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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
Commission file number 0-9099
FLORIDA GAMING CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 59-1670533
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(State or other jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1750 South Kings Highway, Ft. Pierce, Florida 34945-3099
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(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
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4,264,029 Shares of the issuer's Common Stock were outstanding as of the
latest practicable date, NOVEMBER 12, 1996 .
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 September 30, 1996 (unaudited) and December 31, 1995......................... 3
Statements of Operations (unaudited) three and nine months ended September 30, 1996 and 1995...... 5
Statements of Cash Flows (unaudited) three and nine months ended September 30, 1996 and 1995...... 6
Notes to Financial Statements (unaudited)......................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................ 11
PART II. OTHER INFORMATION........................................................................ 16
SIGNATURES........................................................................................ 18
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents (Note 1).................................... $239,327 $2,721,865
Accounts receivable & current portion of notes receivable (Note 6)..... 1,769,856 382,811
Inventory (Note 2)..................................................... 31,764 33,582
WJA Note (Note 7)...................................................... 14,199,026
Prepaid expense and other.............................................. 35,131
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Total current assets............................................... 16,275,104 3,138,258
PROPERTY AND EQUIPMENT:
Land (Notes 2 and 8)................................................... 2,744,716 2,732,525
Building and Improvements.............................................. 2,047,743 1,898,151
Furniture, fixtures and equipment...................................... 670,505 590,405
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5,462,964 5,221,081
Less accumulated depreciation.......................................... (481,294) (336,644)
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4,981,670 4,884,437
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GAMING VENTURE INVESTMENTS............................................... 344,000 323,000
OTHER ASSETS............................................................. 21,215 29,986
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$21,621,989 $8,375,681
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</TABLE>
continued
3
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 2).............................................. $87,942 $ 138,835
Other accrued expenses................................................. 366,580 370,880
Short-term borrowing and current portion of long-term debt............. 137,152 131,567
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Total current liabilities 591,674 641,282
LONG-TERM LIABILITIES
Long-term portion note payable (Note 7)................................ 8,688,209 1,822,447
STOCKHOLDER'S EQUITY (See Notes 2,4,5,7, and 8):
Class A preferred stock, convertible to common stock,
$.10 par value, authorized 1,200,000 shares, 34,735 shares
issued and outstanding, aggregate liquidation preference of
$379,000 at September 30, 1996: 34,735 shares issued and
outstanding at December 31, 1995, aggregate liquidation
preference of $355,000............................................... 3,473 3,473
Class B preferred stock, convertible to common stock,
5,000 shares authorized; 2,622.5 and 2,400 shares issued
and outstanding at September 30, 1996 and December 31, 1995
respectively, aggregate 1996 preference of $2,622,500................ 262 240
Common stock, $.10 par value, authorized 15,000,000 shares,
4,220,786 issued and outstanding at September 30, 1996, and
3,123,586 shares issued and outstanding at December 31, 1995......... 422,079 312,359
Capital in excess of par value......................................... 34,027,607 27,278,152
Accumulated deficit.................................................... (22,111,315) (21,682,272)
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Total stockholders equity.......................................... 12,342,106 5,911,952
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$21,621,989 $8,375,681
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
-------------------------- -------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
HANDLE:
Jai-Alai $ --- $ --- $ 3,665,582 $ 4,183,844
ITW 5,389,831 4,638,923 16,883,401 15,190,424
----------- ----------- ------------ ------------
Total Pari-Mutuel Handle 5,389,831 4,638,923 20,548,983 19,374,268
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
REVENUE:
Pari-Mutuel Revenues, net of $85,659 & 102,173 pari-mutuel
taxes paid to the State of Florida, for 9 months ending 1996
and 1995, respectively $ 490,704 $ 486,323 $ 2,439,110 $ 2,440,639
Admissions, net of $4,524 & $2,686 for 3 months ending Sept 26,779 29,671 104,113 118,154
30, 1996 and 1995 respectively, and $82,874 & $82,062 for
nine months ended September 30, 1996 and 1995, respectively
Food, Beverage and Other 106,502 98,028 603,067 638,714
----------- ----------- ------------ ------------
Total Revenues 623,985 614,022 3,146,290 3,197,507
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
COSTS AND EXPENSES:
Operating 495,970 472,318 2,635,328 2,452,069
General and Administrative 489,425 541,512 1,403,336 984,081
Depreciation 48,600 42,300 145,800 126,900
----------- ----------- ------------ ------------
Total Costs and Expenses 1,033,995 1,056,130 4,184,463 3,563,050
----------- ----------- ------------ ------------
Net Income (loss) from operations (410,010) (442,108) (1,038,173) (365,543)
OTHER INCOME (EXPENSES):
Interest Dividend Income, net 535,536 14,452 640,441 66,463
Gain (loss) on net sale of assets -- -- -- --
Realized gain on Marketable Securities -- -- -- 195,939
----------- ----------- ------------ ------------
Net Income (Loss) $125,526 $ (427,656) $ (397,732) $(103,141)
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Earnings (loss) per common share
(See Note 4) $.04 $(.13) $(.12) $(.03)
Weighted average common shares outstanding
(See Note 4) 3,585,808 3,120,670 3,370,115 3,119,726
Fully diluted per share earnings (See Note 4) $.02 N/A N/A N/A
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
September 30, September 30,
1996 1995
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<S> <C> <C>
Net Income
$ (397,732) $(103,141)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation 145,800 126,900
Realized gain on sale of marketable securities 0 (195,939)
Decrease (increase) in -
Accounts receivable, net (542,135) (126,143)
Prepaid and other current assets (35,131) (18,681)
Other assets (12,229) (36,418)
Inventories 1,818 (322)
Increase (decrease) in-
Accounts payable (82,155) (20,508)
Accrued expenses 46,700 (26,245)
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Total adjustments (623,132) (632,616)
Net cash provided (used) by operating activities (875,064) ($400,497)
Investing activities:
Loan to affiliated company (1,292,641) 0
Cash portion of WJA Note Purchase (Note 7) (1,980,889) 0
Proceeds from sales and maturities of marketable securities 0 1,814,189
Capital Expenditures (Note 8) (243,033) (1,284,037)
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Net cash provided from (used in) investing activities $(3,516,563) $530,152
Financing activities:
Net proceeds from borrowing/Repayment of Borrowings (Note 8) (128,653) 743,322
Repayment of borrowings 0 0
Repayment of margin account 0 (1,084,541)
Stockholders Equity:
Issuance of Preferred Stock, net proceeds 2,037,742 0
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Net cash provided (used) from financing activities $1,909,089 $(341,352)
NET INCREASE (DECREASE) IN CASH $(2,482,538) $(211,697)
CASH AND EQUIVALENT AT BEGINNING OF YEAR $2,721,865 $1,363,174
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 239,327 $1,151,477
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 148,950 $ 126,084
Income Taxes 0 0
Non-cash Items $ 74,151 0
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
(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 ($1,617,495 at December 31, 1995
and September 30, 1996) 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 simulcasted
inter-track wagering ("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 $50,699 and are included in accounts payable at September
30, 1996. Unclaimed winnings totaled $57,846 at September 30, 1996.
(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.
The Company has net operating loss ("NOL") carryforwards that expire through
fifteen years from the year in which the losses were incurred or at various
intervals through fiscal 2009. However, the bulk 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 $1,260,000 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 (3,585,808 and 3,120,670
for the three months ended September 30, 1996, and 1995, respectively, and
3,370,115 and 3,119,726 for the nine months ended September 30, 1996 and
1995, respectively). Options and convertible securities were included in the
computations of income per share on a fully diluted basis for the three month
period ended September 30, 1996. Options and convertible securities were not
included in the computations of loss per shares for all other periods
presented, because their inclusion would be anti-dilutive. Weighted average
equivalent shares on a fully diluted basis for the three months ended
September 30, 1996 were 6,196,500 shares, consisting of 74,250 options held
by two former directors, 54,000 in options held by a Vice President of the
Company, 7,815 shares of equivalent converted Preferred Class A Stock,
494,627 shares of equivalent converted Preferred Class B Stock, 650,000 in
options held by directors and an executive officer under Qualified and
Nonqualified Stock Option Plans, 1,330,000 in options held by Freedom
Financial Corporation, and the 3,585,808 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.
7
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(5) PREFERRED STOCK
The Company's Class A preferred stock provides 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. On
September 5, 1996 the Board of Directors declared a preferred dividend for
1995 to holders of record September 21, 1996. As of September 30, 1996
accrued dividends were $31,262. On October 7, 1996, these dividends were paid
by the issuance of 5,164 common shares and $7.50 cash in lieu of fractional
shares.
Each share of Class A preferred is convertible into .225 shares of common
stock at the holder's option. During the years ended December 31, 1995 and
1994, 8,929 shares and 1,800 shares of Class A preferred stock were converted
into 2,008 shares and 404 shares of common stock, respectively. 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 are entitled to
receive $10.00 per share, plus accrued dividends, prior to any distribution
to holders of common stock.
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rates of 8% and 9% of the consideration paid for the stock.
Such dividends are payable in shares of the Company's common stock. The
consideration received by the Company upon initial issuance of each share of
the Series B shares was $1,000. Holders of Series B shares may convert all
or any of such Series B shares to the Company's common stock using a ratio
based on the consideration paid for the stock and 75% or 80% of the market
value of the common stock at the time of the conversion. Certain issues have
negotiated conversion floors. Upon liquidation, the holders of Series B
preferred shares shall be entitled to be paid $1,000 per share plus accrued
dividends before any distribution to holders of common stock. During the
year ended December 31, 1995, 2,400 Series B preferred shares were issued for
$2,400,000 to three unrelated parties. Subsequent to December 31, 1995, the
Company issued an additional 2,300 Series B shares at $1,000 per share and
2,187.5 Series B shares have been converted into 390,859 shares of Common
Stock as of November 8, 1996.
(6) RELATED PARTY TRANSACTIONS
As of September 30, 1996 Freedom Financial Corporation retained an option to
purchase 1,330,000 shares at an exercise price of $1.25 per share. Freedom
Financial is beneficially owned substantially by the Company's Chairman.
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 independent 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
exercisable, expire December 31, 1997, and included certain registration
rights for all shares issued upon exercise.
On April 21, 1994, the Company adopted a new Nonqualified Stock Option Plan,
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.
On April 28, 1995, the Company granted a former Director an option to
purchase 19,000 common shares at $5.19 per share. The option is exercisable
after October 29, 1995 and expires five years from date of grant. On the
same date the Company granted its Chairman an additional option to purchase
300,000 common shares at $5.00 per share. The option expires five years from
date of grant.
On August 26, 1996, the Company granted Ex. Vice President and Director, W.B.
Collett, Jr., an option to purchase 100,000 common shares at $6.3125 per
share. The option expires five years from date of grant.
In January of 1996 the Board of Directors established the CEO's annual salary
at $360,000, payable monthly. The Chairman had previously received no
salary.
8
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Included in notes receivable is a $485,000 line of credit granted to Freedom
Financial Corporation in December of 1995. The credit facility, which is
secured by real property owned by Freedom, is due on demand and bears
interest at 2% above prime. At September 30, 1996 the balance draw under this
line of credit was $ 1,642,641.
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION: 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 denied the allegations, and on
October 22, 1996 the Company reached a settlement agreement with American
Jai-Alai. In that settlement agreement the Company, upon dismissal of the
suit will issue 15,000 common shares to American Jai-Alai and agree to hire
the firm as a consultant for one year at the rate of $5,000 per month.
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 one person 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 judgment that is
material to the results of this operation and financial condition.
Compagnie Parisienne De Reescompte owns 450 shares of the Company's Preferred
Class B stock. On April 25, 1996, Compagnie Parisienne De Reescompte, filed
suit in U.S. District Court, District of Delaware, against the Company
alleging the Company improperly failed to convert 450 shares of the
Company's Preferred Class B stock into 156,590 shares of the Company's
common stock. As of October 1996, the Company entered into a settlement
agreement with Compagnie Parisienne De Reescompte ("CPR") in connection
with the above litigation. The Company had suspended conversions of Series
B Preferred following fluctuations in the trading price of the Common Stock
related to unusual trading activity in the Common Stock. Under the terms of
the settlement agreement, the Company converted 225 of the Series B Shares
into 82,086 shares of Common Stock and agreed to increase the dividend rate
on the remaining Series B Shares from 8% to 10% effective June 1, 1996. CPR
agreed to convert no more than 10% of the remaining Series B Shares per
month at a conversion price of not less than $5.10 per share of Common Stock,
and to dismiss the litigation. The settlement agreement also contains
mutual releases.
CASINO AMERICA: 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 Ft. Pierce Fronton. 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 also 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. Either party may terminate discussions 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.
9
<PAGE>
Freedom Financial Corporation ("Freedom") has informed the Company that
Casino America has purchased 22,500 shares of Freedom's 7% Series AA
Mandatory 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 issued and outstanding Common
Stock.
PONCA INDIAN TRIBE: In August 1995, the Company 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 III gaming as
authorized by the Indian Gaming Regulatory Act. Recent developments have
adversely affected the prospects for Indian gaming in the state. On February
6, 1996, the Nebraska legislature failed to pass legislation that would have
authorized a voter referendum on legalizing casino gaming in the state. In
addition, as a result of a November 1995 federal appeals court decision, the
Bureau of Indian Affairs has indefinitely suspended action on land-in-trust
applications from Indian tribes in Nebraska and certain other states. The
Company has terminated this venture with the Poncas. In June of 1996 the
Company issued 6,000 shares of its common stock with a market value of
$51,000 to the tribe's legal counsel as a termination payment. As of
September 30, 1996, the Company had provided $93,388 for predevelopment
expenses of the project not including the termination payment.
RINCON, SAN LUISENO BAND OF MISSION INDIANS: On September 11, 1995, the
Company entered into a Loan Agreement and related agreements with the Rincon,
San Luiseno Band of Mission Indians, which presently owns the River Oaks
Casino, located approximately 40 miles north of San Diego, California. The
Loan Agreement was to take effect when gaming machines commenced operation
at the casino. Initially the Company had 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, the Company was to receive a royalty during the
term of the loan agreement. The Company also agreed to advance short term
working capital funds, which represented initial draws; $344,000 had been
advanced through September 30, 1996.
The operation of gaming machines at the Rincon Casino was 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 had
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 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. Based on its belief
that it complied with all conditions for the operation of gaming machines
under the Indian Gaming Regulatory Act, the Rincon Band requested that the
injunction be modified to permit the operation of gaming machines at the
tribe's casino. This motion was not granted. Due to adverse decisions in
related cases and continuing delays in the opening of the Rincon Casino with
gaming machines, both Florida Gaming and the Rincon tribe have requested
arbitration relative to the Loan Agreement.
BUSINESS COMBINATION DISCUSSIONS: 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.
BANK OF OKLAHOMA: On September 12, 1996, as described in our Current Report
on Form 8-K , Florida Gaming purchased bank notes ("the WJA Notes") of WJA
Realty Limited Partnership ( "World Jai-Alai" ), with balances aggregating
$20,728,826 from the Bank of Oklahoma, N. A., Tulsa, Oklahoma. The WJA
Notes are secured by real estate and improvements consisting of three
jai-alai pari-mutuel facilities located in Miami, Tampa and Ocala, Florida.
Consideration for the WJA Notes consisted of a combination of $2,000,000 in
cash, 703,297 shares of Florida Gaming Common Stock, a $6,000,000 note
bearing interest at New York Prime Rate and a $1,000,000 non-interest bearing
note.
WORLD JAI-ALAI: On October 9, 1996, as described in the Company' Current
Report on Form 8-K , Florida Gaming entered a letter of intent to acquire
all the tangible and intangible properties of World Jai-Alai ("WJA"). These
assets include approximately 342,000 sq. ft. of pari-mutuel facilities
located on about 108 acres located in downtown Miami, Tampa and suburban
Ocala, Florida. The Company and WJA are currently working on the final
purchase agreement and regulatory approvals. The purchase agreement
contemplates that the acquired WJA assets will be combined with the Ft.
Pierce Jai-Alai and Inter-Track Wagering operation presently owned by the
Company in a new wholly-owned subsidiary. The consideration for the proposed
acquisition includes (i) the cancellation of the WJA Notes, (ii) the
retention by World Jai-Alai of 200,000 shares of Florida stock it currently
owns, and (iii) profit sharing payments to WJA based the subsidiary's
operations. WJA could receive 20% of the cumulative net profits of the
operating subsidiary; for each of the first ten full calendar years after
closing, subject to a $1,00,000 per year cap; plus the payment of 5% of the
amount by which net profits exceed $5,000,000 in any one of the full calendar
years during the ten year period.
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REGISTRATION RIGHTS: The Company has made commitments upon various terms and
conditions to register certain shares held by other parties in future
registration statements. These shares total 344,107. Refer to the Company's
latest annual report on Form 10-KSB for more information.
(8) 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
Interstate 95 right of way, a recreational vehicle park, and a golf driving
range have also been considered.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's principal place of business and principal executive offices are
located at Fort Pierce Jai-Alai, 1750 South Kings Highway, Fort Pierce,
Florida 34945-3099. The Company changed its name from Lexicon Corporation to
Florida Gaming Corporation on March 17, 1994. The company was incorporated
in Delaware in 1976.
The Company currently owns and operates a jai-alai fronton and pari-mutuel
wagering facility located in Fort Pierce, Florida (the "Fronton"). The
Company's business at the Fronton consists of, among other things, live
jai-alai, inter-track pari-mutuel wagering, and the sale of food and
alcoholic beverages.
The jai-alai industry generally has declined in the last several years due to
an industry-wide strike by jai-alai players and the passage of legislation
authorizing a state-wide lottery in 1987. Average statewide handle per
performance for the State of Florida fiscal years ended June 30, 1995 and
1994 was approximately $102,000 and $101,000, respectively. During the State
of Florida's 1995 fiscal year, the average handle per performance at the
Company's Fronton increased from $31,918 to $36,090, or 13.1%, compared to
the 1994 fiscal year.
Inter-track wagering ("ITW") has grown significantly since its initiation in
the State of Florida in August 1990. The state-wide ITW handle for the State
of Florida's fiscal year ended June 30, 1991 was approximately $109 million.
The state-wide ITW handle for the State of Florida's fiscal years ended June
30, 1994 and 1995 increased to approximately $383 million and $443 million,
respectively. ITW handle at the Company's Fronton has demonstrated similar
growth in recent years, increasing from $17.2 million in the year ended
December 31, 1994 to $20.4 million for the year ended December 31, 1995.
Florida House Bill No. 337 became law on June 1, 1996. This legislation
authorized card rooms at licensed pari-mutuel facilities in Florida starting
January 1997. The card rooms will be administered and regulated by the State
of Florida Division of Pari-Mutuel Wagering of the Department of Business and
Professional Regulation. Games will be limited to non-banked poker games.
Card room operation is also subject to approval by the county commission in
which the pari-mutuel facility is located. Florida House Bill No. 337 also
authorized full-card simulcasting of races from out of state tracks such as
Belmont, Meadowlands, Philadelphia Park and Monmouth. The Ft. Pierce ITW
facility is currently carrying several of these simulcast signals. Florida
Gaming plans to open its poker room at the Ft. Pierce facility, initially
with 18 to 20 poker tables having about 150 gaming positions. The Poker Room
will be opened in conjunction with the opening of its next live jai-alai
season beginning January 3, 1997, if local approval is granted .
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. As described in our 8-K dated
September 12, 1996, Florida Gaming purchased bank notes ("the WJA Notes")
of WJA Realty Limited Partnership ( "World Jai-Alai" ), with balances
aggregating $20,728,826 from the Bank of Oklahoma, N. A., Tulsa, Oklahoma.
Consideration for the WJA Notes consisted of a combination of $2,000,000 in
cash, 703,297 shares of Florida Gaming Common Stock, a $6,000,000 note
bearing interest at New York Prime Rate and a $1,000,000 non-interest bearing
note. The WJA Notes are secured by real estate consisting of three Jai-Alai
pari-mutuel wagering facilities and related equipment in Miami, Tampa, and
Ocala, Florida.
WORLD JAI-ALAI: On October 9, 1996, as described in the Company's Current
Report on Form 8-K , Florida Gaming entered a letter of intent to acquire
all the tangible and intangible properties of World Jai-Alai ("WJA"). These
assets consist of three (3) pari-mutuel facilities having an
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aggregate of 342,000 sq. ft. of pari-mutuel facilities located on an
aggregate of 108 acres in downtown Miami, Tampa, and suburban Ocala, Florida.
The Company and WJA are currently working on the final purchase agreement
and regulatory approvals. The purchase agreement contemplates that the
acquired WJA assets will be combined with the Ft. Pierce Jai-Alai and
Inter-Track Wagering operation presently owned by the Company in a new
wholly-owned subsidiary. The consideration for the proposed acquisition
includes (i) the cancellation of the WJA Notes, (ii) the retention by World
Jai-Alai of 200,000 shares of Florida stock which it currently owns, and
(iii) profit sharing payments to WJA based on the subsidiary's profits. WJA
could receive 20% of the cumulative net profits of the operating subsidiary;
for each of the first ten full calendar years after closing, subject to a
$1,000,000 per year cap; plus the payment of 5% of the amount by which net
profits exceed $5,000,000 in any one of the full calendar years during the
ten year period.
The Company has terminated discussions relative to gaming ventures with all
Native American tribes except for the Rincon Luiseno Band of the Mission
Indians in San Diego County, California. Due to adverse decisions in other
Courts in related cases, such as Western Telecom in California and the
opinion issued by the U.S. Supreme Court in the Seminole case and continuing
delays in the opening of the Rincon Casino with gaming machines, both
Florida Gaming and the Rincon tribe have requested arbitration relative to
the Company's Loan Agreement.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS 1996 COMPARED WITH THREE AND NINE
MONTHS 1995
During the nine month periods ended September 30, 1996 and 1995, the
Company's operations reflect four months' operation of live jai-alai
performances respectively, and a full schedule of inter-track wagering. The
live jai-alai season ended April 28, 1996, and the next season is scheduled
to begin January 3, 1997 and end April 26, 1997. The Fronton remains open
for inter-track wagering year round.
The Company's pari-mutuel handles for the quarter and nine months ended
September 30, 1996, were $5,389,831, consisting of $-0- in live jai-alai and
$5,389,831 in inter-track wagering, and $20,548,983 consisting of $3,665,582
in live jai-alai wagering and $16,883,401 in inter-track wagering,
respectively. For the quarter and nine months ended September 30, 1995, the
pari-mutuel handles were $4,638,923 and $19,374,268 respectively. These
consisted of $-0-in live jai-alai and $4,638,923 in ITW handle. For the nine
months period ended September 30, 1995, the handle for live jai-alai wagering
represented $4,183,844 while the handle for ITW for this period was
$15,190,424.
The increase in total handle for the quarter ended September 30, 1996
compared with September 30, 1995, was $750,908, which is attributable to
growth in the ITW segment. The net increase in handle for the nine months
ended September 30, 1996, was $1,174,715. The ITW handle increased
approximately $1,692,977, while the Jai-Alai handle decreased approximately
$518,000. For the nine month period ended September 30, 1996, the ITW
handle increased approximately 11.1% compared to the same period in 1995.
A portion of this increase can be attributed to additional signals carried,
i.e. full-card simulcasting, as authorized by House Bill #337.
The Company's pari-mutuel revenues, net of pari-mutuel taxes for the three
months and nine months ended September 30, 1996, were $490,704 and $2,439,110
respectively. This compares to $486,323 for the three months ended September
30, 1995, and $2,440,639 for the nine months period ended September 30, 1995.
Of the $490,704, for the quarter ended September 30, 1996, $-0- was
attributable to live jai-alai wagering and $490,704 was attributable to
commissions on ITW. Of the $486,323 in net pari-mutuel revenues for the
period ending September 30, 1995, $-0- was attributable to live jai-alai
wagering and $486,323 was attributable to commissions on ITW. The $4,381
increase in ITW commissions for the quarter ended September 30, 1996, was due
to the increase in handle as discussed above. The net pari-mutuel revenue
for the nine months ended September 30, 1996 was $2,439,110 -- consisting of
$1,631,304 from ITW commissions and $807,804 from live jai-alai. ITW
commissions increased $108,917 for the nine-month period ended September 30,
1996, compared to the same period in 1995. The 11.1% increase was
attributable to the growth in ITW handle, however, the over-all commission
rate declined slightly due to the lower commission rates resulting from
full-card simulcasting.
Admissions income, net of state taxes, for the three and nine months periods
ended September 30, 1996, was $26,779 and $104,113 respectively. This
compares to $29,671 and $118,154, respectively, for the three and nine months
periods ended September 30, 1995. The decreases for the quarter and nine
months ended September 30, 1996, were due to slight decreases in attendance
coupled with increased discounts for these periods.
Food, beverage and other income for the three and nine months period ended
September 30, 1996, was $106,502 and $603,067, respectively. These amounts
compare to $98,028, and $638,714 for the three and nine months ended
September 30, 1995. The $8,474 increase for the quarter ended September 30,
1996, was due to an increase in other income associated with uncashed ITW
tickets. This offset decreases of approximately $659 for the quarter and
$34,138 for the nine months compared to 1995's totals for food and beverage
sales. These decreases are attributable to the dip in attendance.
The Company's general and administrative expenses for the three and nine
months periods ended September 30, 1996, were $489,425, and $1,403,336,
respectively. For the three and nine months periods ended September 30, 1995,
general and administrative expenses were $541,512, and $984,081,
respectively. The decrease of $52,087 for the quarter ended September 30,
1996, was a result of a large expense in the other expense category related
to Indian Gaming (approximately $316,000) that occurred in the third quarter
of 1995 and net of increases in the following areas. Officer salaries
increased approximately $99,000, $90,000 of which is attributable to the
Chief Executive who worked full time but drew no salary in 1995; $7,858 in
increased legal expenses, $30,842 in increased travel costs, $17,589 in
increased
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shareholder related costs, $60,000 in loan fees related to the purchase of
the WJA Notes, and approximately $41,000 in legal costs associated with
litigation and expansion activities. The $419,255 increase for the nine
months ended September 30, 1996 as compared to the nine months ended
September 30, 1995, is attributed to approximately $270,000 in payroll costs
paid to the chief executive officer, a $71,073 increase in legal expenses,
$101,496 in increased travel costs, a $65,785 increase in shareholder
related costs, $60,000 in loan fees related to the purchase of the WJA Notes,
and net of a $188,948 decrease in other expenses due to the write off
predevelopment costs in relation to the Yamazee Tribe that occurred in the
third quarter of 1995. The increases in legal and travel costs are directly
related to the expansion and business combination situations described above
and in the financial statement notes.
The Company's operating expenses for the three months ended September 30,
1996 and September 30, 1995 were $495,970 and $472,318, respectively.
Depreciation expense for the three months ended September 30, 1996, and
September 30, 1995, was $48,600 and $42,300, respectively, for an increase of
$6,300. The increase in depreciation expense is primarily attributable to
capital improvements made during 1995. The operating expenses for the three
months ended September 30, 1996, increased $23,652 or 5% compared to the nine
months ended September 30, 1995. During jai-ali season player costs, which
include salaries, benefits and support staff, represent a significant portion
of operational expenses; but operations for the third quarters of 1996 and
1996 included only ITW operations. Rental and service costs for totalizator
wagering equipment and satellite receiving/television equipment also
represent a significant portion of operating expenses. These expenses
totaled $49,851 for the three months ended September 30, 1996, compared to
$51,253 for three months ended September 30, 1995. Utilities expense totaled
$24,257 and $34,541, respectively, for the three months ended September 30,
1996 and September 30, 1995. Program costs totaling $24,800, and $25,695,
respectively, are also included in the total operating expenses for the three
month periods ended September 30, 1996 and 1995. Interest expense totaled
$65,184 and $42,081, for the three months ended September 30, 1996 and 1995,
respectively, with the approximately $23,000 increase attributable to the
debt issued, which was related to the purchase of the WJA Notes. Operating
expenses for the bar, restaurant and concessions, which include payroll
costs, were $34,215, and $38,848, respectively, for the three month periods
which ended September 30, 1996 and September 30, 1995. Operating payrolls and
related costs totaled $199,202 and $193,499, respectively, for the three
month periods ended September 30, 1996 and September 30, 1995, excluding
player costs and payroll costs included in the bar, restaurant and
concessions areas. This increase of approximately $5,700 is attributable to
an increase in office staff and salary increases for the cashiers.
The Company's operating expenses for the nine months ended September 30, 1996
and September 30, 1995 were $2,635,327, and $2,452,069, respectively.
Depreciation expense for the nine months ended September 30, 1996, and
September 30, 1995, were $145,800, and $126,900, respectively, an increase of
$18,900. The increase in depreciation expense is attributable to capital
improvements made during 1995. The operating expense for the nine months
ended September 30, 1996, increased $183,259 compared to the nine months
ended September 30, 1995. For the nine months ending September 30, 1996,
player costs were $670,838 compared to $560,960 for the nine months ending
September 30, 1995. The $109,878 increase in player costs is attributable
to the expanded roster which to a large extent was due to the longer season
that began in December of 1995. Rental and service costs for totalizator
wagering equipment and satellite receiving/television equipment totaled
$266,908, for the nine months ended September 30, 1996, compared to $263,429
for nine months ended September 30, 1995. The $3,479 increase is attributable
to an expanded ITW schedule net of equipment savings generated from a
purchase versus rent decision on the majority of the television equipment.
Utilities expense totaled $91,139 and $100,928, respectively, for the nine
month periods ended September 30, 1996 and September 30, 1995. Program costs
totaling $92,974, and $105,586 are also included in the total operating
expenses for the nine month periods ended September 30, 1996 and 1995,
respectively. Interest expense totaled $146,933 and $125,208, for the nine
months ended September 30, 1996 and 1995, respectively, with the bulk of the
$21,725 increase attributable to the debt issued in connection with the
purchase of the WJA Notes. Operating expenses for the bar, restaurant and
concessions which include payroll costs, were $279,638, and $294,341,
respectively, for the nine month periods which ended September 30, 1996 and
June 30, 1995. Operating payrolls and related costs totaled $775,108 and
$716,904, respectively, for the nine month periods ended September 30, 1996
and September 30, 1995, excluding player costs and payroll costs included in
the bar, restaurant and concessions areas. This increase of approximately
$58,000 is attributable to an increase in office staff and salary increases
in the mutuels department.
The Company had net interest and dividend income of $535,536 and $640,441,
respectively, for the three months and nine months ended September 30, 1996.
For the three month and nine month periods ended September 30, 1995, the
Company had $14,452 and $66,463, respectively, in net interest and dividend
income. Of the $521,084 increase for the three month period ended September
30, 1996 as compared to the September 30, 1995 period, $50,202 was
attributable to an increase in notes receiveable and in short term cash
equivalent funds due to the additional equity capital that was injected in
December of 1995 and February of 1996, and $470,882 of the increase was
attributable to interest income received on the WJA Notes during the third
quarter of 1996.. Of the $573,978 increase for the nine months ended
September 30, 1996, compared to nine months ended September 30, 1995,
$103,096 was attributable to the increase in cash equivalent funds and notes
receiveable. During the third quarter, $470,882 of the increase was
attributable to interest income received on the WJA Notes. The Company also
recorded dividend income of approximately $26,250 received on a short term
investment that was held and sold in the first quarter 1995.
For the three month and nine month periods ended September 30, 1996, the
Company had no gains on the sales of securities. The Company had no
securities gains for the three months ended September 30, 1995, but had a net
realized gain on the sale of securities of $195,939 for the nine months ended
September 30, 1995. The $195,939 gain resulted from the sale of a short
term investment, which was purchased in December 1994 and sold in February
1995.
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At December 31, 1995, the Company had approximately $11,242,000 in net
operating loss carryforwards. However, because IRC Section 382 limitations
due to the change of control that occurred in March 1993, the bulk of these
carryforwards are limited to approximately $95,000 per year. Operating
losses of approximately $1,260,000 attributed to the period after the change
of ownership are not subject to the Section 382 limitations.
The Company had net income of $125,526, or $0.04 per common share ($.02 on a
fully diluted basis) for the three months ended September 30, 1996, compared
to a loss of $427,656 or ($0.13) per common share for the same period ended
September 30, 1995. The Company had a net loss of $397,732 or ($.12) per
common share for the nine months ended September 30, 1996, compared to a net
loss of $103,141 or ($0.03) per common share for the period ended September
30, 1995. Earnings for the quarter and nine months ended September 30, 1996
were improved by approximately $447,000 as a result of interest income from
the WJA Notes during the quarter. The loss for the nine month period was
primarily the result of factors discussed above. Among these were increases
in general and administrative costs which included a $270,000 increase in
executive officer salary, a $71,073 increase in legal expenses, $101,496 in
increased travel costs, and an approximate $66,000 increase in shareholder
related costs. The Company had $190,969 in legal and other termination costs
associated with Indian gaming ventures and other expansion activities. These
costs were incurred primarily as the result of management's effort to expand
the gaming operations of the Company. Also, the nine months ended
September 30, 1995, included a $195,939 realized gain on the sale of
securities.
The Company expended approximately $96,000 during 1996 bringing city water
to the Ft. Pierce property and eliminating the need for the old and costly
purification system. Also in February 1996, the Company terminated certain
equipment leases on television monitors. The initial capital outlay for new
television monitors of approximately $65,000 will reduce expenses
approximately $19,000 per year. As described above, Chairman and Chief
Executive Officer, W. Bennett Collett who has received no cash compensation
for the past 3 years, is now receiving an annual salary of $360,000 approved
by the independent non-management members of the Board of Directors
effective January 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at September 30, 1996
was $239,327. At September 30, 1996, the Company had working capital of
$15,683,430, an increase of $13,186,454 from $2,496,976 at December 31, 1995.
The increase was primarily the result of an investment of approximately $14
million in the WJA Notes discussed earlier. The $14 million purchase price
of the WJA Notes consisted of $7 million financed, $4.7 million in common
stock of the Company, and $2 million in cash.
During the nine months ended September 30, 1996, net cash used in the
Company's continuing operating activities was $875,064. The Company's
continuing operating expenses consisted principally of office expenses,
general administrative expenses, operating expenses associated with Fronton
operations, and business expansion. Principal revenues were from net
commissions on pari-mutuel wagering on live jai-alai and ITW events. The
Company expects that net cash flows from the operation of current business
activities will be adequate to meet operational needs.
During the nine months ended September 30, 1996, cash used in investing
activities was $3,516,563. This consisted of the $1,980,889 cash portion of
the payment for the WJA Notes, capital improvements and equipment purchases
totaling $243,033, and credit line advances of $1,292,641. During the fourth
quarter of 1995, the Company loaned an affiliated Company (Freedom Financial)
$350,000 on a short-term secured credit line. The balance of this credit,
which bears interest at the prime rate plus 2% (10.25%), was $1,596,641 as of
October 31, 1996.
During the nine months ended September 30, 1996, cash flow from financing
activities was $1,909,089. Cash flow from financing activities consisted
primarily of the $2,037,742 in funds generated from the sale of convertible
preferred stock in February 1996, net of issuance costs for the preferred
stock and also the common stock issued pursuant to the WJA Note purchase and
other matters, and net of $128,653 in debt reductions (see Notes 5 and 7 to
the Financial Statements).
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. As described in our 8-K
dated September 12, 1996, Florida Gaming purchased bank notes ("the WJA
Notes") of WJA Realty Limited Partnership ( "World Jai-Alai" ), with
balances aggregating $20,728,826 from the Bank of Oklahoma, N. A., Tulsa,
Oklahoma. Consideration for the WJA Notes consisted of a combination of
$2,000,000 in cash, 703,297 shares of Florida Gaming Common Stock, a
$6,000,000 note bearing interest at New York Prime Rate and a $1,000,000
non-interest bearing note. The WJA Notes are secured by real estate
consisting of three Jai-Alai pari-mutuel wagering facilities and related
equipment in Miami, Tampa, and Ocala, Florida.
WORLD JAI-ALAI: On October 9, 1996, as described in the Company's Current
Report on Form 8-K , Florida Gaming entered a letter of intent to acquire
all the tangible and intangible properties of World Jai-Alai ("WJA"). These
assets consist of three (3) pari-mutuel facilities having an
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aggregate of 342,000 sq. ft. of pari-mutuel facilities located on an
aggregate of 108 acres in downtown Miami, Tampa, and suburban Ocala, Florida.
The Company and WJA are currently working on the final purchase agreement
and regulatory approvals. The purchase agreement contemplates that the
acquired WJA assets will be combined with the Ft. Pierce Jai-Alai and
Inter-Track Wagering operation presently owned by the Company in a new
wholly-owned subsidiary. The consideration for the proposed acquisition
includes (i) the cancellation of the WJA Notes, (ii) the retention by World
Jai-Alai of 200,000 shares of Florida stock which currently owns, and (iii)
profit sharing payments to WJA based the subsidiary's profits. WJA could
receive 20% of the cumulative net profits of the operating subsidiary; for
each of the first ten full calendar years after closing, subject to a
$1,000,000 per year cap; plus the payment of 5% of the amount by which net
profits exceed $5,000,000 in any one of the full calendar years during the
ten year period.
The Company has terminated discussions relative to gaming ventures with all
Native American tribes except for the Rincon Luiseno Band of the Mission
Indians in San Diego County, California. Due to adverse decisions in other
Courts in related cases, such as Western Telecom in California and the
opinion issued by the U.S. Supreme Court in the Seminole case and continuing
delays in the opening of the Rincon Casino with gaming machines, both
Florida Gaming and the Rincon tribe have requested arbitration relative to
the Company's Loan Agreement.
The purchase of the WJA Notes from the Bank of Oklahoma required substantial
capital and the expansion of facilities to accommodate the newly authorized
card rooms potentially at Ft. Pierce, Miami and Tampa will require additional
capital. The Company is currently negotiating with several prospective
investors to place either debt or equity needed to fund these needs. Also
Freedom Financial (the Company's largest shareholder) is in the process of
obtaining funding, which is expected to close shortly, and plans to inject
$1,662,500 into Florida Gaming via the exercise of its options. Freedom also
anticipates that all advances from the Company will be paid in full from its
anticipated funding.
The Company believes that its current financial condition provides adequate
capital reserves and liquidity for present operations.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
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 denied the allegations, and on
October 22, 1996 the Company reached a settlement agreement with American
Jai-Alai. In that settlement agreement the Company, upon dismissal of the
suit will issue 15,000 common shares to American Jai-Alai and agree to hire
the firm as a consultant for one year at the rate of $5,000 per month.
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 one person 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 judgment that is
material to the results of this operation and financial condition.
Compagnie Parisienne De Reescompte owns 450 shares of the Company's Preferred
Class B stock. On April 25, 1996, Compagnie Parisienne De Reescompte, filed
suit in U.S. District Court, District of Delaware, against the Company
alleging the Company improperly failed to convert 450 shares of the
Company's Preferred Class B stock into 156,590 shares of the Company's
common stock. As of October 1996, the Company entered into a settlement
agreement with Compagnie Parisienne De Reescompte ("CPR") in connection
with the above litigation. The Company had suspended conversions of Series
B Preferred following fluctuations in the trading price of the Common Stock
related to unusual trading activity in the Common Stock. Under the terms of
the settlement agreement, the Company converted 225 of the Series B Shares
into 82,086 shares of Common Stock and agreed to increase the dividend rate
on the remaining Series B Shares from 8% to 10% effective June 1, 1996. CPR
agreed to convert no more than 10% of the remaining Series B Shares per
month at a conversion price of not less than $5.10 per share of Common Stock,
and to dismiss the litigation. The settlement agreement also contains
mutual releases.
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
16
<PAGE>
(b) Reports on Form 8-K.
During the quarter ended September 30, 1996, as set forth in its 8-K dated
September 12, 1996, Florida Gaming purchased bank notes ("the WJA Notes") of
WJA Realty Limited Partnership ( "World Jai-Alai" ), with balances
aggregating $20,728,826 from the Bank of Oklahoma, N. A., Tulsa, Oklahoma.
The WJA Notes are secured by real estate and improvements consisting of
three jai-alai pari-mutuel facilities located in Miami, Tampa and Ocala,
Florida. Consideration for the WJA Notes consisted of a combination of
$2,000,000 in cash, 703,297 shares of Florida Gaming Common Stock, a
$6,000,000 note bearing interest at New York Prime Rate and a $1,000,000
non-interest bearing note.
Also during the quarter ended September 30, 1996, as set forth in its 8-K
dated October 9, 1996, Florida Gaming entered a letter of intent to
acquire all the tangible and intangible properties of World Jai-Alai
("WJA"). These assets include approximately 342,000 sq. ft. of pari-mutuel
facilities located on about 108 acres located in downtown Miami, Tampa and
suburban Ocala, Florida. The Company and WJA are currently working on the
final purchase agreement and regulatory approvals. The purchase agreement
contemplates that the acquired WJA assets will be combined with the Ft.
Pierce Jai-Alai and Inter-Track Wagering operation presently owned by the
Company in a new wholly-owned subsidiary. The consideration for the proposed
acquisition includes (i) the cancellation of the WJA Notes, (ii) the
retention by World Jai-Alai of 200,000 shares of Florida stock it currently
owns, and (iii) profit sharing payments to WJA based the subsidiary's
operations. WJA could receive 20% of the cumulative net profits of the
operating subsidiary; for each of the first ten full calendar years after
closing, subject to a $1,000,000 per year cap; plus the payment of 5% of the
amount by which net profits exceed $5,000,000 in any one of the full calendar
years during the ten year period.
17
<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 12, 1996 By: W. B. Collett
----------------- -------------
W. B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: November 12, 1996 By: Timothy L. Hensley
----------------- ------------------
Timothy L. Hensley
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEETS AND STATEMENTS OF OPERATION FOUND ON PAGES 3, 4 AND 5 OF THE
COMPANY'S FORM 10QSB 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 239
<SECURITIES> 0
<RECEIVABLES> 15,969
<ALLOWANCES> 0
<INVENTORY> 32
<CURRENT-ASSETS> 16,275
<PP&E> 5,463
<DEPRECIATION> (481)
<TOTAL-ASSETS> 21,622
<CURRENT-LIABILITIES> 592
<BONDS> 0
4
0
<COMMON> 422
<OTHER-SE> 11,916
<TOTAL-LIABILITY-AND-EQUITY> 21,622
<SALES> 0
<TOTAL-REVENUES> 3,787
<CGS> 0
<TOTAL-COSTS> 4,185
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> (398)
<INCOME-TAX> 0
<INCOME-CONTINUING> (398)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (398)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
