<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, 1996
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
3,305,718 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, MAY 11, 1996.
Transitional Small Business Disclosure Format:
YES NO X
<PAGE>
FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1996 (unaudited) and December 31, 1995...... 3
Statements of Operations (unaudited) Three Months ended March 31, 1996 and
1995....................................................................... 5
Statements of Cash Flows (unaudited) Three Months ended March 31, 1996 and
1995........................................................................ 6
Notes to Financial Statements (unaudited)................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 12
PART II. OTHER INFORMATION................................................. 16
SIGNATURES.................................................................. 18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,393,211 $ 2,721,865
Accounts receivable & current portion of notes receivable 533,459 382,811
Inventory 36,025 33,582
Prepaid expense and other 23,666 --
----------- -----------
Total current assets 4,986,361 3,138,258
PROPERTY AND EQUIPMENT:
Land (Notes 2, and 8) 2,744,716 2,732,525
Building and improvements 1,922,071 1,898,151
Furniture, fixtures and equipment 654,436 590,405
----------- -----------
5,321,223 5,221,081
Less accumulated depreciation (385,244) (336,644)
----------- -----------
4,935,979 4,884,437
----------- -----------
Gaming venture investments 347,500 323,000
----------- -----------
OTHER ASSETS 13,981 29,986
----------- -----------
$10,283,821 $8,375,681
</TABLE>
3
<PAGE>
FLORIDA GAMING CORPORATION
BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 148,725 $ 138,835
Other accrued expenses 410,740 370,880
Short-term borrowing & current portion of long-term debt 136,589 131,567
---------- ---------
Total current liabilities 696,054 641,282
LONG-TERM LIABILITIES
Long-term portion note payable 1,706,402 1,822,447
STOCKHOLDERS' EQUITY (See Notes 2,5,7 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 $363,000 at March 31, 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; 3,750 and 2,400 shares issued
and outstanding at March 31,1996 and December 31, 1995
respectively, aggregate 1996 preference of $3,750,000 375 240
Common stock, $.10 par value, authorized 15,000,000 shares,
3,280,655 issued and outstanding at March 31, 1996, and
3,123,586 shares issued and outstanding at December 31, 1995 328,066 312,359
Capital in excess of par value 29,374,983 27,278,152
Accumulated deficit (21,825,532) (21,682,272)
----------- ----------
Total stockholders equity 7,881,365 5,911,952
----------- ----------
$10,283,821 $8,375,681
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
PARI-MUTUEL HANDLE:
Jai-Alai $2,870,125 $3,217,172
ITW 6,126,142 5,823,788
---------- ----------
Total Pari-Mutuel Handle $8,996,267 $9,040,960
REVENUE:
Pari-Mutuel Revenues, Net of $67,089 and $79,587,
in pari-mutuel taxes, through March 31, 1996 &
March 31, 1995, respectively $1,238,733 $1,265,304
Admissions, Net of $12,305 and $14,982, of admissions
and sales tax paid through March 31, 1996 &
March 31, 1995, respectively 44,513 51,608
Food, Beverage and Other 336,379 347,650
---------- ----------
Total Revenues 1,619,625 1,664,562
COSTS AND EXPENSES:
Operating 1,332,707 1,246,563
General and Administrative 405,877 189,057
Depreciation 48,600 42,300
---------- ----------
1,787,184 1,477,920
---------- ----------
Net Income (Loss) from operations (167,559) 186,642
OTHER INCOME (EXPENSES)
Interest Income 44,698 35,882
Gain on sale of securities -- 195,939
Other (Expense) (20,350) (19,623)
---------- ----------
Net Income ($143,211) $ 398,840
---------- ----------
---------- ----------
Earnings per common share ($.04) $.13
Weighted average common shares outstanding 3,199,518 3,119,246
Fully diluted per share earnings (See Note 4) N/A $.08
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
FLORIDA GAMING CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss) $ (143,211) $ 398,840
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 48,600 42,300
Realized Gain on Sale of Marketable Securities -0- (195,939)
Decrease (increase) in -
Accounts receivable, net (15,648) (4,562)
Prepaid other current assets (23,666) (12,175)
Other assets (8,495) (239,632)
Inventories (2,443) (11,422)
Increase (decrease) in -
Accounts payable 9,890 59,813
Accrued expenses 39,860 37,268
---------- -----------
Total adjustment 48,098 (324,349)
Net cash provided (used) by operating activities $ (95,113) $ 74,491
Cash flows from investing activities:
Proceeds from sales and maturities of
Loan to affiliated company (135,000) -0-
Marketable securities -0- 1,814,189
Capital Expenditures (Note 8) (100,142) (1,175,218)
---------- -----------
Net cash provided from (used in) investing activities (235,142) 638,971
Cash flows and uses from financing activities:
Net proceeds from borrowing (Note 8) (111,023) 801,413
Repayment of margin account -0- (1,084,541)
Stockholders Equity:
Issuance of Preferred Stock, net proceeds 2,112,624 --
---------- -----------
Net cash provided (used) from financing activities $2,001,601 ($ 283,128)
NET INCREASE (DECREASE) IN CASH $1,671,346 $ 430,334
CASH AND EQUIVALENT AT BEGINNING OF YEAR $2,721,865 $1,363,174
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $4,393,211 $1,793,508
---------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 42,802 $ 35,661
Income taxes -- --
</TABLE>
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 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 March 31, 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 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 $37,494 and are included in accounts
payable at March 31, 1996. Unclaimed winnings totaled $111,231 at March 31,
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.
At December 31, 1995, the Company had net operating loss (NOL) carryforwards
of approximately $11,242,000 available to offset future taxable income. These
NOL carryforwards 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 $1,005,000
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 (3,199,518 and 3,119,246
for the three months ended March 31, 1996, and 1995, respectively). Options
and convertible securities were included in the computations of income per
share on a fully diluted basis for the period ended March 31, 1995. Options
and convertible securities were not included in the computations of loss per
shares fro the period ended March 31. 1996, because their inclusion would be
anti-dilutive. Weighted average equivalent shares
7
<PAGE>
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. 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) 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. Accrued
Class A preferred stock dividends totaled $-0- at March 31, 1996 and December
31, 1995, respectively. On September 5, 1995 the Board of Directors declared
a preferred dividend for 1995 to holders of record September 21, 1995. As of
September 30, 1995, accrued dividends were $31,712. On October 6, 1995,
these dividends were paid by the issuance of 2,337 common shares and $83 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 shall be 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 rate of 8% of the consideration paid for the stock. Such
dividends are payable in shares of the Company's common stock. The
consideration to be received by the Company upon initial issuance of each
share of the Series B shares is $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 80% of the
market value of the common stock. Upon liquidation, the holders of Series B
preferred shares shall be entitled to be paid $1,000 per share plus 8%
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 1050 Series B shares have been converted to 169,611 shares of Common
Stock.
(6) 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 (7) 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 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 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
8
<PAGE>
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 is exercisable after
November 8, 1995 and also expires five years from date of grant.
In January of 1996 the Board of Directors established the Chairman's annual
salary at $360,000, payable monthly. The Chairman had previously received
no salary.
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. Freedom Financial is owned substantially by the
Company's Chairman.
(7) COMMITMENTS AND CONTINGENCIES
LITIGATION: On March 22, 1994, Ronald W. Hayes filed suit in the Circuit
Court of the Fifteenth Judicial Circuit of Florida, Palm Beach County,
against the Company and W. Bennett Collett, the Company's Chairman and Chief
Executive Officer. Mr. Hayes alleged that the defendants owe him $118,500,
plus attorney's fees, as a finder's fee in connection with the Company's
purchase of its Fort Pierce Jai-Alai Fronton. The plaintiff accepted a cash
payment of $29,551 for the Company in settlement of this case which as was
dismissed with prejudice on December 15, 1994. However, a related case was
then filed on December 16, 1995, as described below.
On May 13, 1994, American Jai-Alai, Inc. ("American Jai-Alai") filed suit in
the Circuit Court of the Fifteenth Circuit in Florida, Palm Beach County,
against the Company. American Jai-Alai alleges that in August 1993 the
Company entered into a contract with American Jai-Alai that American Jai-Alai
would manage the Fronton if the Company acquired it. American Jai-Alai
alleges that the Company and American Jai-Alai agreed to enter into a
five-year renewable management contract pursuant to which American Jai-Alai
would guarantee a $480,000 annual payment to the Company, $270,000 of the
Fronton's net operating income above $480,000 would be paid to the Company,
with American Jai-Alai receiving 25% of all net operating income above
$750,000 annually. In addition, American Jai-Alai alleges that it has a
first right of refusal if the Company desires to sell the Fronton at anytime
during the alleged management contract. American Jai-Alai also alleges that
the Company granted it an option to purchase 100,000 shares of Common Stock
at $2.50 throughout the alleged management contract, but not to exceed 1997.
In addition, American Jai-Alai alleges that the Company agreed to pay
American Jai-Alai 25% of any profit realized from the sale of the Fronton, if
such sale was not to American Jai-Alai pursuant to its alleged right of first
refusal. In the Complaint, American Jai-Alai alleges, among other claims,
breaches of fiduciary duty, breach of contract and fraud. On May 20, 1994,
counsel for American Jai-Alai stated that American Jai-Alai was exercising
its alleged right to purchase the 100,000 shares of Common Stock for $2.50.
The Company has not issued any shares of Common Stock pursuant to this
demand. The Company has filed an Answer to the Complaint and also filed a
motion to move the suit from Palm Beach County to St. Lucie County, which was
granted by the circuit court. The Company denies the allegations and believes
that this proceeding is not likely to result in an adverse judgement that is
material to the results of its operations and financial condition.
On December 16, 1994, General Realty and Finance Co. filed suit in Palm Beach
County against the Company alleging a
9
<PAGE>
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 April 25, 1996, Compagnie Parisienne De Reescompte, filed suit in U.S.
District Court, District of Delaware, against the Company alleging it failed
to convert Preferred Class B stock into common shares of the Company pursuant
to the stock subscription agreement. The Company and its attorneys are in
the process of answering the Complaint.
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 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 Company incurred
lobbying expenses of $50,000 during 1994 in connection with efforts to amend
the Florida Constitution to allow casino gaming in the State. Such costs are
included in Other Expenses in the 1994 Statement of Operations.
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. 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.
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 issued and outstanding Common
Stock.
In the course of its business, the Company has had numerous discussions,
and continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons and joint ventures with Native
American Tribes related to the operation of gaming facilities. No assurances
can be given about the likelihood or timing of any such transaction.
10
<PAGE>
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 II gaming as authorized by the Indian Gaming
Regulatory Act. Recent developments that 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 tentatively agreed to terminate this venture with the Poncas (See
Item 5. Other Information). As of April 30, 1996, the Company had provided
($92,498) for predevelopment expenses of the project.
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 and operates the
River Oaks Casino, located approximately 40 miles north of San Diego,
California. The Loan Agreement will take effect when gaming machines are in
operation at the casino. Initially the Company has agreed to make up to $5
million available to the Rincon band during the seven year term of the
agreement. In lieu of interest on the loan, the Company will receive a
royalty during the term of the loan agreement. The Company also agreed to
advance short term working capital funds, which will represent initial draws
when the Loan Agreement takes effect. $344,000 has been advanced through
April 30, 1996.
The operation of gaming machines at the Rincon Casino is currently prohibited
by a preliminary injunction issued by the United States District Court for
Southern California. The injunction was sought by the United States Attorney
for Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has
refused to enter into gaming compacts with California tribes. Since the date
that the preliminary injunction was imposed on the Rincon Band, the United
States Court of Appeals has agreed to review its prior decisions in light of
a recent California appellate court decision that California law permits the
operation of gaming machines by the California Lottery, contributing to the
uncertain parameters of Indian gaming in California.
Based on its belief that it now complies with all conditions for the
operation of gaming machines under the Indian Gaming Regulatory Act, the
Rincon Band has requested that the injunction be modified to permit the
operation of gaming machines at the tribe's casino (See Item 5. Other
Information). As part of this effort, the Rincon Band has now assumed direct
management of the casino, and has entered the Loan Agreement with the
Company. 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.
REGISTRATION RIGHTS: The Company has committed upon certain terms and
conditions, to include certain shares held by other parties, in a future
registration statement it files on its own behalf, allowing those shares to
be publicly traded. 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 discussed.
11
<PAGE>
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.
Jai-Alai Fronton
The Company currently owns and operates a jai-alai fronton and pari-mutuel
wagering facility located in Fort Pierce, Florida (the "Fronton"). Since its
inception and prior to its acquisition of the Front, the Company engaged in
several other lines of business, none of which are currently in operation.
On March 31, 1993, the Company sold 603,000 shares of Common Stock to Freedom
Financial Corporation and the present management assumed control of the
Company. After considering various business alternatives, the Company
entered into an agreement to acquire the Fronton in October 1993. On
February 1, 1994, the Company received approval from the Florida Department
of Business and Federal Regulation, Division of Pari-Mutuel Wagering to
transfer the pari-mutuel permit for the Fronton to the Company and completed
the acquisition of the Fronton on that date.
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.
At its annual shareholders' meeting March 16, 1994, the shareholders approved
a change in the Company's fiscal year end from August 31 to December 31.
Also at that meeting, shareholder approval was granted to change the name of
the Company from Lexicon Corporation to Florida Gaming Corporation. These
changes were effected by the Company on March 17, 1994.
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, handle per performance at the Company's
Fronton increased from $31,918 to $36,090, or 13.1%, compared to the 1994
fiscal year. There can be no assurance that the jai-alai industry will
improve significantly, if at all, in the future. Because the Company's
jai-alai business is tied directly to many if not all of the factors which
influence the jai-alai industry as a whole, another players strike or the
enactment of unfavorable legislation could have an adverse impact on the
Company's operations.
Inter-track wagering 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.
Indian Gaming
The Company is actively exploring other opportunities in the pari-mutuel and
gaming industry, including opportunities to develop, finance and operate
gaming projects with federally recognized Indian tribes in accordance with
IGRA. According to the National Indian Gaming Association, there are
currently 557 federally recognized Indian tribes in the United States, of
which approximately 185 tribes conduct gaming activities ranging from bingo
to full scale casino gaming. In enacting IGRA, Congress recognized that the
operation of gaming by Indian tribes was a means of promoting tribal economic
development, self-sufficiency, and strong tribal governments, which
historically have been principal goals of federal Indian policy. Based on
gaming industry statistics indicating that Indian gaming is one of the
fastest growing segments of the gaming industry, the Company believes Indian
gaming presents promising business opportunities.
The Company plans to focus on developing, either alone or through joint
ventures with other parties, small-to medium-sized gaming projects that have
the potential to generate $1,000,000 to $10,000,000 in annual profits. The
Company estimates
12
<PAGE>
that projects generating financial returns in this range will usually require
a capital investment from $5 million to $50 million. The Company believes
that major gaming companies are reluctant to consider a management
relationship with a tribe if the gaming project does not have the potential
to generate annual profits of at least $30,000,000. The Company believes
there are many tribes with the capability and interest to develop gaming
projects of the size targeted by the Company.
RESULTS OF OPERATIONS -- FIRST QUARTER 1996 COMPARED WITH 1ST QUARTER 1995
During the quarter ended March 31, 1996, 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 ended April
28, 1996, with the next season scheduled to begin January 3, 1997 and end
April 26, 1997. The Fronton typically remains open for inter-track wagering
year round.
The Company's pari-mutuel handles for the three months ended March 31, 1996,
and March 31, 1995, were $8,996,267, and $9,040,960, respectively. These
consisted of $2,870,125 in live Jai-Alai wagering and $6,126,142 in ITW
handle, for the three months ended March 31, 1996, and $3,217,172 in live
Jai-Alai wagering and $5,823,788 in ITW handle for the three months ended
March 31, 1995. The $44,693 decrease in total handle consisted of and
increase of a $302,354 increase (5.19%) ITW handle attributable and a
$347,047 decrease in live Jai-Alai handle. The Company's pari-mutuel revenues
net of state pari-mutuel taxes, for the three months ended March 31, 1996 and
1995 were $1,238,733 and $1,265,304 respectively. Of the $1,238,733, $606,750
was attributable to commissions on inter-track wagering and $631,983, was
attributable to live Jai-Alai. Of the $1,265,304, $560,945, was attributable
to commissions on inter-track wagering and $704,359 was attributable to live
Jai-Alai. The $72,376 decrease in revenue from jai-alai wagering was the
result of the decrease in live jai-alai handle. The $45,805 increase in ITW
commission was the result of the growth in ITW handle and approximately a 1%
increase in the Company's commission rate on ITW wagering.
Admissions income for the three months ended March 31, 1996 decreased $7,095
to $44,513 from $51,608, for the three months ended March 31, 1995, net of
state taxes. This decrease was primarily the result of a decrease in reserve
seating sales and a slight increase in discounts. Attendance during live
jai-alai performances actually increased by 397 to 78,561 compared to the
first quarter of 1995. Food, beverage and other income for the three months
ended March 31, 1996 and March 31, 1995, were $336,379 and $347,650,
respectively, a decrease of $11,271 or approximately 3%.
Company's general and administrative expenses were $405,877 and $189,057 for
the three months ended March 31, 1996 and March 31, 1995, respectively. The
increase of $216,820 in general and administrative costs resulted from a
$90,000 increase in executive officer salary, a $6,645 increase in
advertising and promotion expenses, a $41,364 increase in legal expenses,
$33,425 in increased travel costs, approximately $20,000 in increased
shareholder relations expense, and $10,881 in increased consulting expenses.
These increases were incurred primarily as the result of management's effort
to expand the gaming products available to the Company in Indian gaming and
other areas.
The Company's operating expenses for the three months ended March 31, 1996
and March 31, 1995, were $1,332,707 and $1,265,304, respectively.
Depreciation expense for the three months ended March 31, 1996, and March 31,
1995, were $48,600 and $42,300, respectively, for an increase of $6,300. The
increase in depreciation expense is attributable to capital improvements and
equipment purchases made during 1995. The $86,144 increase in operating
expenses was primarily attributable to additional player costs and other
associated costs due to the expanded 1995/1996 season. Much of these
increases, however, were offset by efficiencies and savings in other
operating areas. 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, 1996 and March 31, 1995, were $492,002
and $412,662 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 $126,649,
for the three months ended March 31, 1996, compared to $124,832 for three
months ended March 31, 1995. The $1,817 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 $34,549 and $30,097 respectively, for the three months
periods ended March 31, 1996 and March 31, 1995. Program costs totaling
$39,981 and $51,272, respectively, are also included in the total operating
expenses for the three month periods ended March 31, 1996 and 1995. Interest
expense totaled $41,291 and $41,162, for the three months periods ended March
31, 1996 and March 31, 1995, respectively. Operating expenses, including
payroll costs, for the bar, restaurant and concessions were $160,617 and
$152,441 for the three month periods which ended March 31, 1996 and March 31,
1995, respectively. Operating payrolls and related costs totaled $340,991
and $323,789 for the three month periods ended March 31, 1996 and March 31,
1995, respectively, excluding player costs and payroll costs included in the
bar, restaurant and concessions areas.
13
<PAGE>
Company had net interest and dividend income of $44,698 and $35,882 for the
three months ended March 31, 1996 and March 31, 1995, an increase of $8,816.
The increase in interest and dividend income was the result of an increase of
funds invested in short term cash equivalent funds due to additional equity
capital that was injected in December of 1995 and February of 1996 (See
Liquidity and Capital Resources).
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, 1996. The $195,939 gain resulted from the
sale of bank holding company common stock which the Company had invested in
on a short term basis for a dividend yield. These shares were purchased in
December 1994 and sold in February 1995.
Other expenses were $20,350 and $19,623 for the three months ended March 31,
1996 and March 31, 1995, respectively. The $20,350 consisted of
approximately $15,000 in legal costs paid in connection with litigation (see
Note 8) during the first quarter of 1996 and $5,350 in cost associated with
potential Indian gaming ventures. The $19,623 were legal costs paid in
connection with litigation (see Note 7) during the first quarter of 1995.
At December 31, 1995, the Company had approximately $11,242,000 in net
operating loss carryforwards. However, because of 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 $1,000,000 attributed to the period after the change of
ownership are not subject to the Section 382 limitation.
The Company had a net loss of $143,211 or $0.04 per common share, for the
three months ended March 31, 1996, and a net income of $398,840, or $0.13 per
common share, for the three months ended March 31, 1995. The decrease in net
income for the quarter ended March 31, 1996 was primarily caused by the
factors discussed above. Among these was the $216,820 increase in general
and administrative costs which resulted from a $90,000 increase in executive
officer salary, a $6,645 increase in advertising and promotion expenses, a
$41,364 increase in legal expenses, $33,425 in increased travel costs,
approximately $20,000 in increased shareholder relations expense, and $10,881
in increased consulting expenses. These increases were incurred primarily as
the result of management's effort to expand the gaming products available to
the Company in Indian gaming and other areas. The first quarter of 1995, also
included a $195,939 realized gain on sale of the securities as described
above.
The Company plans to expend approximately $150,000 during 1996 to bring city
water to the Fronton and eliminate the need for an old and costly
purification system currently in use. Also in February 1996, the Company
terminated certain equipment leases on television monitors. The initial
capital outlay of approximately $65,000 will reduce expenses approximately
$19,000 per year. Also as described above Chairman and Chief Executive
Officer, Bennett Collett, who has received no cash compensation for the past
3 years, had an annual salary of $360,000 approved by outside board of
director members effective January 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at March 31, 1996 was
$4,393,211. At March 31, 1996, the Company had working capital of
$4,290,307, an increase of $1,793,331 from $2,496,976 at December 31, 1995.
The increase was primarily the result of approximately $2.11 million in
capital raised via the issuance of preferred convertible stock, net of
capital and property expenditures, debt repayment, and other operational used
of funds.
During the three months ended March 31, 1996, net cash used in the Company's
continuing operating activities was $95,113. 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 net cash flows from the operation of current business
activities will be adequate to meet operational needs.
During the three months ended March 31, 1996, cash flow used by investing
activities was $235,142. This was the result of capital improvements and
equipment purchases totaling $100,142 and credit line advances of $135,000 .
During the fourth quarter of 1995, the Company lent 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 $485,000 as of March 31, 1996.
14
<PAGE>
During the three months ended March 31, 1996, cash flow from financing
activities was $2,001,601. Cash flow from financing activities consisted
primarily of the $2,112,624 in funds generated from the sale of convertible
preferred stock in February 1996 (see Note 5 to the Financial Statements),
and net of $111,023 in debt reductions.
In the course of its business, the Company has had numerous discussions,
and continues to have discussions, regarding joint ventures and business
combinations related to the pari-mutuel and gaming industry, including the
acquisition of other jai-alai frontons and joint ventures with Native
American Tribes related to the operation of gaming facilities. No assurances
can be given about the likelihood or timing of any such transaction.
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 that 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 tentatively agreed to terminate this venture with the Poncas
(See Item 5. Other Information). As of April 30, 1996, the Company had
provided ($92,498) for predevelopment expenses of the project.
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 and operates the
River Oaks Casino, located approximately 40 miles north of San Diego,
California. The Loan Agreement will take effect when gaming machines are in
operation at the casino. Initially the Company has agreed to make up to $5
million available to the Rincon band during the seven year term of the
agreement. In lieu of interest on the loan, the Company will receive a
royalty during the term of the loan agreement. The Company also agreed to
advance short term working capital funds, which will represent initial draws
when the Loan Agreement takes effect. $344,000 has been advanced through
April 30, 1996.
The operation of gaming machines at the Rincon Casino is currently prohibited
by a preliminary injunction issued by the United States District Court for
Southern California. The injunction was sought by the United States Attorney
for Southern California, based upon federal circuit court decisions that the
operation of gaming machines by Native American tribes in California was
prohibited by the Indian Gaming Regulatory Act, because gaming machines were
prohibited by California law and to date, California Governor Wilson has
refused to enter into gaming compacts with California tribes. Since the date
that the preliminary injunction was imposed on the Rincon Band, the United
States Court of Appeals has agreed to review its prior decisions in light of
a recent California appellate court decision that California law permits the
operation of gaming machines by the California Lottery, contributing to the
uncertain parameters of Indian gaming in California.
Based on its belief that it now complies with all conditions for the
operation of gaming machines under the Indian Gaming Regulatory Act, the
Rincon Band has requested that the injunction be modified to permit the
operation of gaming machines at the tribe's casino (See Item 5. Other
Information). As part of this effort, the Rincon Band has now assumed direct
management of the casino, and has entered the Loan Agreement with the
Company.
Management and financing agreements with Native American tribes will
necessitate funds for the construction of facilities and in some cases the
acquisition of lands to be put in trust for the tribes. These funds are
typically recovered from the tribe's share of gaming profits; initially,
however, the Company will be required to secure substantial capital for these
activities. The Company is currently evaluating sources of funding including
equity and debt financing.
The Company believes that its present financial condition provides adequate
capital reserves and liquidity for present operations.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On March 22, 1994, Ronald W. Hayes filed suit in the Circuit Court
of the Fifteenth Judicial Circuit of Florida, Palm Beach County, against the
Company and W. Bennett Collett, the Company's Chairman and Chief Executive
Officer. Mr. Hayes alleged that the defendants owe him $118,500, plus
attorney's fees, as a finder's fee in connection with the Company's purchase
of its Fort Pierce Jai-Alai Fronton. The plaintiff accepted a cash payment
of $29,551 from the Company in settlement of this case which was dismissed
with prejudice on December 15, 1994. However, a related case was then filed
on December 16, 1995, as described below.
On May 13, 1994, American Jai-Alai, Inc. ("American Jai-Alai") filed suit in
the Circuit Court of the Fifteenth Circuit in Florida, Palm Beach County,
against the Company. American Jai-Alai alleges that in August 1993 the
Company entered into a contract with American Jai-Alai that American Jai-Alai
would manage the Fronton if the Company acquired it. American Jai-Alai
alleges that the Company and American Jai-Alai agreed to enter into a
five-year renewable management contract pursuant to which American Jai-Alai
would guarantee a $480,000 annual payment to the Company, $270,000 of the
Fronton's net operating income above $480,000 would be paid to the Company,
with American Jai-Alai receiving 25% of all net operating income above
$750,000 annually. In addition, American Jai-Alai alleges that it has a
first right of refusal if the Company desires to sell the Fronton at anytime
during the alleged management contract. American Jai-Alai also alleges that
the Company granted it an option to purchase 100,000 shares of Common Stock
at $2.50 throughout the alleged management contract, but not to exceed 1997.
In addition, American Jai-Alai alleges that the Company agreed to pay
American Jai-Alai 25% of any profit realized from the sale of the Fronton, if
such sale was not to American Jai-Alai pursuant to its alleged right of first
refusal. In the Complaint, American Jai-Alai alleges, among other claims,
breaches of fiduciary duty, breach of contract and fraud. On May 20, 1994,
counsel for American Jai-Alai stated that American Jai-Alai was exercising
its alleged right to purchase the 100,000 shares of Common Stock for $2.50.
The Company has not issued any shares of Common Stock pursuant to this
demand. The Company has filed an Answer to the Complaint and also filed a
motion to move the suit from Palm Beach County to St. Lucie County, which was
granted by the circuit court. The Company denies the allegations and believes
that this proceeding is not likely to result in an adverse judgement that is
material to the results of its operations and financial condition.
Also, 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.
And also on April 25, 1996,Compagnie Parisienne De Reescompte, filed suit in
U.S. District Court, District of Delaware, against the Company alleging it
failed to convert Preferred Class B stock into common shares of the Company
pursuant to the stock subscription agreement. The Company and its attorneys
are in the process of answering the Complaint.
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
16
<PAGE>
Item 5. OTHER INFORMATION.
The Company and the Ponca Tribe of Nebraska recently agreed to
terminate their agreement to develop an Indian gaming venture proposed for
metropolitan Omaha, Nebraska, following events in recent months that
diminished the likelihood that the Indian gaming venture contemplated by the
Company and the Ponca Tribe within the guidelines of this agreement could be
developed and operational in the forseeable future. The agreement between
the Company and the Ponca provided that a subsidiary of the Company would
develop, finance, construct and manage a casino gaming operation to be
located on land to be acquired and placed in trust for the Ponca Tribe. The
Company's obligations were subject to a number of conditions, including
regulatory approvals and the execution of a gaming compact between the Ponca
Tribe and the State of Nebraska. In February 1996, the Nebraska legislature
failed to enact legislation that would have submitted a referendum to
authorize certain gaming activities within the state to Nebraska voters. In
addition, the Bureau of Indian Affairs suspended action on applications to
place land in trust for tribes in Nebraska and certain other states following
a November decision by the United States Court of Appeals for the 8th Circuit
overturning the federal statute authorizing the land in trust process. In
connection with the termination, the Company has agreed to pay $5,000 in cash
and issue 6,000 shares of its common stock to parties that provided services
in connection the venture.
On April 30, 1996, a federal district court judge in San Diego, California
deferred action on the motion by Rincon, San Luiseno Band of Mission Indians
to lift an injunction prohibiting the Rincon Band from operating gaming
machines at its casino in San Diego County pending developments in litigation
before the California Supreme Court relating to the status of electronic
gaming machines under California law. The Company's loan agreement with the
Rincon Band, which provides that the Company would receive a percentage of
revenues from gaming machines at the Rincon Band's casino, would take effect
when and if the federal district court lifts the current injunction, and the
Rincon Band proceeds with gaming operations as contemplated by the loan
agreement.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS FILED.
Not applicable.
(b) REPORTS ON FORM 8-K.
During the quarter ended March 31, 1996, the Company filed one Form
8-K Current report dated March 12, 1996. On February 13, 1996, the Company
announced the signing of a letter of intent with Gold Star International,
Inc. ("GSI") to acquire the capital stock of Gold Star Casinos, Inc. ("Gold
Star") a wholly owned subsidiary of GSI.
Gold Star holds the exclusive rights to operate casino concessions on two
cruise ships operating from Clearwater and St. Petersburg, Florida and the
ferry between Bar Harbor, Maine and Yarmouth, Nova Scotia. Upon closing,
Gold Star will also have an option to acquire an assignment of 50% of the
profits from the casino concession aboard a cruise ship operating from Ft.
Lauderdale, Florida. After the exercise of the option, Gold Star's casino
operating concessions would involve about 22,500 square feet of gaming space
and a total of 1,175 gaming positions.
The Letter of Intent anticipates that GSI will receive, at closing, 200,000
shares of Florida Gaming Common Shares in exchange for 100% of the stock of
Gold Star Casinos, Inc. GSI can also receive up to 300,000 additional shares
of Florida Gaming stock over a four year period pursuant to the "earn out"
provisions of the Letter of Intent.
The Letter of Intent is not a binding agreement between the parties.
Consummation of the transaction is subject to several significant conditions,
including the completion of due diligence investigations by both parties, the
negotiation and execution of a definitive acquisition agreement between the
parties, the negotiation of employment arrangements with certain member of
GSI's management, the approval of the parties' respective Boards of Directors
and GSI stockholders, and the receipt of consents from the GSI senior
lenders. Because of these factors, the consummation of the transaction can
not be assured.
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: May 14, 1996 By: W. B. COLLETT
--------------- -------------------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: May 14, 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 & STATEMENTS OF OPERATIONS 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,393
<SECURITIES> 0
<RECEIVABLES> 533
<ALLOWANCES> 0
<INVENTORY> 36
<CURRENT-ASSETS> 4,986
<PP&E> 5,321
<DEPRECIATION> (385)
<TOTAL-ASSETS> 10,284
<CURRENT-LIABILITIES> 696
<BONDS> 0
4
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<COMMON> 328
<OTHER-SE> 7,549
<TOTAL-LIABILITY-AND-EQUITY> 10,284
<SALES> 0
<TOTAL-REVENUES> 1,620
<CGS> 0
<TOTAL-COSTS> 1,787
<OTHER-EXPENSES> 20
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> (143)
<INCOME-TAX> 0
<INCOME-CONTINUING> (143)
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<CHANGES> 0
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<EPS-PRIMARY> (.04)
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