<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 March 31, 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
----------- -----------
3,119,246 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, MAY 11, 1995.
Transitional Small Business Disclosure Format:
YES NO X
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FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1995 (unaudited) and December 31, 1994. . . . . . . . . . . . 3
Statements of Operations (unaudited) Three Months ended March 31, 1995 and 1994. . . . . . . 5
Statements of Cash Flows (unaudited) Three Months ended March 31, 1995 and 1994. . . . . . . 6
Notes to Financial Statements (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $1,793,508 $1,363,174
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,618,250
Accounts receivable & current portion of notes receivable. . . . . . . . . . . 21,827 20,258
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,545 22,123
Prepaid expense and other . . . . . . . . . . . . . . . . . . . . . . . . . . 19,562 7,387
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,868,442 3,031,192
PROPERTY AND EQUIPMENT:
Land (Notes 2,5, and 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,714,033 1,631,865
Building and Improvements (Note 5) . . . . . . . . . . . . . . . . . . . . . . 1,837,621 1,799,962
Furniture, fixtures and equipment (Note 5) . . . . . . . . . . . . . . . . . . 477,987 422,596
------------ ------------
5,029,641 3,854,423
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . (184,262) (141,962)
------------ ------------
4,845,379 3,712,461
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OTHER NOTES RECEIVABLE, NET. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,993 --
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270,432 30,800
------------ ------------
$6,987,246 $6,774,453
</TABLE>
(continued)
3
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FLORIDA GAMING CORPORATION
BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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ASSETS (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 171,938 $ 112,125
Investment margin account. . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,084,541
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . 31,334 15,415
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198,228 176,879
Short-term borrowing and current portion of long-term debt . . . . . . . . . . 176,932 108,385
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 578,432 1,497,345
LONG-TERM LIABILITIES
Long-term portion note payable (Note 6,7 and 10) . . . . . . . . . . . . . . . 1,846,927 1,114,061
STOCKHOLDERS' EQUITY (See Notes 2,4,8 and 9):
Class A preferred stock, convertible
to common stock, $.10 par value,
authorized 1,200,000 shares, 43,664
shares issued and outstanding, aggregate
liquidation preference of $477,000 at
March 31, 1995; 43,664 shares issued and
outstanding at December 31, 1994, aggregate
liquidation preferences of $477,000 . . . . . . . . . . . . . . . . . . . . 4,366 4,366
Common stock, $.10 par value, authorized
15,000,000 shares, 3,119,246 issued and
outstanding at March 31, 1995, and
3,119,246 shares issued and outstanding
at December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,924 311,924
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . 25,026,362 25,026,362
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,780,765) (21,179,605)
------------ ------------
Total stockholders equity . . . . . . . . . . . . . . . . . . . . . . . . . 4,561,887 4,163,047
------------ ------------
$6,987,246 $6,774,453
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
PARI-MUTUEL HANDLE:
Jai-Alai $3,217,172 $2,362,692
ITW 5,823,788 3,104,030
---------- ----------
Total Pari-Mutuel Handle $9,040,960 $5,466,722
REVENUE:
Pari-Mutuel Revenues, Net of $79,587 and $95,698,
in pari-mutuel taxes, through March 31, 1995 &
March 31, 1994, respectively $1,265,304 $707,766
Admissions, Net of $14,982 and $10,885, of admissions
and sales tax paid through March 31, 1995 &
March 31, 1994, respectively 51,608 32,670
Food, Beverage and Other 347,650 198,014
---------- ----------
Total Revenues 1,664,562 938,450
COSTS AND EXPENSES:
Operating 1,246,563 770,278
General and Administrative 189,057 86,485
Depreciation 42,300 17,833
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1,477,920 874,596
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Net Income from operations 186,642 63,854
OTHER INCOME (EXPENSES)
Interest Income 35,882 6,632
Gain on sale of securities 195,939 --
Other (Expense) (19,623) (8,333)
---------- ----------
Net Income $ 398,840 $ 62,153
---------- ----------
---------- ----------
Earnings per common share $.13 $.04
Weighted average common shares outstanding 3,119,246 1,634,387
Fully diluted per share earnings (See Note 4) $.08 $.01
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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FLORIDA GAMING CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 1995 March 31, 1994
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<S> <C> <C>
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 398,840 $ 62,153
Adjustements to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 42,300 17,833
Realized Gain on Sale of Marketable Securities . . . . . . . . . . . . . . (195,939) --
Decrease (increase) in -
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . (7,183) --
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . (12,175) 57,421
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (239,632) --
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,422) (26,867)
Increase (decrease) in-
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 59,813 --
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 37,268 196,719
---------- ----------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . (326,970) 245,106
Net cash provided by operating activities . . . . . . . . . . . . . . $ 71,870 $ 307,259
Cash flows from investing activities:
Proceeds from sales and maturities of
marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 1,814,189 --
Capital Expenditures (Note 8) . . . . . . . . . . . . . . . . . . . . (1,175,218) (2,597,531)
---------- -----------
Net cash provided from (used in) investing activities . . . . . . . . 638,971 (2,597,351)
Cash flows and uses from financing activities:
Proceeds from payments on notes receivable. . . . . . . . . . . . . . 2,621 4,658
Net proceeds from borrowing (Note 8). . . . . . . . . . . . . . . . . 801,413 1,000,109
Repayment of margin account . . . . . . . . . . . . . . . . . . . . . (1,084,541) --
Stockholders Equity:
Conversion of Preferred to Common . . . . . . . . . . . . . . . . . . --- (4)
---------- -----------
Net cash used from financing activities . . . . . . . . . . . . . . . ($ 280,507) $1,004,763
NET INCREASE (DECREASE) IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . $ 430,334 ($1,285,329)
CASH AND EQUIVALENT AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . $1,363,174 $2,033,901
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER. . . . . . . . . . . . . . . . . . . $1,793,508 $ 748,572
---------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,661 $13,144
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 $62,955 and are included in accounts payable
at March 31, 1995. Unclaimed winnings totaled $108,983 at March 31, 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 income per common share was calculated based upon net income and the
weighted average number of outstanding common shares (3,119,246 and 1,634,387
for the three months ended March 31, 1995, and 1994, respectively). Options
and warrants were included in the computations of income per share on a fully
diluted basis for both periods. Weighted average equivalent shares on a fully
diluted basis for the three months ended March 31, 1995 were 4,718,320
shares, consisting of 74,250 options held by two former directors, 10,000 in
options held by Director Ron Perella, 9,824 shares of equivalent converted
Preferred Class A Stock, 175,000 in options held by directors and an
executive officer under Nonqualified Stock Option Plans, 1,330,000 in
options held by Freedom Financial Corporation, and the 3,119,246 weighted
average common shares. Weighted average equivalent shares on a fully diluted
basis for the three months ended March
7
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31, 1994 were 4,110,325 shares, consisting of 74,250 options held by two
former directors, 10,000 in options held by Director Ron Perella, 9,936
shares of equivalent converted Preferred Class A Stock, the 651,752 warrants
held by Sports Tech (that have since been exercised), 2,030,000 in options
held by Freedom Financial Corporation and the 1,634,387 weighted average
common shares. Refer to the Company's latest annual report on Form 10-KSB
for more information on outstanding options, warrants, and conversion
features of preferred stock.
(5) FT. PIERCE ACQUISITION
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 March 31, 1995 and December
31, 1994.
Each share of Class A preferred is convertible into .225 shares of common stock
at the holder's option. At March 31, 1995 and Deember 31, 1994, there were
43,664 shares of Class A preferred outstanding convertible into 9,824 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.
(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 an independant director 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 exerciseable,
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.
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 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.
(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
8
<PAGE>
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.
If no definitive Joint Venture agreement is executed by March 31, 1995, and the
Letter of Intent is not extended by either party no later than June 30, 1995,
either party may terminate discussion in connection with the Joint Venture and
neither party shall have any liability to the other, except as otherwise
specified in the Letter of Intent. No definitive Joint Venture agreement has
yet been executed and by letter dated March 21, 1995, Casino America has
extended the period of time to June 30, 1995.
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 1,339,480 shares of the Company's
3,119,246 shares of 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 par value stock having a quoted market
value of $3.10 on the date of issue.
9
<PAGE>
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. 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 $259,000 as of March 31, 1995. The
Company's retention of consultants and other advisors requires the payment of
$15,000 per month through the date of termination of the above-described
agreements.
(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
ballon 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 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, 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.
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
10
<PAGE>
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 is
executed by March 31, 1995, and the Letter of Intent is not extended by either
party no later than June 30, 1995, either party may terminate discussions in the
connection with the Joint Venture and neither party shall have any liability to
the other, except as otherwise specified in the Letter of Intent. No definitive
Joint Venture agreement has yet been executed and by letter dated March 21,
1995, Casino America has extended the period of time to June 30, 1995.
RESULTS OF OPERATIONS -- FIRST QUARTER 1995 COMPARED WITH 1ST QUARTER 1994
During the quarter ended March 31, 1995, the Company's operations reflects three
months' operation of live Jai-Alai performances at the Fronton and a full
schedule of inter-track wagering. The live Jai-Alai season ends 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 first quarter of 1994 included only the period February
1, 1994 through March 31, 1994. The Fronton typically remains open for inter-
track wagering year round.
The Company's pari-mutuel handles for the three months ended March 31, 1995, and
March 31, 1994, were $9,040,960, and $5,466,722, respectively. These consisted
of $3,217,172 in live Jai-Alai wagering and $5,823,788 in ITW handle, for the
three months ended March 31, 1995, and $2,362,692 in live Jai-Alai wagering and
$3,104,030 in ITW handle for the three months ended March 31, 1994. The
$3,574,238 increase in total handle consisted primarily of $2,711,266 in handle
attributable to January 1995 (during the 1994 season $2,601,324 in handle was
processed by the prior owner of the facility.) The remaining increase was
primarily attributable to the increase in ITW handle and commission rate. The
Company's pari-mutuel revenues net of state pari-mutuel taxes, for the three
months ended March 31, 1995 and 1994 were $1,265,304 and $707,776, respectively.
Of the $1,265,304, $560,945 was attributable to commissions on inter-track
wagering and $704,359, was attributable to live Jai-Alai. Of the $707,776,
$234,124, was attributable to commissions on inter-track wagering and $473,642,
was attributable to live Jai-Alai. The $230,717 increase in revenue from jai-
alai wagering was the result of an extra month of operation during the three
months ended March 31, 1995, as compared to the three months ended March 31,
1994, an increase in average handle per jai-alai performance and lower pari-
mutuel taxes and daily license fees. The $326,821 increase in ITW commission
was also the result of the extra month of operation, and an annualized increase
in handle of approximately 26% and approximately a 2% increase in the Company's
commission on ITW wagering.
Admissions income for the three months ended March 31, 1995 increased $18,938 to
$52,608 from $32,670, for the three months ended March 31, 1994, net of state
taxes. This increase was primarily the result of the extra month of operation
during the first quarter of 1995. Food, beverage and other income for the three
months ended March 31, 1995 and March 31, 1994, were $347,650 and $198,014,
respectively. The $149,636 increase in these revenues was also primarily the
result of the additional month of operation, but also the expansion of food and
beverage service.
The Company's general and administrative expenses were $189,057 and $86,485 for
the three months ended March 31, 1995 and March 31, 1994, respectively. The
increase of $102,572 in general and administrative costs resulted principally
from costs associated with the operation of the Fronton for the additional month
of operation, including a $46,630 increase in advertising and promotion
expenses.
The Company's operating expenses for the three months ended March 31, 1995 and
March 31, 1994, were $1,246,563 and $770,278, respectively. Depreciation
expense for the three months ended March 31, 1995, and March 31, 1994, were
$42,300 and $17,883, respectively, for an increase of $24,467. The increase in
depreciation expense is attributable to capital improvements made during 1994
and the additional one month ownership of the Fronton during 1995. The $476,285
increase in operating expenses was primarily attributable to the additional
month of operation during the live jai-alai season in 1995. Player costs, which
include salaries, benefits, and support staff, represent a significant portion
of operational expenses. Player costs for the three month ending March 31, 1995
and March 31, 1994, were $412,667 and $257,583 respectively. Rental and service
costs for totalizator wagering equipment and satellite receiving/television
equipment also represent a significant portion of operating expenses. These
expenses totaled $124,832, for the three months ended March 31, 1995, compared
to $78,422 for three months ended March 31, 1994. The $46,410 increase is
attributable to an expanded ITW schedule and equipment upgrades along with the
extra month of operation. Utilities expense totaled $30,097 and $30,464
respectively, for the three months periods ended March 31, 1995 and March 31,
1994. Program costs totaling $51,272 and $44,562, respectively, are also
included in the total operating expenses for the three month periods ended March
31, 1995 and 1994. Interest expense totaled $41,162 and $13,144, for the three
months periods ended March 31, 1995 and March 31, 1994, respectively. The
$28,018 increase in interest expense is attributable to the financing of recent
land acquisitions adjacent to the Fronton, as well as, an extra month's interest
on the purchase mortgage. Operating expenses, including payroll costs, for the
bar, restaurant and concessions were $160,617 and $100,234 for the three month
periods which ended March 31, 1995 and March 31, 1994, respectively. Operating
payrolls and related costs totaled $323,789 and $196,068 for the three month
periods ended March 31, 1995 and March 31, 1994, respectively, excluding player
costs and payroll costs included in the bar, restaurant and concessions areas.
Operating payrolls and related costs also include costs related to repairs and
maintenance to the Fronton.
The Company had net interest and dividend income of $35,882 and $6,632 for the
three months ended March 31, 1995 and March 31, 1994, an increase of $29,250.
The increase in interest and dividend income primarily was the result of a
11
<PAGE>
$26,250 dividend received on a short term investment in bank holding company
common stock which was sold during the quarter. The balance of the increase was
due to an increase of funds invested in short term cash equivalent funds due to
the additional equity capital that was injected in 1994.
The Company had a net realized gain on the sale of securities of $195,939 for
the quarter ended March 31, 1995. There were no gains on sale of securities for
the quarter ended March 31, 1994. The $195,939 gain resulted from the sale of
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 $19,623 and $8,333 for the three months ended March 31, 1995
and March 31, 1994, respectively. The $19,623 were legal costs paid in
connection with litigation (see Note 8) during the first quarter of 1995. The
$8,333 expensed during the first quarter 1994 were costs associated with an
effort to put a casino referendum on the November 1994 Florida Ballot.
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 ended March 31, 1995. Also, net operating loss
carryforwards eliminated the need for tax accrual for the first quarter of 1994.
The Company had a net income of $398,840, or $0.13 per common share, for the
three months ended March 31, 1995, and a net income of $62,153, or $0.04 per
common share, for the three months ended March 31, 1994. The increase in net
income of $336,687, for the quarter ended March 31, 1995 was primarily caused by
the factors discussed above. The first quarter of 1995 included an extra month
of wagering on both live jai-alai and ITW performances, the result of the
acquisition of the Fronton on February 1, 1994. The first quarter of 1995,
also included $195,939 realized gain on sale of the securities as described
above. The handle and take-out or commission rate on ITW, also increased
significantly during the first quarter 1995.
House Bill 2813, now know as Chapter 94-328, Laws of Florida reduced the pari-
mutuel tax rate on gross jai-alai handle from 7.1 to 5%, with the first $30,000
of handle per performance continuing to be exempt from taxes, and reduced the
daily license fees paid per game from $80 to $40. These changes in pari-mutuel
taxes and fees, first affected the Company's financial results during the first
quarter of 1995.
In addition, in January 1995, the Company acquired three parcels of land
contiguous to the original Fronton property 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 March 31, 1995, was
$1,793,508. At March 31, 1995, the Company had working capital of $1,290,010, a
decrease of $243,837 from $1,533,847 at December 31, 1994. The decrease was
primarily 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 net change in working capital other than the transaction described
above, was primarily the result of funds provided by operations.
During the three months ended March 31, 1995, net cash provided by the Company's
operating activities was $71,870. 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 three months ended March 31, 1995, cash flow provided from investing
activities was $638,971, the result of the $1,814,189 securities sale and net of
$1,175,218 in capital expenditures. The bulk of capital expenditures,
approximately $1,082,000, was related to the recent land acquisitions described
earlier.
During the three months ended March 31, 1995, cash flow used from financing
activities was $289,507. Cash flow used in financing activities consisted
primarily of the $1,084,541 repayment of the margin account and net of
approximately $801,000 in borrowings. The $801,000 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. 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
12
<PAGE>
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 $259,000 as of
March 31, 1995. The Company's retention of consultants and other advisors
requires the payment of $15,000 per month through the date of termination of the
above-described agreements. See Note 8 to the unaudited financial statements.
The Company believes that its present financial condition provides adequate
capital reserves and liquidity. 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.
13
<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.
---------------------------------
(a) List of Exhibits Filed.
-----------------------
Not applicable.
(b) Reports on Form 8-K.
--------------------
Not applicable.
14
<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: May 11, 1995 By: W.B. COLLETT
-------------------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: May 11, 1995 By: TIMOTHY L. HENSLEY
--------------------------------
Timothy L. Hensley
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOUND ON PAGES 3, 4 AND 5 OF
THE COMPANY'S FORM 10-QSB 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 1,794
<SECURITIES> 0
<RECEIVABLES> 21,827
<ALLOWANCES> 0
<INVENTORY> 33,545
<CURRENT-ASSETS> 1,868,442
<PP&E> 5,029,641
<DEPRECIATION> 184,262
<TOTAL-ASSETS> 6,987,246
<CURRENT-LIABILITIES> 578,432
<BONDS> 1,846,927
<COMMON> 311,924
4,366
0
<OTHER-SE> 4,245,597
<TOTAL-LIABILITY-AND-EQUITY> 6,987,246
<SALES> 0
<TOTAL-REVENUES> 1,664,562
<CGS> 0
<TOTAL-COSTS> 1,477,920
<OTHER-EXPENSES> 19,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,162
<INCOME-PRETAX> 398,840
<INCOME-TAX> 0
<INCOME-CONTINUING> 398,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 398,840
<EPS-PRIMARY> .13
<EPS-DILUTED> .08
</TABLE>
