing of our employees); increased operating costs and constraints to implement sanitation and social distancing requirements; increased costs for materials due to supply chain constraints; and general economic conditions, among others.

​

The disruptions arising from COVID-19 continued to impact the Company during the year ended December 31, 2021. The duration and intensity of this global health emergency and related disruptions are uncertain. While each of the Company’s properties are currently open and operating restrictions further eased during the fourth quarter of 2021, the current economic and regulatory environment in each of the Company’s jurisdictions continues to evolve. The manner in which governments will react as the global and regional impact of the COVID-19 pandemic changes over time is uncertain, and such actions could significantly alter the Company’s current operations.

As of December 31, 2021, the Company had total cash and cash equivalents of $265.3 million, which includes $176.6 million of restricted cash reserved to fund Chamonix, and an undrawn revolver. As detailed in Note 6 below, the Company issued $100.0 million of additional senior secured notes and increased the size of its revolving credit facility from $15.0 million to $40.0 million, which remained undrawn as of this report date.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Accounting.The consolidated financial statements include the accounts of Full House and its wholly-owned subsidiaries. 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.

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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 1 inputs when measuring the fair value of its Notes (see Note 6).

The Company utilizes Level 2 inputs when measuring the fair value of its asset purchases and acquisitions (see Note 8).

The Company utilizes Level 3 inputs when measuring the fair value of net assets acquired in business combination transactions, subsequent assessments for impairment, and most financial instruments, including but not limited to the estimated fair value of common stock warrants at issuance and for recurring changes in the related warrant liability (see Notes 6 and 12).

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 consist of funds initially totaling $180 million, which were placed into a construction reserve account to fund the completion of the Chamonix construction project. In January 2022, due to supply chain issues, inflation, and a difficult construction environment, the Company increased the balance of its construction reserve account to approximately $221 million, in accordance with its debt covenants. Such funds are being used to pay costs to develop the Chamonix property.

Accounts Receivable. Accounts receivable consist primarily of casino, hotel and other receivables, are typically non-interest bearing, and are carried net of an appropriate reserve to approximate fair value. Reserves 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. Management believes that, as of December 31, 2021, no significant concentrations of credit risk existed for which a reserve had not already been recorded.

​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ ​ December 31,

Accounts receivable ​ ​ $ 4,950 ​ $ 5,080

​

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.

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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.

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.

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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 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 straight line method, which approximates 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.

Revenue Recognition:

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.

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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 both $0.8 million for each of December 31, 2021 and 2020, 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, which were recorded as long-term liabilities and are being recognized as revenue ratably over the initial term length of 10 years, beginning with the commencement of operations.

Indiana.Two of the Company’s Sports Agreements commenced operations in December 2019 and April 2021, respectively. The third party for the remaining Sports Agreement went live contractually in December 2021, with the last skin subsequently receiving gaming approval on February 28, 2022.

Colorado. The Company’s three Sports Agreements commenced online operations in June 2020, December 2020 and April 2021, respectively.

Deferred revenues also include a total of $2.0 million related to the annual prepayment of contracted revenue, as required in two of the Sports Agreements. We received $1.0 million of prepaid revenue for contracted sports operations that commenced in Colorado in December 2020, and $1.0 million for contracted sports operations that commenced in Indiana in April 2021. As of December 31, 2021, $0.8 million of such deferred revenue has been recognized.

Deferred revenues consisted of the following as discussed above:

​

​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ ​ ​ December 31,

Deferred revenue, current ​ Other accrued liabilities ​ $ 1,822 ​ $ 1,372

​

In February 2022, one of our three skin operators informed us of its intent to cease operations on May 15, 2022, which will create one available skin in each of Colorado and Indiana. We are currently negotiating with other companies to be the replacement operator for such skins, though there can be no guarantee that we will enter into any replacement contract on similar terms or at all.

​

Other Revenues. The transaction price of rooms, food and beverage, and retail contracts is the net amount collected from the customer for such goods and services. The transaction price for such contracts is recorded as revenue when the good or service is transferred to the customer over their stay at the hotel or when the delivery is made for the food, beverage, retail and other contracts. Sales and usage-based taxes are excluded from revenues.

Revenue by Source. The Company presents earned revenue as disaggregated by the type or nature of the good or service (casino, food and beverage, hotel, and other operations comprised mainly of retail, golf, entertainment, and contracted sports wagering) and by relevant geographic region within Note 13.

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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 $2.8 million, $2.2 million, and $4.2 million for the years ended December 31, 2021, 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 2021, these costs were associated with our pursuit of available gaming licenses in Waukegan, Illinois, and Terre Haute, Indiana. In 2020, project development costs were associated with our pursuit to develop and operate American Place in Waukegan, Illinois, and also included option deposits to secure 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.

Income Taxes. We classify deferred tax assets and liabilities, 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 (“DTAs”) when it is deemed “more likely than not” that some portion or all of the DTAs 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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within those fiscal years. The Company adopted ASU 2019-12 on January 1, 2021. The adoption of this update did not have a material impact on the Company’s consolidated financial statements.

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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: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Denominator: ​ ​ ​

Potential dilution from share-based awards ​ ​ 2,429 ​ ​ 690 ​ ​ —

​

Recently Issued Accounting Pronouncements Not Yet Adopted. 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 ​ (79,540) ​ (73,654)

​

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 ​ ​ (3,004) ​ ​ (2,847)

​

​

​

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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, 2021

​ Gross ​ ​ Balance at

​ ​ Carrying ​ Accumulated ​ End of the

​ ​ Value ​ Impairments ​ Year

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ December 31, 2020

​ Gross ​ ​ Balance at

​ ​ Carrying ​ Accumulated ​ End of the

​ ​ Value ​ Impairments ​ Year

​

Other Intangible Assets:

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ December 31, 2021

​ Estimated Gross ​ ​ Accumulated Other

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

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

Casino Lease Option 3 ​ 190 ​ (190) ​ — ​ —

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

Trademarks Indefinite ​ 121 ​ — ​ — ​ 121

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) ​ December 31, 2020

​ Estimated Gross ​ ​ Accumulated Other

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

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

Casino Lease Option 3 ​ ​ 190 ​ ​ (151) ​ ​ — ​ ​ 39

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

Trademarks Indefinite ​ 118 ​ — ​ — ​ 118

​

There were no impairments to goodwill or other intangible assets for the years ended December 31, 2021, 2020, and 2019.

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