<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1995
Commission file number 0-9099
FLORIDA GAMING CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1670533
- -------------------------------- ----------------------
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1750 SOUTH KINGS HIGHWAY, FT. PIERCE, FLORIDA 34945-3099
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (407)464-7500
------------------------
Former name, former address and former fiscal year, if changed since last report
N/A
- ------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----------- -----------
3,123,586 shares of the issuer's Common Stock were outstanding as of the
- ---------
latest practicable date, November 13, 1995 .
----------------------
Transitional Small Business Disclosure Format:
YES NO X
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<PAGE>
FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1995 (unaudited) and December 31, 1994. . . . . . . . . 3
Statements of Operations (unaudited) nine months ended September 30, 1995 and 1994 . . . . 4
Statements of Cash Flows (unaudited) nine months ended September 30, 1995 and 1994 . . . . 5
Notes to Financial Statements (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $1,151,477 $1,363,174
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,618,250
Accounts receivable & current portion of notes receivable. . . . . . . . . 18,338 20,258
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,445 22,123
Prepaid expense and other. . . . . . . . . . . . . . . . . . . . . . . . . 26,068 7,387
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,218,328 3,031,192
PROPERTY AND EQUIPMENT:
Land (Notes 2,5, and 9). . . . . . . . . . . . . . . . . . . . . . . . . . 2,719,495 1,631,865
Building and Improvements (Note 5) . . . . . . . . . . . . . . . . . . . . 1,914,101 1,799,962
Furniture, fixtures and equipment (Note 5) . . . . . . . . . . . . . . . . 504,864 422,596
---------- ----------
5,138,460 3,854,423
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . (268,862) (141,962)
---------- ----------
4,869,598 3,712,461
OTHER NOTES RECEIVABLE, NET. . . . . . . . . . . . . . . . . . . . . . . . 120,000 --
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,478 30,800
---------- ----------
$6,610,404 $6,774,453
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 91,617 $1,196,666
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . 8,449 15,415
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 157,600 176,879
Short-term borrowing and current portion of long-term debt . . . . . . . . 126,368 108,385
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 384,034 1,497,345
LONG-TERM LIABILITIES
Long-term portion notes payable (Notes 6,7, and 10). . . . . . . . . . . . 1,831,337 1,114,061
STOCKHOLDERS' EQUITY (Notes 2,4,8 and 9):
Class A preferred stock, convertible to common stock, $.10 par
value, authorized 1,200,000 shares, 35,235 shares issued and
outstanding, aggregate liquidation preference of $352,350 at
September 30, 1995; 43,664 shares issued and outstanding at
December 31, 1994, aggregate liquidation preferences of $477,000 . . . . 3,524 4,366
Common stock, $.10 par value, authorized 15,000,000 shares,
3,123,474 issued and outstanding at September 30, 1995, and
3,119,246 shares issued and outstanding at December 31, 1994 . . . . . . 312,347 311,924
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . 25,058,360 25,026,362
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,979,198) (21,179,605)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 4,395,033 4,163,047
---------- ----------
$6,610,404 $6,774,453
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
-------------------------- -------------------------
(Note 10) (Note 10)
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
HANDLE:
<S> <C> <C> <C> <C>
Jai-Alai $ --- $ --- $4,183,844 $3,480,257
ITW 4,638,923 4,040,406 15,190,424 11,305,216
--------- --------- ---------- ----------
Total Pari-Mutuel Handle 4,638,923 4,040,406 19,374,268 14,785,473
REVENUE:
Pari-Mutuel Revenues, net of $24,727, $ 486,323 $ 416,968 $2,440,639 $1,711,593
$-0-, $126,900 and $144,384 pari-
mutuel taxes paid to the State of
Florida, respectively
Admissions, net of $2,144, $1,683, $22,732, 29,671 27,441 118,154 91,763
and $18,812 of Admissions & Sale Taxes paid
to the State of Florida, respectively
Food, Beverage and Other 98,028 84,521 638,714 440,510
--------- --------- ---------- ----------
Total Revenues 614,022 528,930 3,197,507 2,243,866
COSTS AND EXPENSES:
Operating 472,318 392,807 2,452,069 1,855,545
General and Administrative 204,404 130,180 604,164 383,608
Depreciation 42,300 24,000 126,900 65,833
--------- --------- ---------- ----------
Total Costs and Expenses 719,022 546,987 3,183,133 2,304,986
--------- --------- ---------- ----------
Net Income (loss) from operations (105,000) (18,057) 14,374 (61,120)
OTHER INCOME (EXPENSES):
Interest Dividend Income, net 14,452 8,628 66,463 17,739
Gain (loss) on Net Sale of Assets -- -- -- (14,669)
Realized Gain on Marketable Securities -- -- 195,939 --
Other (Expense) (1,848) (7,023) (44,657) (21,086)
--------- --------- ---------- ----------
Net Income (Loss) $ (92,396) $ (16,452) $ 232,119 $ (79,136)
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Earnings (loss) per common share ($.03) ($.01) $.05 ($.05)
(See Note 7)
Weighted average common shares outstanding 3,120,670 1,761,136 3,119,726 1,693,971
(See Note 7)
Fully diluted per share earnings (See Note 7) N/A N/A $.04 N/A
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1995 1994
--------- --------
<S> <C> <C>
Operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 232,119 $ (79,136)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 126,900 65,833
Loss on sale of assets . . . . . . . . . . . . . . . . . . . . . . . . . . -- 14,669
Realized gain on sale of marketable securities . . . . . . . . . . . . . . . . (195,939) --
Decrease (increase) in -
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . (126,143) (6,457)
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . (18,681) 21,181
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (371,678) --
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (322) (20,807)
Increase (decrease) in -
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,508) (3,950)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26,245) 208,846
------- -------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (632,616) 279,315
Net cash provided (used) by operating activities . . . . . . . . . . . . . $ (400,497) $ 200,179
Investing activities:
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . . . . -0- 95,000
Proceeds from sales and maturities of marketable securities. . . . . . . . 1,814,189 --
Capital Expenditures (Note 8). . . . . . . . . . . . . . . . . . . . . . . (1,284,037) (2,978,318)
---------- ----------
Net cash provided from (used in) investing activities. . . . . . . . . . . $ 530,152 $(2,883,318)
-----------
Financing activities:
Proceeds from payments on notes receivable . . . . . . . . . . . . . . . . 8,063 10,515
Net proceeds from borrowing (Note 8) . . . . . . . . . . . . . . . . . . . 735,259 1,034,423
Repayment of margin account. . . . . . . . . . . . . . . . . . . . . . . . (1,084,541) --
Stockholders Equity:
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . -- 1,300,000
Conversion of Preferred to Common and Preferred Dividend Payments. . . . . (87) (71)
Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . (46) --
-------- -------
Net cash provided (used) from financing activities . . . . . . . . . . . . $ (341,352) $ 2,344,867
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . . . . $ (211,697) $ (338,272)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . . $ 1,363,174 $ 2,033,901
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER. . . . . . . . . . . . . . . . . . $ 1,151,477 $ 1,695,629
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 126,084 $ 34,601
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have been
prepared without audit for filing with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Therefore, it is suggested that the
accompanying financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report on
Form 10-KSB.
Certain information and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the year,
reflects all adjustments of a normal recurring nature, which, in the opinion of
the Company, are necessary to a fair statement of the results for the periods
indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
For purposes of these statements, the Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
The Company's investment in undeveloped land ($1,612,001 at September 30, 1995)
is carried at cost and is included with land under property, plant and equipment
in the balance sheet.
The Company's inventory, comprising food and beverage products and souvenirs, is
stated at the lower of cost or market.
Revenue is derived from acceptance of wagers under a pari-mutuel wagering
system. The Company accepts wagers on both on-site and ITW events. On-site
wagers are accumulated in pools with a portion being returned to winning
bettors, a portion paid to the State of Florida and a portion retained by the
Company. ITW wagers are also accepted and forwarded to the "host" facility
after retention of the Company's commissions. The Company's liability to host
tracks for ITW collections totaled $43,572 and are included in accounts payable
at September 30, 1995. Unclaimed winnings totaled $48,045 at September 30,
1995.
(3) INCOME TAXES
The provision for income taxes is based on income for financial statement
purposes. Deferred income taxes, which arise from timing differences between
the period in which certain income and expenses are recognized for financial
reporting purposes and the period in which they affect taxable income, are
included in the amounts provided for income taxes. Tax credits are recorded as
a reduction in the provision for federal income taxes in the year the credits
are utilized.
At December 31, 1994, the Company had net operating loss (NOL) carryforwards of
approximately $10,766,000 available to offset future taxable income. This
amount includes approximately $3,924,000 representing losses incurred by a
former subsidiary while it was owned by the Company. Such losses were
reattributed to the Company by agreement in accordance with Section 1.1502-
20(g)(1) of the Internal Revenue Code (IRC).
These NOL carryforwards expire fifteen years from the year in which the losses
were incurred or at various intervals through fiscal 2009. However, virtually
all of the Company's NOL carryforwards which can be utilized to offset future
taxable income are limited to approximately $95,000 per fiscal year under
section 382 of the IRC. Operating losses of approximately $386,000 are not
subject to the Section 382 limitation.
(4) INCOME PER COMMON SHARE
The net income (loss) per common share was calculated based upon net income
and the weighted average number of outstanding common shares (3,120,670 for
the three months ended September 30, 1995, 3,119,726 for the nine months
ended September 30, 1995, 1,761,136 for the quarter ended September 30, 1994,
and 1,693,971 for the nine months ended September 30, 1994). Options and
warrants were included in the computations of income per share on a fully
diluted basis for the nine months ended September 30, 1995. Weighted average
equivalent shares on a fully diluted basis for the nine months ended
September 30, 1995 were 5,135,904 shares, consisting of 74,250 options held
by two former directors, 54,000 in options held by Vice President Ron
Perella, 7,928 shares of equivalent converted Preferred Class A Stock,
250,000 in options held by directors and an executive officer under
Nonqualified Stock Option Plans and 16B plans, 300,000 in nonqualified
options granted to Chairman Collett at the July, 7, 1995 shareholders'
meeting, 1,330,000 in options held by Freedom Financial Corporation, and the
3,119,726 weighted average common shares. Options and warrants were not
considered in the computations of loss per share for the other periods
presented herein as they were anti-dilutive.
(5) FT. PIERCE ACQUISITION
6
<PAGE>
As set forth in its Report on Form 8-K dated February 1, 1994, Florida Gaming
received approval from the Florida Department of Business Regulation to transfer
the pari-mutuel permit for the Ft. Pierce, Florida, Jai-Alai and Inter-Track
Wagering facility (the "Fronton"), and also closed the purchase transaction that
date. The business consists of, among other things, live jai-alai, inter-track
pari-mutuel wagering and the sale of food and alcoholic beverages.
Common stock issued to the seller (WJA Realty, LTD.) was valued at 2 and 3/16
(the closing price of the Company's common stock as of the transaction date).
The Company also purchased certain inventories and assumed certain pari-mutuel
liabilities to patrons as part of the transaction.
(6) PREFERRED STOCK
The Company's Class A preferred stock bears annual dividends at the rate of $.90
per share payable in cash, property or common stock, which are cumulative and
have priority over dividends on the common stock. There were no accrued or
unpaid dividends on Class A preferred stock as of September 30, 1995 and
December 31, 1994.
Each share of Class A preferred is convertible into .225 shares of common stock
at the holder's option. December 31, 1994, there were 43,664 shares of Class A
preferred outstanding convertible into 9,824 shares of common stock. At
September 30, 1995, there were 35,235 shares of Class A preferred outstanding
convertible into 7,928 shares of common stock. The Class A preferred is
redeemable at the option to the Company at $10.60 per share. In the event of
dissolution, the holders of Class A preferred shall be entitled to receive
$10.00 per share plus accrued dividends, prior to any distribution to holders of
commons stock. Subsequent to the quarter ended September 30, 1995, on October
25, 1995, a preferred shareholder exercised the conversion rights which resulted
in the cancellation of 500 Class A preferred shares and the issuance of 112
common shares.
(7) RELATED PARTY TRANSACTIONS
On August 26, 1994, Freedom Financial Corporation exercised its option in part
to purchase 400,000 shares of the Company's common stock at an exercise price of
$1.25 per share. On October 12, 1994, Freedom exercised its option to acquire
an additional 300,000 shares. These purchases resulted in approximately
$875,000 in additional equity capital for the Company. Freedom retains an
option to purchase 1,330,000 shares at an exercise price of $1.25 per share.
See also Note (8) Commitments and Contingencies - Casino America.
The Company has various non-qualified stock option plans and agreements which
grant options with Board approval to employees, officers, and directors. Under
each plan or agreement, the exercise price for each option granted must be at
least 100% of the fair market value of the Company's common stock on the date
the option is granted.
Under three separate agreements during fiscal 1993 the Company entered into
stock option agreements with a former director who is now vice president of the
Company and two former directors of the Company whereby the Company granted to
these individuals non-qualified options to purchase an aggregate 84,250 shares
of the Company's common stock at an exercise price of $2.50 per share. These
options are currently exercisable, expire December 31, 1997, and include certain
registration rights for all shares issued upon exercise.
On April 21, 1994, the Company adopted a new Nonqualified Stock Option Plan,
subject to shareholder approval, under which options up to an amount equal to 5%
of the Company's issued and outstanding shares of Common Stock can be issued to
the Company's non-director employees. On April 21, 1994, pursuant to this plan
options for 50,000 shares of Common Stock were granted to the Company's
Executive Vice-President (prior to his becoming a director) and options for
25,000 shares were granted to the Company's Chief Financial Officer, each with
an exercise price per share of $7.50. This plan was approved at the July 7,
1995 Annual Stockholders Meeting.
During August, 1994, the Company initiated a new stock option plan for directors
pursuant to which each current and future director will receive a one-time grant
of options of 25,000 Common Shares. Options for 150,000 shares were granted
under this plan in 1994. The option prices for these shares are the market
value at the respective dates of grant (range of $5.50 to $5.75 in 1994). The
options are not exercisable until one year from the date of election to the
Board. On April 28, 1995, options for 25,000 were granted to a new director at
$5.188 per common share.
On November 7, 1994, the Board of Directors granted the Company's Chief
Financial Officer an option to purchase an additional 25,000 shares of common
stock at an exercise price of $5.50 per share, exercisable one year from the
date of grant.
On April 28, 1995, the Board of Directors granted Vice President, Ron Perella,
an option to purchase an additional 19,000 shares of common stock at an exercise
price of $5.188 per share, exercisable from the date of grant. Also on April 28,
1995, the Board of Directors granted Chairman & CEO, W.B. Collett, an option
effective May 8, 1995, to purchase 300,000 shares of common stock at an exercise
price equal to mean of the high and low market price quoted on NASDAQ as of May
8, 1995 ($5.00 per share), subject to shareholder approval at the July 7, 1995,
annual shareholders meeting. Mr. Collett has not received any renumeration from
Florida Gaming since involvement with the Company in March of 1993. The Board of
Directors' intention was to compensate Mr. Collett for his efforts through these
options. The shareholders approved the grant to Chairman and CEO,Collett at that
meeting.
7
<PAGE>
(8) COMMITMENTS AND CONTINGENCIES
On May 13, 1994, American Jai-Alai, Inc. ("American Jai-Alai") filed suit in the
Circuit Court of the Fifteenth Circuit in Florida, Palm Beach County, against
the Company. American Jai-Alai alleges that in August 1993 the Company entered
into a contract with American Jai-Alai that American Jai-Alai would manage the
Fronton if the Company acquired it. American Jai-Alai alleges that the Company
and American Jai-Alai agreed to enter into a five-year renewable management
contract pursuant to which American Jai-Alai would guarantee a $480,000 annual
payment to the Company, $270,000 of the Fronton's net operating income above
$480,000 would be paid to the Company, with American Jai-Alai receiving 25% of
all net operating income above $750,000 annually. In addition, American Jai-
Alai alleges that it has a first right of refusal if the Company desires to sell
the Fronton at anytime during the alleged management contract. American Jai-
Alai also alleges that the Company granted it an option to purchase 100,000
shares of Common Stock at $2.50 throughout the alleged management contract, but
not to exceed 1997. In addition, American Jai-Alai alleges that the Company
agreed to pay American Jai-Alai 25% of any profit realized from the sale of the
Fronton, if such sale was not to American Jai-Alai pursuant to its alleged right
of first refusal. In the Complaint, American Jai-Alai alleges, among other
claims, breaches of fiduciary duty, breach of contract and fraud. On May 20,
1994, counsel for American Jai-Alai stated that American Jai-Alai was exercising
its alleged right to purchase the 100,000 shares of Common Stock for $2.50. The
Company has not issued any shares of Common Stock pursuant to this demand. The
Company has filed an Answer to the Complaint and also filed a motion to move the
suit from Palm Beach County to St. Lucie County, which was granted by the
circuit court. The Company denies the allegations and believes that this
proceeding is not likely to result in an adverse judgement that is material to
the results of its operations and financial condition.
On December 16, 1994, General Realty and Finance Co. filed suit in Palm Beach
County against the Company alleging a breach of a commission agreement for the
purchase of the Ft. Pierce Jai Alai fronton. The Complaint was filed on
December 16, 1994, and a Motion to Transfer Venue was filed January 30, 1995,
seeking to have venue transferred to St. Lucie County. The Company has
previously paid out a commission to Ronald Hayes and has attempted to pay the
principal of General Realty, Ed Fielding, for a commission; Mr. Fielding
initially rejected payment. The Company denies the allegations and believes the
proceedings are not likely to result in an adverse judgement that is material to
the results of this operation and financial condition.
On October 4, 1994, the Company entered into a letter of intent dated October 4,
1994 (the "Letter of Intent") with Casino America, Inc. ("Casino America") to
form a Joint Venture (the "Joint Venture") to build and operate a casino at the
Fronton. Casino America owns and operates three riverboat and dockside casinos
located in Mississippi and Louisiana. If the Joint Venture is formed before
passage of an amendment to the Florida Constitution to permit casino gaming at
the Company's Fronton in Fort Pierce, Florida, the Company will contribute its
interest in the Fronton to the Joint Venture with a credit to its joint venture
capital account of $5,000,000. Casino America will contribute up to $2,500,000,
as needed, to construct a 100,000 square foot indoor facility suitable for a
casino or flea market. If casino gaming is not permitted in Florida within six
years, Casino America has a continuing option to convert the money contributed
to the Joint Venture to a promissory note from the Joint Venture payable in
equal payments over a ten year period with interest at 8% per annum. If casino
gaming is permitted at the Fronton within six years, the value of the assets
contributed by the Company to the Joint Venture will be adjusted to increase the
Company's capital account up to $22,500,000. Casino America would fund its
capital account on an as needed basis up to $22,500,000. All profits and losses
of the Joint Venture will be allocated between the partners based upon capital
accounts.
The Letter of Intent provides that Casino America will be the manager of the
casino and all casino-related improvements. The Company will manage the
operation of the jai-alai fronton, inter-track wagering and all other non-casino
related activities. Each corporation will receive a management fee based on
costs. The Letter of Intent provides that Casino America has the exclusive
right to enter into a Joint Venture with the Company for six years and Casino
America has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture. The formation of the Joint Venture is subject to certain
conditions, including the satisfactory completion of due diligence by Casino
America, the receipt of all required regulatory approvals, the approval of each
partner's board of directors, the execution of a definitive joint venture
agreement, and the approval of the Company's stockholders, if required by law.
The Letter of Intent provides that if no definitive Joint Venture agreement were
executed by March 31, 1995, and the Letter of Intent was not extended by either
party no later than June 30, 1995, either party could terminate discussion in
connection with the Joint Venture and neither party would have any liability to
the other, except as otherwise specified in the Letter of Intent. The Letter of
Intent was extended to July 31, 1995. No definitive Joint Venture agreement has
yet been executed and but negotiations are continuing as of this date.
Freedom Financial Corporation ("Freedom") has informed the Company that Casino
America has purchased 22,500 shares of Freedom's 7% Series AA Mandatorily
Redeemable Preferred Stock (the "Freedom Preferred Stock"). The Freedom
Preferred Stock is convertible into shares of the Company's Common Stock owned
by Freedom at prices ranging from $7.50 per share of Common Stock to $15.00 per
share of Common Stock, depending upon the timing of the conversion and possible
passage of an amendment to the Florida Constitution permitting casino gaming at
the Fronton. The Freedom Preferred Stock is convertible into a minimum of
150,000 shares and a maximum of 300,000 shares of the Common Stock. On October
12, 1994, Freedom purchased 300,000 shares of Common Stock from the Company by
partial exercise of its option to purchase up to 1,630,000 shares (at that date)
of the Company's Common Stock at an exercise price of $1.25 per share. In
addition to its remaining option to purchase 1,330,000 shares of the Company's
Common Stock, Freedom now owns directly 1,349,480 shares of the Company's
3,123,586 shares of presently issued and outstanding Common Stock.
In connection with the purchase of certain real estate described in Note 9, the
Company issued 47,336 shares of its $.10
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par value stock having a quoted market value of $3.10 on the date of issue.
In the course of its business, the Company has had numerous discussions, and
continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons and joint ventures with Native American
Tribes related to the operation of gaming facilities. No assurances can be
given about the likelihood or timing of any such transaction. The Company has
entered into certain arrangements with potential co-venturers to explore
possible opportunities for gaming ventures. In connection with one such
project, the Company has agreed, contingent upon another co-venturer's
procurement of approval from regulatory authorities of an application to qualify
to operate a gaming venture and of a business plan and site for the venture, to
provide up to $15 million in financing to construct a gaming facility. The
Company may terminate this arrangement upon its sole discretion, if it
determines the project is no longer feasible. There can be no assurance that
the conditions to the Company's obligations will be met. The Company has
retained consultants and other advisors to assist the Company in the evaluation
of the proposed project and has financed certain organizational costs of the
venture. These organizational costs totaled approximately $335,000 as of
September 30, 1995.
As set forth in its Report on Form 8-K dated June 21, 1995, Florida Gaming
entered into an agreement with Centrum X Corporation of Boca Raton, Florida,
which gives Florida Gaming the right of first refusal to enter into joint
ventures with Centrum X for the development and management of casinos on Native
American lands. Centrum X is a consulting firm specializing in Native American
affairs. It is principally owned by Robert Fredericks, who also serves as its
president. Mr. Fredericks has been active in the representation of Native
American tribes throughout the United States for more than 25 years. This
agreement contemplates Florida Gaming and Centrum X forming joint ventures to
manage class II, and class III gaming facilities for Native American Tribes.
As set forth in its Report 8-K dated August 14, 1995, Florida Gaming announced
an Agreement in Principle to acquire EagleVisions Gaming Group of the Americas,
Inc. of Minneapolis, Minnesota. EagleVisions is headed by Leonard Prescott,
former CEO of the Mystic Lake Casino Complex near Minneapolis, the second
largest Native American Casino in the United States. Since that date the
Company and EagleVisions have reviewed the original concept and have concluded
that a joint venture would be more appropriate and just as successful for both
entities. Management of the Company and key members of Eaglevisions are
currently negotiating such an agreement.
Also as set forth on its Report 8-K dated August 28, 1995, Florida Gaming signed
a Management Agreement with the Ponca Indian Tribe of Nebraska to build and
operate a casino in Douglas County (Omaha) for Class II and Class II gaming as
authorized by the Indian Gaming Regulatory Act. Under the Agreement, the Ponca
Tribe will receive 70% of the net revenues from gaming, with Florida Gaming
receiving 30%. The Management Agreement has a 5 year term beginning upon the
commencement of gaming at the facility. The Agreement, is subject to approval
by the National Indian Gaming Commission, the acquisition of land that can be
taken in trust under the Indian Gaming Regulatory Act as the site for the
facility, the execution of definitive financing agreements, and certain other
conditions. Under the Indiana Gaming Regulatory Act, certain gaming activities
are also subject to the negotiation of a compact between the Ponca Tribe and the
State of Nebraska.
On September 18, 1995, as set forth on its Report 8-K, Florida Gaming agreed to
provide up to $5,000,000 in financing to the Rincon, San Luiseno Band of Mission
Indians. Proceeds of the loan will be used for working capital for the River
Oaks Casino, which the Rincon Band currently owns and operates in San Diego
County, California. The Loan Agreement will take effect when at least 400
gaming machines are in operation at the Casino. Florida Gaming has agreed to
make up to $5 million available to the Rincon Band during the seven year term of
the Agreement. In lieu of interest on the loan, Florida Gaming will receive a
royalty during the term of the Loan agreement equal to 12 1/2 % of all gaming
revenues of the Casino other than from gaming machines, plus 12 1/2% of the
"Drop" or "Handle" from gaming machines during the first five years and 11%
during the sixth and seventh years of the Loan Agreement. Florida Gaming has
also agreed to grant the Rincon Band 25,000 shares of its common stock in two
annual installments when the Loan Agreement takes effect. Florida also agreed to
advance short term working capital funds, which will represent initial draws
when the Loan Agreement takes effect. $120,000 has been advanced through
September, 1995, and $248,000 has been advanced through the date of this filing.
On November 1, 1995 the Company and the Rincon Band extended the expiration date
of the Agreement to June 30, 1996.
The operation of gaming machines at the Rincon Casino is currently prohibited by
a preliminary injunction issued by the United States District Court for Southern
California. The injunction was sought by the United States Attorney for
Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has refused
to enter into gaming compacts with California tribes. Since the date that the
preliminary injunction was imposed on the Rincon Band, the United states Court
of Appeals has agreed to review its prior decisions in light of a recent
California appellate court decision that California law permits the operation of
gaming machines by the California Lottery, contributing to the uncertain
parameters of Indian gaming in California
The Rincon Band has requested a hearing to consider lifting of the injunction
based on its belief that it now complies with all conditions for the operation
of gaming machines under the Indian Gaming Regulatory Act. As part of this
effort, the Rincon Band has now assumed direct management of the casino, and has
entered the Loan Agreement with Florida Gaming. The U.S. Attorney has until
November 8th to respond to the Rincon Band's pleading and the Rincon Band will
have until the 15th of November to comment on the U.S. Attorney's response. No
hearing date has been set, and there can be no assurance that the injunction
will be lifted. The lifting of the injunction would place the Rincon band in a
position
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comparable to the other three Native American tribes in San Diego County and the
22 other tribes in California that already operate Casinos with gaming machines.
(9) LAND ACQUISITION
In addition to the purchase of the Ft. Pierce Jai Alai, on November 3, 1994, the
Company made three other purchases of undeveloped land during 1994. The three
purchases comprised approximately 20 acres, all of which are adjacent to the Jai
Alai property. The amounts paid for this property totaled $529,864 including
debt assumptions, cash payments,and the issuance of 47,336 shares of the
Company's common stock.
In January 1995, the Company acquired an additional 79 acres of undeveloped land
adjacent to its other properties in Florida at a cost of $1,082,000 through cash
payments of $237,000 and the issuance of first mortgage debt of $845,000. The
$845,000 consists of three separate mortgages with interest rates from 8% to
9.5%, each with a balloon payment due in January, 2000. In aggregate these
balloon payments total approximately $740,000. The Company's plans for this
additional property held for future expansion are still in the formative stages
and could include the construction of a flea market and the expansion of ITW
facilities. The possibilities of billboards along the adjacent Interstate 95
right of way, a recreational vehicle park, and a golf driving range have also
been discussed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On February 1, 1994, Florida Gaming Corporation (the "Company") acquired a jai-
alai and inter-track wagering facility in Ft. Pierce, Florida, (the "Fronton").
The business consists of, among other things, live jai-alai, inter-track pari-
mutuel wagering and the sale of food and alcoholic beverages. The total
consideration for the purchase consisted of $1,500,000 cash, a ten-year
promissory note in the amount of $1,000,000, secured by a first mortgage, and
200,000 shares of the Company's common stock.
The Company has continued the program of refurbishing and remodeling the
facility, which began last year and anticipates further updating the layout of
the inter-track wagering ("ITW") areas, lobbies, restrooms and food or beverage
service areas. It is the Company's goal to provide a clean, bright, and
comfortable facility where patrons can enjoy themselves and participate in
honest gaming in a quality environment. As to live jai-alai, it is the
Company's intention to provide a balanced roster that can provide entertainment
and sport for the patron while operating within financial parameters. While ITW
will be conducted year round, management plans on running the live jai-alai
season December through April when more tourists and winter residents are in the
area. An important element of the Company's business plan for the Fronton is
the use of radio, including live remote broadcasts, co-promotions with vendors,
television, billboards, newspapers and magazines and other possible promotions.
The management of the Company also anticipates that it will increase the
Fronton's visibility in the marketplace by causing the Fronton to become a more
integral part of the Ft. Pierce and surrounding business and social communities
through community involvement. Through word-of-mouth and involvement in the
community, the Company expects that it will be possible to better inform the
people in surrounding areas of the pari-mutuel opportunities at the Fronton.
As set forth on its Report 8-K dated June 21, 1995, Florida Gaming Corporation
announced it had entered an agreement with Centrum X, a consulting firm in
Native American affairs. This agreement contemplates Florida Gaming and Centrum
X forming joint ventures to manage class II, and class III gaming facilities for
Native American Tribes.
As set forth in its Report 8-K dated August 14, 1995, Florida Gaming announced
an Agreement in Principle to acquire EagleVisions Gaming Group of the Americas,
Inc. of Minneapolis, Minnesota. EagleVisions is headed by Leonard Prescott,
former CEO of the Mystic Lake Casino Complex near Minneapolis, the second
largest Native American Casino in the United States. Since that date the
Company and EagleVisions have reviewed the original concept and have concluded
that a joint venture would be more appropriate and just as successful for both
entities. Management of the Company and key members of Eaglevisions are
currently negotiating such an agreement.
Also as set forth on its Report 8-K dated August 28, 1995, Florida Gaming signed
a Management Agreement with the Ponca Indian Tribe of Nebraska to build and
operate a casino in Douglas County (Omaha) for Class II and Class II gaming as
authorized by the Indian Gaming Regulatory Act. Under the Agreement, the Ponca
Tribe will receive 70% of the net revenues from gaming, with Florida Gaming
receiving 30%. The Management Agreement has a 5 year term beginning upon the
commencement of gaming at the facility. The Agreement, is subject to approval
by the National Indian Gaming Commission, the acquisition of land that can be
taken in trust under the Indian Gaming Regulatory Act as the site for the
facility, the execution of definitive financing agreements, and certain other
conditions. Under the Indiana Gaming Regulatory Act, certain gaming activities
are also subject to the negotiation of a compact between the Ponca Tribe and the
State of Nebraska.
On September 18, 1995, as set forth on its Report 8-K, Florida Gaming agreed to
provide up to $5,000,000 in financing to the Rincon, San Luiseno Band of Mission
Indians. Proceeds of the loan will be used for working capital for the River
Oaks Casino, which the Rincon Band currently owns and operates in San Diego
County, California. The Loan Agreement
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will take effect when at least 400 gaming machines are in operation at the
Casino. Florida Gaming has agreed to make up to $5 million available to the
Rincon band during the seven year term of the Agreement. In lieu of interest on
the loan, Florida Gaming will receive a royalty during the term of the Loan
agreement equal to 12 1/2 % of all gaming revenues of the Casino other than from
gaming machines, plus 12 1/2% of the "Drop" or "Handle" from gaming machines
during the first five years and 11% during the sixth and seventh years of the
Loan Agreement. Florida Gaming has also agreed to grant the Rincon Band 25,000
shares of its common stock in two annual installments when the Loan Agreement
takes effect. Florida also agreed to advance short term working capital funds,
which will represent initial draws when the Loan Agreement takes effect.
$120,000 has been advanced through September, 1995, and $248,00 has been
advanced through the date of this filing.
The operation of gaming machines at the Rincon Casino is currently prohibited by
a preliminary injunction issued by the United States District Court for Southern
California. The injunction was sought by the United States Attorney for
Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has refused
to enter into gaming compacts with California tribes. Since the date that the
preliminary injunction was imposed on the Rincon Band, the United states Court
of Appeals has agreed to review its prior decisions in light of a recent
California appellate court decision that California law permits the operation of
gaming machines by the California Lottery, contributing to the uncertain
parameters of Indian gaming in California.
The Rincon Band has requested a hearing to consider lifting of the injunction
based on its belief that it now complies with all conditions for the operation
of gaming machines under the Indian Gaming Regulatory Act. As part of this
effort, the Rincon Band has now assumed direct management of the casino, and has
entered the Loan Agreement with Florida Gaming. The U.S. Attorney has until
November 8th to respond to the Rincon Band's pleading and the Rincon Band will
have until the 15th of November to comment on the U.S. Attorney's response. No
hearing date has been set, and there can be no assurance that the injunction
will be lifted. The lifting of the injunction would place the Rincon band in a
position comparable to the other three Native American tribes in San Diego
County and the 22 other tribes in California that already operate Casinos with
gaming machines.
The Company entered into a letter of intent dated October 4, 1994 (the "Letter
of Intent") with Casino America, Inc. ("Casino America") to form a joint venture
(the "Joint Venture") to build and operate a casino at the Fronton, if permitted
by Florida law within the next six years. The Letter of Intent provides that
Casino America would be the manager of the casino and all casino-related
improvements. The Company would continue to manage the operations of the jai-
alai fronton, inter-track wagering and all other non-casino related activities.
Each corporation would receive a management fee based on costs. The Letter of
Intent provides that Casino America has the exclusive right to enter into a
Joint Venture with the Company for six years and Casino America has a right of
first refusal to enter into other potential gaming opportunities in Florida with
the Company for such period and during the term of the Joint Venture. The
formation of the Joint Venture is subject to certain conditions, including the
satisfactory completion of due diligence by Casino America, the receipt of all
required regulatory approvals, the approval of each partner's board of
directors, the execution of the definitive Joint Venture agreement, and the
approval of the Company's stockholders, if required by law. The Letter of Intent
provides that if no definitive Joint Venture agreement were executed by March
31, 1995, and the Letter of Intent was not extended by either party no later
than June 30, 1995, either party could terminate discussion in connection with
the Joint Venture and neither party would have any liability to the other,
except as otherwise specified in the Letter of Intent. The Letter of Intent was
extended to July 31, 1995. No definitive Joint Venture agreement has yet been
executed and but negotiations are continuing as of this date.
RESULTS OF OPERATIONS -- THREE AND NINE MONTHS 1995 COMPARED WITH THREE AND
NINE MONTHS 1994
During the quarter and nine months ended September 30, 1995, the Company's
operations reflect no months and four months' operation of live jai-alai
performances respectively, and a full schedule of inter-track wagering. The
live jai-alai season ended April 29, 1995, with the next season scheduled to
begin December 5, 1995 and end April 27, 1996. Because the Company acquired the
Fronton on February 1, 1994, revenues and expenses related to the operation of
live jai-alai and inter-track wagering at the Fronton for the nine months ended
1994 included only the period February 1, 1994 through September 30, 1994. The
Fronton typically remains open for inter-track wagering year round.
The Company's pari-mutuel handles for the quarter and nine months ended
September 30, 1995, were $4,638,923,consisting of $-0- in live jai-alai wagering
and $4,638,923 in inter-track wagering, and $19,374,268 consisting of $4,183,844
in live jai-alai wagering and $15,190,424 in inter-track wagering, respectively.
For the quarter and nine months ended September 30, 1994, the gross handles were
$4,040,406 and $14,785,473, respectively. These consisted of $-0- in live jai-
alai wagering for the quarter ended September 30, 1994, and $4,040,406 in ITW
handle. For the nine months period ended September 30, 1994, the handle on live
jai-alai wagering represented $3,480,257 while the handle on ITW for this period
was $11,305,216.
The growth in handle for the quarter ended September 30, 1995 compared with
September 30, 1994, was $598,517 which is attributable to growth in the ITW
segment. For the nine months ended September 30, 1995, the handle increased
$4,588,795, of this growth, approximately $3,885,208, was attributable to the
ITW segment. Through the nine months ended September 30, 1995, the ITW handle
has increased approximately 18.7% compared to 1994 adjusting for the January
1994 period (when the Fronton was not operated by company). For the nine months
ended September 30, 1995 compared to
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September 30, 1994, the gross handle on jai-alai increased $703,587. This
increase is attributable primarily to the extra month of performances included
in 1995 totals, although average handle per jai-alai performance increased
approximately 8%.
The company's pari-mutuel revenues, net of pari-mutuel taxes for the three
months and nine months ended September 30, 1995, were $486,323 and $2,440,639,
respectively. This compares to $416,968 for the three months ended September
30, 1994, and $1,711,593 for the nine month period ended September 30, 1994. Of
the $486,323, for the quarter ended September 30, 1995, $486,323 was
attributable to commissions on ITW, and $-0- was attributable to live jai-alai.
Of the $416,968 in net pari-mutuel revenues for the quarter ended September 30,
1994, $416,968 was attributable to commissions on ITW, and $-0- was attributable
to live jai-ali. The $69,355 increase in ITW commissions for the quarter ended
September 30, 1995, was due to the increase in handle as indicated above, and
increase in the commission rate. This can be explained by an increase in ITW
events presented at the Fronton. Of the $2,440,639, in net pari-mutuel revenue
for the nine months September 30, 1995, $1,522,388 was attributable to
commissions on ITW and $918,251 was attributable to live jai-alai. Of the
$1,711,593 in net pari-mutuel income for the nine month period ended September
30, 1994, $1,005,317 was attributable to commissions on ITW, and $706,276 was
attributable to live jai-alai. For the nine month period ended September 30,
1995, compared to the nine month period ended September 30, 1994, ITW
commissions increased approximately $517,071. This growth was attributable to
the growth in ITW handle and also an increase in commission rate and extra month
of operation. The $211,975 increase in net commission in live jai-alai was
primarily the result of decreases in pari-mutuel taxes from 7.1% to 5% and the
reduction of daily license fees on pari-mutuel games of 50%, and an extra month
of jai-alai performances included in 1995 figures.
Admissions income, net of state taxes, for the three and nine months periods
ended September 30, 1995, was $29,671 and $118,154 respectively. This compares
to $27,441 and $91,763 for the three and nine month periods ended September 30,
1994, respectively. The $2,230 increase for the quarter September 30, 1995, can
be attributed to the increase in ITW business. The increase of $26,391 for the
nine month period was primarily the result of an extra month of jai-alai
performances during the nine month 1995 period.
Food, beverage and other income for the three and nine months period ended
September 30, 1995, was $98,028 and $638,714, respectively. These amounts
compare to $84,521 and $440,510 for the three and nine months ended September
30, 1994. The $13,507 increase for the three month period ended September 30,
1995, compared to the same period in 1994 was due to scheduling more special
events i.e. boxing telecasts, radio promotions, etc. during the 1995 period and
the increase in ITW business. The $198,204 increase in food, beverage and other
income for the nine month period ended September 30, 1995, as compared to the
same period in 1994, was also due to the scheduling of special events, the
increase in ITW business and the extra month of peak season jai-alai in the 1995
period.
The Company's general and administrative expenses for the three and nine month
periods ended September 30, 1995, were $204,404, and $604,164, respectively.
For the three and nine month periods ended September 30, 1994, general and
administrative expenses were $130,180, and $383,608, respectively. The $74,224
increase for the quarter ended September 30, 1995 as compared to 1994 can be
attributed to approximately $16,250 in payroll to an assistant manager not on
staff during the 1994 period, approximately $13,189 in increased marketing
expenses, an $11,685 increase in business travel and lodging associated with
various Native American and other situations , $29,357 in increased legal
expenses with the balance of the increase attributable to sundry, administrative
and reporting expenses and costs. The $220,556 increase for the nine months
ended September 30, 1995, as compared to the nine months ended September 30,
1994, is attributed to approximately $48,000 in payroll costs paid to the
assistant manager whose position did not exist in 1994, approximately $75,000 in
increased marketing expenses, approximately $11,000 increase in business travel
and lodging associated with various Native American and other situations ,
approximately $42,900 in increased legal expenses with the balance primarily
attributable to the extra month the Company owned and operated the jai-alai
fronton during 1995.
The Company's operating expenses for the three months ended September 30, 1995
and September 30, 1994 were $472,318 and $392,807, respectively. Depreciation
expense for the three months ended September 30, 1995, and September 30, 1994,
was $42,300 and $24,000, respectively, for an increase of $18,300. The increase
in depreciation expense is attributable to capital improvements made during
1994. The operating expenses for the three months ended September 30, 1995,
increased $79,511 or 20.24% compared to the three months ended September 30,
1994. The largest factor contributing to the increase was a $21,219 increase to
$42,081 in interest expense for the quarter attributable to the financing of
recent land acquisitions adjacent to the Fronton. Rental and service costs for
totalizator wagering equipment and satellite receiving/television equipment also
represent a significant portion of operating expenses. These expenses totaled
$51,253, for the three months ended September 30, 1995, compared to $35,538 for
three months ended September 30, 1994. The $15,715 increase is attributable to
an expanded ITW schedule and equipment upgrades. Utilities expense totaled
$35,542, and $33,042, respectively, for the three months periods ended September
30, 1995 and September 30, 1994. Program costs totaling $25,696, and $27,263,
respectively, are also included in the total operating expenses for the three
month periods ended September 30, 1995 and 1994. Operating expenses for the bar
and concessions, which include payroll costs, were $37,848, and $35,872 for the
three month periods which ended September 30, 1995 and September 30, 1994,
respectively. The restaurant is typically closed during the 3rd quarter.
Operating payrolls and related costs totaled $193,499 and $169,613 for the three
month periods ended September 30, 1995 and September 30, 1994, respectively,
excluding player costs and payroll costs included in the bar, restaurant and
concessions areas. For an increase of $23,886, $9,500 is attributable to the
addition of marketing director position.
The Company's operating expenses for the nine ended September 30, 1995 and
September 30, 1994 were $2,452,069, and $1,855,545, respectively. Depreciation
expense for the nine months ended September 30, 1995, and September 30, 1994,
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were $126,900, and $65,833, respectively, for an increase of $61,067. The
increase in depreciation expense is attributable to capital improvements made
during 1994, and the extra month of operation during 1995. The operating
expenses for the nine months ended September 30, 1995, increased $596,524
compared to the nine months ended September 30, 1994. The largest factor
contributing to the increase was $398,608 in operating expense attributable to
the month of January operations of the Fronton during peak jai-alai season in
January 1995. (In January 1994 the Company did not own or operate the jai-alai
facility.) For the nine months ending September 30, 1995, player costs were
$560,960 compared to $405,645 for the nine months ending September 30, 1994. Of
the $155,315 increase, approximately $130,000 was attributable to the extra
month of operation during 1995. Rental and service costs for totalizator
wagering equipment and satellite receiving/television equipment totaled
$263,429, for the nine months ended September 30, 1995, compared to $188,419 for
nine months ended September 30, 1994. The $75,010 increase is attributable to
an expanded ITW schedule and equipment upgrades and the extra month of operation
during the 1995 season. Utilities expense totaled $100,928, and $90,532,
respectively, for the nine months periods ended September 30, 1995 and September
30, 1994. Program costs totaling $105,586, and $85,559, are also included in
the total operating expenses for the nine month periods ended September 30, 1995
and 1994, respectively. Operating expenses for the bar, restaurant, souvenirs
and concessions which include payroll costs, were $312,025, and $226,616, for
the six month periods which ended September 30, 1995 and September 30, 1994,
respectively. Of the $85,409 increase, approximately $38,000 was attributable
to the extra month of operation in 1995, with the balance of the increase
attributable to increased food and beverage sales. Operating payrolls and
related costs totaled $716,904 and $619,217 for the nine month periods ended
September 30, 1995 and September 30, 1994, respectively, excluding player costs
and payroll costs included in the bar, restaurant and concessions areas. The
bulk of the $97,687 increase is attributable to an extra month of operation
during the January 1995 period with approximately $20,000 attributable to new
marketing director position.
The Company had net interest and dividend income of $14,452 and $66,463 for the
three months and nine months ended September 30, 1995, respectively. For the
three months and nine months periods ended September 30, 1994, the Company had
$8,628 and $17,739, in net interest and dividend income, respectively. The
$5,824 increase for the three month period ended September 30, 1995 as compared
to the September 30, 1994 period is attributable to an increase of funds
invested in short term cash equivalent fund due to the additional equity capital
that was injected in the second half of 1994. The $48,724 increase for the nine
months ended September 30, 1995, compared to nine month ended September 30,
1994, is attributable to the same factors. The Company also recorded dividend
income of approximately $26,250 received on a short term investment in bank
holding company stock that was sold in the first quarter 1995.
In connection with the sale of SCOPE, the Company received a three-year
promissory note from SCOPE. On April 4, 1994, the Company sold the promissory
note, with a remaining principal balance of $109,000, to an unaffiliated third
party for $95,000. As a result of the sale of this note at a discount, the
Company recorded a one-time charge of $14,669 against earnings in the second
quarter and for the nine months ended September 30, 1994. For the three and
nine months ended September 30, 1995, the Company had no gain or losses on the
sale of assets.
For the three months ended September 30, 1995, the Company had no gains on the
sales of securities. The Company had a net realized gain on the sale of
securities of $195,939 for the nine months ended September 30, 1995. There were
no gains on sale of securities for the three and nine month periods ended
September 30, 1994. The $195,939 gain resulted from the sale of bank holding
company common stock which the Company had invested in on a short term basis for
a dividend yield. These shares were purchased in December 1994 and sold in
February 1995.
Other expenses were $1,848 and $44,657, for the three and nine months ended
September 30, 1995, respectively. This compares to $7,023 and $21,086, for the
three and nine months ended September 30, 1994, respectively. The $1,848 and
$44,657 were legal costs paid in connection with litigation, (See note 8),
during the quarter and nine months ended September 30, 1995. The $7,023 and
$21,086 for the three and nine month periods ended September 30, 1994, consisted
of costs associated with the effort to put a casino referendum on the November
1994 Florida ballot, net of a $4,820 refund by the Division of Pari-Mutuel
Wagering returned to the Company as unused investigatory funds with respect to
the license application investigation.
At December 31, 1994, the Company had approximately $480,000 in net operating
loss carryforwards (net of IRC section 382 limitations due to the change of
control that occurred in March 1993). Thus there was no provision for Federal
income taxes for the quarter and nine months ended September 30, 1995. Also,
net operating losses eliminated the need for tax accruals for the nine months
ended September 30,1994.
The Company had a net loss of $92,396, or ($0.03) per common share, for the
three months ended September 30, 1995, compared to a net loss of $16,452 or
($.01) per common share for the three months ended September 30, 1994. The
decrease in earnings of $75,944 was primarily the result of factors discussed
above for this most recent quarter including the increased depreciation,
interest, along with the increased legal and travel expenses associated with our
entry in the Native American gaming segment of the industry. The company had
net income of $232,119 or $.05 per common share for the nine months ended
September 30, 1995, compared to a net loss of $79,136, or ($.05) per common
share for the period ended September 30, 1994. The increase in net income of
$311,255, for the nine months ended September 30, 1995, was influenced by the
factors discussed above including an extra month of wagering on both live jai-
alai and ITW performances, growth in the handle and increase in take-out or
commission rate on ITW, the effects of House Bill 2813, now known as chapter 94-
318, Laws of Florida which reduced the pari-mutuel tax rate on gross jai-alai
handle from 7.1 to 5% and reduced daily license fees per game from $80 to $40,
and the $195,939 securities gain booked in the first quarter.
In addition, in January 1995, the Company acquired three parcels of land
contiguous to the original Fronton property
13
<PAGE>
comprising approximately 79 acres for $1,082,136. The total acreage surrounding
the facility is currently approximately 134 acres including the parking lot.
The Company's plans for this additional property held for future expansion are
still in the formative stages and could include the construction of a flea-
market and the expansion of ITW facilities. The possibilities of billboards
along the Interstate 95 right of way, a recreational vehicle park, and golf
driving range have also been discussed.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at September 30, 1995,
was $1,151,477. At September 30, 1995, the Company had working capital of
$834,294, a decrease of $699,553 from $1,533,847 at December 31, 1994. A large
portion of the decrease was the result of the sale of $1.6 million in margined
bank holding company securities; although the Company booked a $195,939 gain,
this transaction resulted in an approximately $338,000 decrease in working
capital because of the decrease in leverage that occurred when the margin
account was repaid. The Company also advanced $120,000 to the Rincon, San
Luiseno Band of Missions, per as loan agreement as discussed below and in its
Report 8-K filed September 18, 1995.
During the nine months ended September 30, 1995, net cash used by the Company's
operating activities was $400,497. The Company's continuing operating expenses
consisted principally of office expenses, general administrative expenses, and
operating expenses associated with jai-alai and ITW operations. Principal
revenues were from net commissions on pari-mutuel wagering on live jai-alai,
commission on ITW events, and food and beverage sales. The Company expects net
cash flows from the operation of current business activities will be adequate to
meet operational needs.
During the nine months ended September 30, 1995, cash flow provided from
investing activities was $530,152, the result of the $1,814,189 securities sale
and net of $1,284,037 in capital expenditures. The bulk of capital expenditures,
approximately $1,082,000, was related to the land acquisitions described
earlier.
During the nine months ended September 30, 1995, cash flow used from financing
activities was $341,352. Cash flow used in financing activities consisted
primarily of the $1,084,541 repayment of the margin account and net of
approximately $845,000 in borrowings and a $100,000 repayment of principal on
the Company's note to WJA Realty. The $845,000 in borrowings were the result of
the recent land acquisitions.
In the course of its business, the Company has had numerous discussions, and
continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons and joint ventures with Native American
Tribes related to the operation of gaming facilities. No assurances can be
given about the likelihood or timing of any such transaction. The Company has
entered into certain arrangements with potential coventurers to explore possible
opportunities for gaming ventures. In connection with one such project, the
Company has agreed, contingent upon another coventurer's procurement of approval
from regulatory authorities of an application to qualify to operate a gaming
venture and of a business plan and site for the venture, to provide up to $15
million in financing to construct a gaming facility. The Company may terminate
this arrangement upon its sole discretion, if it determines the project is no
longer feasible. There can be no assurance that the conditions to the Company's
obligations will be met. The Company has retained consultants and other
advisors to assist the Company in the evaluation of the proposed project and has
financed certain organizational costs of the venture. These organizational
costs totaled approximately $335,000 as of September 30, 1995.
As mentioned earlier in this report, as set forth on its Report 8-K dated June
21, 1995, Florida Gaming Corporation announced it had entered an agreement with
Centrum X, a consulting firm in Native American affairs. This agreement
contemplates Florida Gaming and Centrum X forming joint ventures to manage class
II, and class III gaming facilities for Native American Tribes.
As set forth in its Report 8-K dated August 14, 1995, Florida Gaming announced
an Agreement in Principle to acquire EagleVisions Gaming Group of the Americas,
Inc. of Minneapolis, Minnesota. EagleVisions is headed by Leonard Prescott,
former CEO of the Mystic Lake Casino Complex near Minneapolis, the second
largest Native American Casino in the United States. Since that date the
Company and EagleVisions have reviewed the original concept and have concluded
that a joint venture would be more appropriate and just as successful for both
entities. Management of the Company and key members of Eaglevisions are
currently negotiating such an agreement.
Also as set forth on its Report 8-K dated August 28, 1995, Florida Gaming signed
a Management Agreement with the Ponca Indian Tribe of Nebraska to build and
operate a casino in Douglas County (Omaha) for Class II and Class II gaming as
authorized by the Indian Gaming Regulatory Act. Under the Agreement, the Ponca
Tribe will receive 70% of the net revenues from gaming, with Florida Gaming
receiving 30%. The Management Agreement has a 5 year term beginning upon the
commencement of gaming at the facility. The Agreement, is subject to approval
by the National Indian Gaming Commission, the acquisition of land that can be
taken in trust under the Indian Gaming Regulatory Act as the site for the
facility, the execution of definitive financing agreements, and certain other
conditions. Under the Indiana Gaming Regulatory Act, certain gaming activities
are also subject to the negotiation of a compact between the Ponca Tribe and the
State of Nebraska.
On September 18, 1995, as set forth on its Report 8-K, Florida Gaming agreed to
provide up to $5,000,000 in financing to the Rincon, San Luiseno Band of Mission
Indians. Proceeds of the loan will be used for working capital for the River
14
<PAGE>
Oaks Casino, which the Rincon Band currently owns and operates in San Diego
County, California. The Loan Agreement will take effect when at least 400
gaming machines are in operation at the Casino. Florida Gaming has agreed to
make up to $5 million available to the Rincon band during the seven year term of
the Agreement. In lieu of interest on the loan, Florida Gaming will receive a
royalty during the term of the Loan agreement equal to 12 1/2 % of all gaming
revenues of the Casino other than from gaming machines, plus 12 1/2% of the
"Drop" or "Handle" from gaming machines during the first five years and 11%
during the sixth and seventh years of the Loan Agreement. Florida Gaming has
also agreed to grant the Rincon Band 25,000 shares of its common stock in two
annual installments when the Loan Agreement takes effect. Florida also agreed to
advance short term working capital funds, which will represent initial draws
when the Loan Agreement takes effect. $120,000 has been advanced through
September, 1995, and $248,000 has been advanced through the date of this filing.
The operation of gaming machines at the Rincon Casino is currently prohibited by
a preliminary injunction issued by the United States District Court for Southern
California. The injunction was sought by the United States Attorney for
Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has refused
to enter into gaming compacts with California tribes. Since the date that the
preliminary injunction was imposed on the Rincon Band, the United states Court
of Appeals has agreed to review its prior decisions in light of a recent
California appellate court decision that California law permits the operation of
gaming machines by the California Lottery, contributing to the uncertain
parameters of Indian gaming in California
The Rincon Band has requested a hearing to consider lifting of the injunction
based on its belief that it now complies with all conditions for the operation
of gaming machines under the Indian Gaming Regulatory Act. As part of this
effort, the Rincon Band has now assumed direct management of the casino, and has
entered the Loan Agreement with Florida Gaming. The U.S. Attorney has until
November 8th to respond to the Rincon Band's pleading and the Rincon Band will
have until the 15th of November to comment on the U.S. Attorney's response. No
hearing date has been set, and there can be no assurance that the injunction
will be lifted. The lifting of the injunction would place the Rincon band in a
position comparable to the other three Native American tribes in San Diego
County and the 22 other tribes in California that already operate Casinos with
gaming machines.
Management and financing agreements with Native American Tribes will necessitate
funds for the construction of facilities and in some cases the acquisition of
lands to be put in trust for the tribes. These funds are typically recovered
from the tribes' share of gaming profits, however, initially the Company will be
required to secure substantial capital for these activities. Currently the
Company is evaluating sources of funding including equity and debt financing.
The Company believes that its present financial condition provides adequate
capital reserves and liquidity for present operations. In addition, per the
stock purchase agreement between the Company and Freedom Financial Corporation,
Freedom may provide additional capital investment in the Company by exercising
Freedom Financial Corporation's option to purchase 1,330,000 shares of common
stock of the Company.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
See Note 8 to Unaudited Financial Statements contained herein.
Item 2. CHANGES IN SECURITIES.
None
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
Item 5. OTHER INFORMATION.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
LIST OF EXHIBITS FILED.
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1995, as set forth in its
Report 8-K dated August 14, 1995, Florida Gaming announced an Agreement in
Principle to acquire EagleVisions Gaming Group of the Americas, Inc. of
Minneapolis, Minnesota. EagleVisions is headed by Leonard Prescott, former CEO
of the Mystic Lake Casino Complex near Minneapolis, the second largest Native
American Casino in the United States. Since that date the Company and
EagleVisions have reviewed the original concept and have concluded that a joint
venture would be more appropriate and just as successful for both entities.
Management of the Company and key members of Eaglevisions are currently
negotiating such an agreement. For more information, see Item 2 of this 10QSB.
No financial statements were filed as part of this Form 8-K Report.
Also during the quarter ended September 30, 1995, the Company, as
set forth on its Report 8-K dated August 28, 1995, signed a Management Agreement
with the Ponca Indian Tribe of Nebraska to build and operate a casino in Douglas
County (Omaha) for Class II and Class II gaming as authorized by the Indian
Gaming Regulatory Act. Under the Agreement, the Ponca Tribe will receive 70% of
the net revenues from gaming, with Florida Gaming receiving 30%. The Management
Agreement has a 5 year term beginning upon the commencement of gaming at the
facility. The Agreement, is subject to approval by the National Indian Gaming
Commission, the acquisition of land that can be taken in trust under the Indian
Gaming Regulatory Act as the site for the facility, the execution of definitive
financing agreements, and certain other conditions. Under the Indiana Gaming
Regulatory Act, certain gaming activities are also subject to the negotiation of
a compact between the Ponca Tribe and the State of Nebraska. For more
information, see Item 2 of this 10QSB. No financial statements were filed as
part of this Form 8-K Report.
Also during the quarter ended September 30, 1995, the Company
filed a Form 8-K Current Report on September 18, 1995, announcing the Company
had agreed to provide up to $5,000,000 in financing to the Rincon, San Luiseno
Band of Mission Indians. Proceeds of the loan will be used for working capital
for the River Oaks Casino, which the Rincon Band currently owns and operates in
San Diego County, California. The Loan Agreement will take effect when at least
400 gaming machines are in operation at the Casino. Florida Gaming has agreed
to make up to $5 million available to the Rincon band during the seven year term
of the Agreement. In lieu of interest on the loan, Florida Gaming will receive
a royalty during the term of the Loan agreement equal to 12 1/2 % of all gaming
revenues of the Casino other than from gaming machines, plus 12 1/2% of the
"Drop" or "Handle" from gaming machines during the first five years and 11%
during the sixth and seventh years of the Loan Agreement. Florida Gaming has
also agreed to grant the Rincon Band 25,000 shares of its common stock in two
annual installments when the Loan Agreement takes effect. Florida also agreed to
advance short term working capital funds, which will represent initial draws
when the Loan Agreement takes effect. $120,000 has been advanced through
September, 1995, and $248,000 has been advanced through the date of this filing.
For more information, see Item 2 of this 10QSB. No financial statements were
filed as part of this Form 8-K Report.
16
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
------------------------------
(Registrant)
Date: November 13, 1995 By: W. B. Collett
--------------------- ------------------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: November 13, 1995 By: Timothy L. Hensley
--------------------- ------------------------------
Timothy L. Hensley
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3, 4 AND 5 OF
THE COMPANY'S FORM 10-QSR FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,151
<SECURITIES> 0
<RECEIVABLES> 18
<ALLOWANCES> 0
<INVENTORY> 22
<CURRENT-ASSETS> 1,218
<PP&E> 5,138
<DEPRECIATION> 269
<TOTAL-ASSETS> 6,610
<CURRENT-LIABILITIES> 92
<BONDS> 0
<COMMON> 312
4
0
<OTHER-SE> 4,079
<TOTAL-LIABILITY-AND-EQUITY> 6,610
<SALES> 0
<TOTAL-REVENUES> 3,198
<CGS> 0
<TOTAL-COSTS> 3,198
<OTHER-EXPENSES> 45
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 232
<INCOME-TAX> 0
<INCOME-CONTINUING> 232
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232
<EPS-PRIMARY> .05
<EPS-DILUTED> .04
</TABLE>
