<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended
December 31, 1994
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ______________
Commission File Number 0-9099
FLORIDA GAMING CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 59-1670533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1750 South Kings Highway 34945-3099
Fort Pierce, Florida (Zip Code)
(Address of principal
executive offices)
Issuer's telephone number
including area code: (407) 464-7500
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($.10 par value) and Class A Convertible Preferred Stock ($.10
par value)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the 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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The registrant's revenues for the most recent fiscal year: $2,823,272.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 15, 1995
Common stock, par value of $.10 per share -- $6,024,956.
The number of shares of the registrant's common stock outstanding as of
March 15, 1995 -- 3,119,246 shares.
Transitional Small Business Disclosure Format
Yes _____ No ______
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
Florida Gaming Corporation (the "Company") hereby amends its annual report
on Form 10-KSB for the Company's fiscal year ended December 31, 1994 ("1994 10-
KSB") by substituting the following for Items 6 and 7 of the 1994 10-KSB:
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
Effective July 31, 1992, the Company sold its ownership interest in Scope
Incorporated ("SCOPE"), to an unaffiliated corporation, which left the Company
with no operations. On March 31, 1993, the Company entered into a stock
purchase agreement with Freedom whereby Freedom made a $874,350 equity infusion
into the Company. The Company issued 699,480 shares to Freedom as a result of
this agreement and a change in control of the Company occurred.
On February 1, 1994, the Company acquired the Fronton following receipt of
the approval from the Florida Department of Business Regulation on that date.
The business consists of, among other things, live jai-alai, inter-track pari-
mutuel wagering and the sale of food and alcoholic beverages. The total
consideration for the purchase consisted of $1,500,000 cash, a ten-year
promissory note in the amount of $1,000,000, secured by a first mortgage, and
200,000 shares of the Company's common stock. The Company also purchased
certain inventories and assumed certain pari-mutuel liabilities to patrons as
part of the closing transaction.
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 Company participated in a Florida lobbying group that collected
signatures to place a referendum before the voters of Florida in November 1994
to amend the Florida Constitution to permit casino gaming in Florida at, among
other places, pari-mutuel wagering facilities. On November 8, 1994 the voters
in the state of Florida failed to approve this amendment. Under Florida law it
will be two years before any referendum pertaining to a state constitutional
amendment to legalize casino gaming can be placed before the voters again.
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 if permitted by Florida law within the next six years.
The Letter of Intent provides that Casino America would be the manager of the
<PAGE>
casino and all casino-related improvements. The Company would continue to
manage the operation of the jai-alai fronton, intertrack wagering and all other
non-casino related activities. Each corporation would receive a management fee
based on costs. The Letter of Intent provides that Casino America has the
exclusive right to enter into a Joint Venture with the Company for six years and
Casino America has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture. The formation of the Joint Venture is subject to certain
conditions, including the satisfactory completion of due diligence by Casino
America, the receipt of all required regulatory approvals, the approval of each
partner's board of directors, the execution of a definitive joint venture
agreement, and the approval of the Company's stockholders, if required by law.
The Letter of Intent provides that if no definitive Joint Venture agreement is
executed by March 31, 1995, and the Letter of Intent is not extended by either
party no later than June 30, 1995, either party may terminate discussions in
connection with the Joint Venture and neither party shall have any liability to
the other, except as otherwise specified in the Letter of Intent. No definitive
Joint Venture agreement has yet been executed and by letter dated March 21,
1995, Casino America has extended the period of time to June 30, 1995. For more
information concerning the agreement, see "Item 1. Description of Business--
Joint Venture Letter of Intent."
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1994 COMPARED WITH TWELVE MONTHS ENDED
AUGUST 31, 1993 AND FOUR MONTHS ENDED DECEMBER 31, 1993.
During the twelve months ended December 31, 1994, the Company's operations
reflect the operation of the Fronton since February 1, 1994. Live jai-alai was
conducted at the Fronton during the most recent complete jai-alai season from
November 26, 1993 through April 30, 1994. Because the Company acquired the
Fronton on February 1, 1994, revenues related to the operation of live jai-alai
at the Fronton are included only for the period February 1, 1994 through April
30, 1994. The Company has received permits from the DPMW to conduct live jai-
alai performances from January 6, 1995, through and including April 30, 1995,
and December 1, 1995 through and including April 27, 1996. The Fronton
typically remains open for inter-track wagering year round. During the four
month period ended December 31, 1993, and twelve months ended August 31, 1993,
the Company had no operations while management examined the Company's strategic
alternatives.
The Company's pari-mutuel handle for the year ended December 31, 1994, was
$19,232,481, consisting of $3,480,257 in live jai-alai wagering and $15,752,224
in inter-track wagering from February 1, 1994 through December 31, 1994.
Although the Company did not
2
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operate the Fronton during 1993, the comparative handle under previous
management for live jai-alai wagering was $3,382,069 and for inter-track
wagering was $12,437,816 for the same 11 month period during 1993. The
Company's pari-mutuel revenues net of state pari-mutuel taxes for the twelve
months ended December 31, 1994, were $2,153,481. Of the $2,153,481, $1,447,205
was attributable to commissions on inter-track wagering and $706,276 was
attributable to live jai-alai. Admissions income for the year ended December
31, 1994, was $122,032, net of state taxes. Food, beverage and other income for
the year ended December 31, 1994, was $547,759. There were no operating revenues
for the twelve months ended August 31, 1993, nor for the four months ended
December 31, 1993.
The Company's general and administrative expenses were $987,807 and
$610,952 for the twelve months ended December 31, 1994 and August 31, 1993,
respectively, and $78,216 for the four months ended December 31, 1993. General
and administrative expenses for the twelve months ended August 31, 1993 included
$37,500 in salary and a severance payment of $125,000 to the former president of
the Company, whose employment was terminated March 31, 1993. General and
administrative expenses for the twelve months ended December 31, 1994, are
attributable primarily to the operation of the Fronton acquired on February 1,
1994, including $119,402 in advertising and promotion expenses. Also included
in general and administrative costs in the year ended December 31, 1994, is
$130,988 in salaries and benefits for the Fronton's General Manager and the
Company's Chief Financial Officer, $80,060 in interest expense, principally the
result of the $1,000,000 mortgage given upon the acquisition of the Ft. Pierce
facility, $57,379 in property taxes on the acquired property, $50,500 of costs
associated with the effort to put a casino referendum on the November 1994
Florida Ballot, $29,551 for legal and other costs paid in connection with the
settlement of certain litigation, $81,930 in litigation expenses, a $10,000
appraisal fee spent analyzing a potential business opportunity, $78,886 for a
real estate option and related costs associated with an abandoned gaming venture
at that site, and net of a $4,820 refund by the Division of Pari-Mutuel Wagering
returned to the Company as unused investigatory funds with respect to the
license application investigation. As a result of a cost containment strategy
implemented April 1, 1993, no payroll costs were incurred from the period April
1, 1993 through February 1, 1994.
The Company's operating expenses for the year ended December 31, 1994 were
$2,248,885, the result of the acquisition of the Fronton. There were no
operating expenses for the year ended August 31, 1993. Depreciation expense for
the twelve month period ended December 31, 1994 was $141,962. The $141,962 in
depreciation expense is primarily associated with the facility and equipment
purchased on February 1, 1994, and subsequent capital improvements. Players
costs, which include salaries, benefits, and support staff,
3
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represent a significant portion of operational expenses. The year ending
December 31, 1994, included three months of live jai-alai and associated player
costs totaling $408,192. Rental and service costs for totalizator wagering
equipment and satellite receiving/television equipment also represent a
significant portion of operating expenses. These expenses totaled $224,449 for
the year ended December 31, 1994. Utilities expense totaled $120,191, and
program costs totaled $108,128, respectively, for the year ended December 31,
1994. Operating expenses, including payroll costs, for the bar, restaurant and
concessions were $255,410 for the year ended December 31, 1994. Operating
payrolls and related costs totaled $803,166 for the year ended December 31,
1994, excluding player costs and payroll costs included in the bar, restaurant
and concessions areas. Operating payrolls and related costs include costs
related to repairs and maintenance to the Fronton.
The Company had net interest and dividend income of $37,090 and $63,565 for
the twelve months ended December 31, 1994, and August 31, 1993, respectively, a
decrease of $26,475. The decrease in interest and dividend income resulted from
substantial reductions in investments and principal owed to the Company on loans
to SCOPE and others, but was primarily the result of the Company's redeployment
of funds to the acquisition of the Fronton. Equity investments in the Company
during the second half of 1994, however, have increased the Company's funds
invested in cash equivalent funds.
In connection with the sale of SCOPE, the Company received a three-year
promissory note from SCOPE. On April 4, 1994, the Company sold the promissory
note, with a remaining principal balance of $109,000, to an unaffiliated third
party for $95,000. As a result of the sale of this note at a discount, the
Company recorded a one-time charge of $14,669 against earnings in the year ended
December 31, 1994. During the twelve months ended August 31, 1993, the Company
recorded a $4,953 loss on the sale of real property owned in Virginia.
There were no gains on sale of securities for the year ended December 31,
1994. There were $169,333 in realized securities gains for the twelve month
period ended August 31, 1993. These gains resulted from the sale of securities
that the Company had invested in while searching for business opportunities for
the Company.
The Company had a net loss of $390,999 ($0.18 per common share) for the
twelve months ended December 31, 1994. A substantial amount of the loss was
primarily caused by the factors discussed above as part of general and
administrative expenses. The Company's operations were also affected by
remodeling and refurbishing of the Fronton facility. In the transition from
the live jai-alai season to only an ITW and simulcast operation for the
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balance of the year, the Company implemented reductions in janitorial, mutuel
tellers, concessions, security, other payrolls, and other operating expenses,
although much of the overhead associated with operating the facility continued.
Management believes it has now adjusted operational expenses to the level
necessary for ITW and live jai-alai operations. Management has also implemented
increases in the commission rates for ITW which should improve revenues during
1995. It should also be noted that pari-mutuel taxes on live jai-alai were
reduced effective July 1, 1994. This recently adopted legislation reduces the
pari-mutuel tax rate on gross jai-alai handle from 7.1 to 5%, the first $30,000
of handle per performance continues to be exempt from taxes, and the daily
license fees paid per game were cut in half to $40 from $80. These changes,
although they did not affect the Company's operation until the first quarter of
1995, are expected to increase net pari-mutuel revenue from live jai-alai (an
increase estimated to be approximately $87,000 annually).
As described above, the Company's operations have changed significantly
during 1994. The Company's total assets have increased from approximately $2.3
million to approximately $6.8 million. Stockholders' equity has increased
approximately $2.0 million through capital injections and stock issued in
connection with the Ft. Pierce acquisition. At December 31, 1994, long term
debt was approximately $1,000,000, primarily the result of the Ft. Pierce
acquisition.
In addition, in January 1995 the Company acquired three parcels of land
contiguous to the original Fronton property comprising approximately 79 acres
for $1,082,136. The total acreage surrounding the facility is currently
approximately 134 acres including the parking lot. The Company's plans for this
additional property held for future expansion are still in the formative stages
and could include the construction of a flea-market and the expansion of ITW
facilities. The possibilities of billboards along the Interstate 95 right of
way, a recreational vehicle park, and a golf driving range have also been
discussed.
FINANCIAL CONDITION, LIQUIDITY, AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at December 31, 1994
was $1,363,174. At December 31, 1994, the Company had working capital of
$1,533,847, a decrease of $477,232 from $1,981,079 at December 31, 1993. The
decrease was primarily the result of the $1,500,000 cash portion of the Fronton
acquisition. The Company also invested $548,208 in capital improvements and
contiguous land purchases since the acquisition and through December 31, 1994.
The Company, however, received $1,701,472 in additional equity (net of expenses)
in connection with certain warrant and option exercises described herein. At
December 31, 1994, the Company had $1,618,250 invested in the publicly traded
common stock of a bank holding company on a
5
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temporary basis for dividend yield, including approximately $1,084,000 of such
common stock financed through the Company's margin account.
During the twelve months ended December 31, 1994, net cash provided by the
Company's operating activities was $35,616. The Company's continuing operating
expenses consisted principally of office expenses, general administrative
expenses, and operating expenses associated with Fronton operations. 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 twelve months ended December 31, 1994, cash flow used by
investing activities was $4,714,802, primarily the result of investing
$3,270,654 in the purchase of the Fronton, land acquisition, and other capital
improvements. On December 31, 1994, the Company also had $1,618,250 invested in
bank holding company common stock.
During the twelve months ended December 31, 1994, cash flow from financing
activities was $4,008,459. Cash flow from financing activities consisted
primarily of the $1,000,000 note issued in connection with the Fronton's
acquisition, $1,084,541 in margin financing, and equity injections of a
$1,701,472.
In connection with the sale of the Company's previously majority-owned
subsidiary, Sports-Tech International, Inc., in July 1991 to Sports Tech, Inc.
("Sports-Tech") for $40,000 cash, the Company sold to Sports-Tech a three-year
Warrant to purchase up to 400,000 shares of the Company's common stock at an
aggregate purchase price of $1,000,000. As a result of the Equity Infusion by
Freedom, the shares issuable under this Warrant increased to 651,752 shares. On
July 28, 1994, Sports-Tech exercised the Warrant and purchased the 651,752
shares at a per share exercise price of approximately $1.534. Pursuant to the
request by Sports-Tech in accordance with the Warrant, the Company filed a
registration statement with the Securities and Exchange Commission with respect
to the resale of these shares. As of March 15, 1995, the Company has incurred
$166,411 in registration costs. On March 9, 1995, Sports-Tech informed the
Company that it had sold all 651,752 shares.
On August 26, 1994, Freedom exercised an option to purchase 400,000 shares
of 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
exercises 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.
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On April 4, 1994 the Company sold its note receivable from SCOPE to an
unaffiliated third party for $95,000 in cash. As a result of the sale of this
note at a discount, the Company recorded a one-time charge of $14,669 against
earnings in the second quarter, but increased cash in the amount of $95,000.
In May 1994, the Company engaged an investment banker to evaluate the
potential for a private placement up to $10 million of convertible debt
securities. Following the execution of the letter of intent with Casino America
on October 4, 1994, the Company terminated this engagement.
In January 1995, the Company acquired land contiguous to the Fronton
property, comprising approximately 79 acres, for $1,082,136. Of this amount,
$845,132 was financed through first mortgages on the real estate and $237,004
was from cash.
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. See Note K to the Audited
Financial Statements.
The Company believes that its present financial condition provides adequate
capital reserves and liquidity for its current activities. In addition, subject
to certain conditions contained in Section 1.6a of the Stock Purchase Agreement
between the Company and Freedom, Freedom may provide or obtain financing for
capital investments by the Company in an amount of up to $2,500,000 in
aggregate.
ITEM 7. FINANCIAL STATEMENTS.
LIST OF FINANCIAL STATEMENTS FILED. See accompanying Financial Statements:
Balance Sheets as of December 31, 1994 and 1993, and August 31, 1993.
Statements of Operations for the years ended December 31, 1994 and
August 31, 1993, and for the four months ended December 31, 1993.
Statement of Stockholders' Equity for the two years and four months
ended December 31, 1994.
Statements of Cash Flows for the years ended December 31, 1994 and
August 31, 1993, and for the four months ended December 31, 1993.
7
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Notes to Financial Statements.
8
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ITEM 7. FINANCIAL STATEMENTS
Audited Financial Statements
FLORIDA GAMING CORPORATION
December 31, 1994 and 1993
and August 31, 1993
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report...........................................1
Financial Statements
Balance Sheets.......................................................2
Statements of Operations.............................................4
Statement of Stockholders' Equity....................................5
Statements of Cash Flows.............................................6
Notes to Financial Statements........................................8
<PAGE>
[KING & COMPANY LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders
Florida Gaming Corporation
(formerly Lexicon Corporation)
New Albany, Indiana
We have audited the accompanying balance sheets of Florida Gaming Corporation (a
Delaware Corporation) as of December 31, 1994 and 1993, and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1994 and the four months ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Florida Gaming Corporation as of August
31, 1993 and for the year then ended were audited by other auditors whose report
dated October 7, 1993 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Florida Gaming Corporation as
of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the year ended December 31, 1994 and four months ended December 31,
1993 in conformity with generally accepted accounting principles.
/s/ King & Company, PSC
Louisville, Kentucky
March 16, 1995
<PAGE>
BALANCE SHEETS
FLORIDA GAMING CORPORATION
<TABLE>
<CAPTION>
December 31, August 31,
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,363,174 $2,033,901 $1,813,251
Investment securities--Note E 1,618,250 -0- 400,903
Current portion of notes
receivable--Notes C and I 20,258 33,938 33,613
Inventory 22,123 -0- -0-
Prepaid expense 7,387 1,325 26,428
--------- --------- ---------
3,031,192 2,069,164 2,274,195
PROPERTY, PLANT AND EQUIPMENT--Note J
Land 1,631,865 -0- -0-
Buildings and improvements 1,799,962
Furniture, fixtures and equipment 422,596 -0- -0-
--------- --------- ---------
3,854,423 -0- -0-
Less accumulated depreciation (141,962) -0- -0-
--------- --------- ---------
3,712,461 -0- -0-
NOTES RECEIVABLE--Notes C and I -0- 105,891 117,315
OTHER ASSETS--Note K 30,800 100,000 -0-
--------- --------- ---------
$6,774,453 $2,275,055 $2,391,510
--------- --------- ---------
--------- --------- ---------
</TABLE>
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<TABLE>
<CAPTION>
December 31, August 31,
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Unclaimed winnings $ 49,742
Investment margin account--Note E 1,084,541
Accounts payable 62,383 $ 6,250 $ 15,850
Accrued payroll and related
expenses 15,415 -0- -0-
Accrued expenses 176,879 -0- 131,227
Preferred dividend
arrearage--Note D -0- 81,835 -0-
Current portion long-term
debt--Note L 108,385 -0- -0-
----------- ----------- -----------
1,497,345 88,085 147,077
LONG-TERM DEBT--Note L 1,114,061 -0- -0-
STOCKHOLDERS' EQUITY--Notes B, C, D, & F
Class A redeemable preferred stock,
convertible to common stock, 1,200,000
shares authorized, 43,664 and 45,464
shares issued and outstanding in 1994
and 1993, respectively; aggregate
liquidation preference of approximately
$477,000 at December 31, 1994 4,366 4,546 4,546
Common stock, $.10 par value;
15,000,000 shares authorized;
3,119,246 and 1,503,240 issued
and outstanding in 1994 and 1993,
respectively 311,924 150,324 150,324
Capital in excess of par value 25,026,362 22,781,412 22,781,412
Accumulated deficit (21,179,605) (20,749,312) (20,691,849)
----------- ----------- -----------
4,163,047 2,186,970 2,244,433
COMMITMENTS AND CONTINGENCIES--Note K
----------- ----------- -----------
$ 6,774,453 $ 2,275,055 $ 2,391,510
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
3
See notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
FLORIDA GAMING CORPORATION
<TABLE>
<CAPTION>
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
ON SITE MUTUEL REVENUE $ 850,665 -0- -0-
Less payments
to State of Florida (144,389)
INTER TRACK MUTUEL COMMISSIONS 1,447,205
----------
Net pari-mutuel revenue 2,153,481
ADMISSION INCOME 122,032
PROGRAM REVENUE 154,570
FOOD AND BEVERAGE 340,497
OTHER 52,692
----------
TOTAL OPERATING REVENUE 2,823,272 -0- -0-
OPERATING EXPENSES
Staff payroll and related costs 803,166
Player payroll and related costs 408,192
Food and beverage costs 255,410
Repairs and maintenance 53,410
Totalizator/teleview rent--Note K 224,449
Depreciation 141,962
Utilities 120,191
Programs 108,128 -0- $ 878
Other 133,977
---------- ---------- --------
TOTAL OPERATING EXPENSES 2,248,885 -0- 878
SELLING, GENERAL AND
ADMINISTRATIVE
Officers' compensation 136,404 199,046
Directors' fees--Note I 14,000 $ 4,000 23,100
Management consulting--Note I 52,977 12,000 60,690
Advertising and promotions 119,402 -0-
Telephone and travel 76,717 7,011
Professional fees 64,360 28,095 120,029
Interest expense 80,060 174
Property taxes 57,379 -0-
Other expense--Notes K and I 386,508 34,121 200,902
---------- ---------- --------
987,807 78,216 610,952
---------- ---------- --------
(LOSS) FROM OPERATIONS (413,420) (78,216) (611,830)
OTHER INCOME (EXPENSE):
Interest and dividends 37,090 20,753 63,565
Realized gain on marketable
securities -0- -0- 169,333
Loss on disposal of assets--Note C (14,669) -0- (4,953)
---------- ---------- --------
22,421 20,753 227,945
---------- ---------- --------
NET LOSS $ (390,999) $ (57,463) $(383,885)
---------- ---------- --------
---------- ---------- --------
LOSS PER COMMON SHARE--NOTE H $ (.18) $ (.04) $ (.39)
---------- ---------- --------
---------- ---------- --------
</TABLE>
See notes to financial statements
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STATEMENT OF STOCKHOLDERS' EQUITY
FLORIDA GAMING CORPORATION
For the two years and four months ended December 31, 1994
<TABLE>
<CAPTION>
Class A
Preferred Stock Common Stock
Par Value $.10 Par Value $.10 Capital in
--------------- -------------- Excess of Accumulated
Shares Amount Shares Amount Par Value Deficit
------ ------ -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
September 1, 1992 45,964 $4,596 803,648 $ 80,365 $21,996,972 $(20,267,496)
Sale of stock to Freedom
Financial Corp.--Note B 699,480 69,948 804,402
Legal costs incurred for
Freedom Financial Corp.'s
acquisition--Note B (20,000)
Conversion of Class A
preferred stock to common
stock--Note D (500) (50) 112 11 38
Dividend on preferred
stock--$.90 per share (40,468)
Net loss for fiscal year (383,885)
------ ----- --------- ------- ---------- -----------
BALANCES AT
AUGUST 31, 1993 45,464 4,546 1,503,240 150,324 22,781,412 (20,691,849)
Net loss for the period (57,463)
------ ----- --------- ------- ---------- -----------
BALANCES AT
DECEMBER 31, 1993 45,464 4,546 1,503,240 150,324 22,781,412 (20,749,312)
Sales of stock--Notes C and I 1,351,752 135,175 1,566,414
Conversion of Class A
preferred stock to
common stock--Note D (1,800) (180) 404 40 132
Dividend on preferred
stock--$.90 per share (39,294)
Net loss for the year (390,999)
Payment of preferred stock
dividend--Note D 16,514 1,651 119,369
Stock issued for asset
acquisitions--Notes J and M 247,336 24,734 559,035
------ ----- --------- ------- ---------- -----------
BALANCES AT
DECEMBER 31,1994 43,664 $4,366 3,119,246 $311,924 $25,026,362 $(21,179,605)
------ ----- --------- ------- ---------- -----------
------ ----- --------- ------- ---------- -----------
</TABLE>
See notes to financial statements
5
<PAGE>
STATEMENTS OF CASH FLOWS
FLORIDA GAMING CORPORATION
<TABLE>
<CAPTION>
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (390,999) $ (57,464) $ (383,885)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 141,962 -0- 878
Provision for bad debts -0- -0- 31,866
Realized (gain) on marketable
securities -0- -0- (169,333)
Amortization of premiums on
marketable equity securities -0- -0- 13,756
Loss on sale of assets 14,669 -0- 4,953
Decrease (increase) in prepaid
and other current assets (28,185) 25,103 (367)
Decrease in other assets -0- -0- 1,360
Increase (decrease) in unclaimed
winnings and accounts payable 105,875 (9,600) (31,428)
Increase (decrease) in accrued
expenses 192,294 (131,227) (1,935)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 35,616 (173,188) (534,135)
</TABLE>
(CONTINUED)
6
<PAGE>
STATEMENTS OF CASH FLOWS--CONTINUED
FLORIDA GAMING CORPORATION
<TABLE>
<CAPTION>
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1994 1993 1993
---------- ---------- ----------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Proceeds from the sale of
marketable securities -0- $ 400,903 $ 3,253,679
Proceeds from sale of fixed assets -0- 29,880
Purchases of marketable securities $(1,618,250) (3,394,608)
Capital expenditures (3,270,654) -0- -0-
Deposits 69,200 (100,000) -0-
Proceeds from payments on notes
receivable 104,902 11,100 92,071
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,714,802) 312,003 (111,049)
FINANCING ACTIVITIES
Long-term debt issued 1,222,446 -0- -0-
Proceeds from issuance of
common stock 1,701,472 81,835 854,350
Borrowings on margin account 1,084,541 -0- -0-
---------- ---------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 4,008,459 81,835 946,421
---------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (670,727) 220,650 301,237
Cash and cash equivalents at beginning
of period 2,033,901 1,813,251 1,512,014
---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,363,174 $ 2,033,901 $ 1,813,251
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES
Issuance of common stock pursuant to-
-Conversion of Class A preferred
stock $ 180 -0- $ 50
-Asset acquisitions 583,769 -0- -0-
Accrual of dividend on Class A
preferred stock 39,293 -0- 40,468
Write-off of note receivable from
former shareholder--Note I -0- -0- 31,866
Interest paid 80,060 -0- 174
Payment of dividend arrearage through
issuance of common stock 81,835 -0- -0-
</TABLE>
See notes to financial statements
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates a live
Jai Alai fronton in Ft. Pierce, Florida. The Company also conducts intertrack
wagering (ITW) on jai alai, horse racing and dog racing in Florida. The Company
was formerly known as Lexicon Corporation and was substantially inactive from
August 1, 1992 to March 31, 1993.
On March 31, 1993 Florida Gaming entered into a Stock Purchase Agreement with
Freedom Financial Corporation (Freedom), a Company controlled by the current
Chairman of Florida Gaming whereby Freedom made an $874,350 equity infusion into
Florida Gaming. Florida Gaming issued 699,480 new shares (approximately 46.5%
of the Company's outstanding common stock) to Freedom as a result of this
agreement (See Note B).
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVESTMENT SECURITIES: On January 1, 1994, Florida Gaming adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), which specifies the accounting for
investments in securities that have readily determinable fair values. Securities
that management has both the positive intent and ability to hold to maturity are
classified as securities held to maturity and are carried at cost, adjusted for
amortization of premium or accretion of discount using the interest method.
Securities that may be sold prior to maturity for asset/liability management
purposes, or that may be sold in response to changes in interest rates, changes
in prepayment risk, or other similar factors, are classified as securities
available for sale and carried at fair value with any adjustments to fair value,
after tax, reported as a separate component of stockholders' equity.
Prior to January 1, 1994, securities that were being held for indefinite periods
of time including securities that management intended to use as part of its
asset/liability strategy, or that may have been sold in response to changes in
interest rates, changes in prepayment risk, or other similar factors, were
classified as securities held for sale and were carried at the lower of cost or
aggregate market value with any write downs recorded in the income statement.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported in interest and dividends on securities
using the interest method. Gains and losses on securities are recorded on the
trade date and are calculated based on the security with the highest cost unless
specific securities are identified.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. As described in Note J, the cost of the Company's Ft. Pierce Jai Alai
facility was allocated to land, building and equipment based on available
appraisals, original cost records and management estimates. Depreciation is
provided on the straight-line basis over the estimated useful life of the
related assets.
REAL ESTATE HELD FOR EXPANSION: The Company's investment in undeveloped land
($529,865 at December 31, 1994) is carried at cost and is included with land
under property, plant and equipment in the accompanying balance sheet.
INVENTORY: The Company's inventory, comprising food and beverage products and
souvenirs, is stated at the lower of cost of market.
PARI-MUTUEL WAGERING: Revenue is derived from acceptance of wagers under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW
events. On-site wagers are accumulated in pools with a portion being returned
to winning bettors, a portion paid to the State of Florida and a portion
retained by the Company. ITW wagers are also accepted and forwarded to the
"host" facility after retention of the Company's commissions. The Company's
liability to host tracks for ITW collections totaled $62,383 and are included in
accounts payable at December 31, 1994. Unclaimed winnings totaled $49,742 at
December 31, 1994.
INCOME TAXES: In February 1992, the Financial Accounting Standards Board (FASB)
adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting
for Income Taxes". SFAS No. 109 was required to be implemented during the first
quarter of fiscal year 1994. The Company adopted the standard as a cumulative
change in accounting principle during fiscal 1994. There was no material impact
on the Company's financial position or results of operations related to the
implementation of the new standard.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE B--STOCK PURCHASE AGREEMENT
Pursuant to a Stock Purchase Agreement, on March 31, 1993, Florida Gaming sold
603,000 shares of Common Stock to Freedom for total cash consideration of
$874,350 ($1.45 per share) (the Equity Infusion). In addition, Florida Gaming
granted Freedom options to purchase an additional 1,750,000 shares of Common
Stock at an exercise price of $1.45 per share, exercisable at any time prior to
the fifth anniversary of the closing. The Stock Purchase Agreement provided
that if Florida Gaming's Common Stock were delisted from the NASDAQ Small-Cap
Market pursuant to a proceeding commenced before 181 days after March 31, 1993
(regardless of whether Florida Gaming's Common Stock was subsequently relisted),
(i) the effective per share purchase price would be adjusted to $1.25, the
purchase price would remain at $874,350 and the number of shares sold to Florida
Gaming would be increased to 699,480 shares, and (ii) the per share price
pursuant to the options granted to Freedom would be adjusted to $1.25 and the
number of shares which would be available to be purchased pursuant to the option
would be increased to 2,030,000. Subject to certain conditions contained in the
Stock Purchase Agreement, Freedom may also provide or obtain financing for
capital investments by Florida Gaming in an amount of up to $2,500,000 in the
aggregate, the terms of which shall be no less favorable to the Company than
would be obtainable by the Company from unrelated third parties at the time such
loans are made.
By letter dated April 7, 1993, Florida Gaming received notice that, following
review of Florida Gaming's submissions concerning the Equity Infusion, the
NASDAQ Stock Market would delist Florida Gaming's Common Stock effective April
8, 1993. The NASDAQ Qualifications Committee stated that Florida Gaming should
have met the required $4,000,000 total assets criteria for continued listing,
rather than a $2,000,000 total assets criteria.
As a result of the delisting of the Company's common stock and pursuant to the
Stock Purchase Agreement, Florida Gaming issued an additional 96,480 shares of
Common Stock to Freedom, the exercise price per share of the options was reduced
to $1.25 per share and the number of shares subject to the options increased to
2,030,000. Reference is made to Note I for details of options exercised by
Freedom during 1994.
Florida Gaming's Common Stock was later relisted following appeal and review by
the NASDAQ Qualifications Committee.
In connection with this Stock Purchase Agreement, the Company terminated its
sole employee as of March 31, 1993. As part of the Stock Purchase Agreement,
the Company paid the former employee a $125,000 severance payment
which is included in selling, general and administrative expense in the
accompanying August 31, 1993 statement of operations.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE C--DISPOSITION OF BUSINESSES
SCOPE INCORPORATED: Effective July 31, 1992, Florida Gaming sold to BECT
Acquisition Group, Inc., a Delaware corporation unaffiliated with Florida
Gaming, all of the shares of the common stock of a former wholly owned
subsidiary, SCOPE, pursuant to the terms of a Stock Purchase Agreement (the
Agreement) dated March 26, 1992. SCOPE was engaged in the Signal Technology,
Defense Systems and Industrial Systems businesses.
The sales price for the common stock was $1,000,000 before closing costs of
approximately $127,000 including a $50,000 bonus to the President and Chief
Executive Officer of SCOPE, which was paid in cash. In connection with the
sale, Florida Gaming also received a three-year, $200,000 promissory note from
SCOPE bearing interest at 8% per annum, payable monthly, which replaced an
outstanding $450,000 note from SCOPE which bore interest at 13% per annum. The
new note was guaranteed by SCOPE and was secured by a security interest in all
of SCOPE's furniture, fixtures and equipment.
A subsequent change in the ownership of SCOPE occurred in March 1993. Pursuant
to terms in the Agreement, the Company consented to this ownership change under
terms and conditions that included (i) accelerated payments on the $200,000
promissory note and (ii) reattribution of certain SCOPE net operating loss
carryforwards back to the Company. On March 26, 1993, pursuant to the consent
agreement, SCOPE made a $25,000 principal reduction on this note. An additional
$50,000 principal payment was made June 26, 1993, followed by $2,000 monthly
principal reductions through February 1, 1994. On April 4, 1994 the Company
sold this note to an unaffiliated third party for $95,000 in cash. The
unaffiliated third party consummated a purchase of SCOPE on that date from the
management group that purchased SCOPE in March of 1993. As a result of the sale
of this note at a discount, the Company recorded a charge of $14,669 in the
accompanying 1994 Statement of Operations.
SPORTS-TECH: In July 1991, Florida Gaming sold to Bristol Holdings, Inc.
(Bristol), a Nevada corporation unaffiliated with Florida Gaming, all of the
outstanding common stock of Sports-Tech International, Inc. then owned by
Florida Gaming. In connection with the sale, (i) Florida Gaming sold to
Bristol, for $40,000 cash, a three-year warrant (the Warrant) to purchase up to
400,000 shares of Florida Gaming's common stock at an exercise price of $1.875
per share during the first year and $2.50 per share during the second and third
years. As a result of the Equity Infusion discussed in Note B and pursuant to
the terms of the Sports-Tech Warrant Agreement, the number of shares purchasable
under the warrant was increased to 651,752 shares and the exercise price was
reduced to $1.534 per share.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE C--DISPOSITION OF BUSINESSES--CONTINUED
Pursuant to the request of Sports-Tech and in accordance with the requirements
of the warrant issued in July 1991, the Company filed a registration statement
with the Securities and Exchange Commission on June 29, 1994 to permit the
651,752 shares to be sold by Sports-Tech from time to time directly by Sports-
Tech and in negotiated transactions in the over-the-counter market on NASDAQ.
On March 9, 1995, Sports-Tech informed the Company that it had sold all of its
holdings of the Company's outstanding shares.
NOTE D--PREFERRED STOCK
The Company's Class A preferred stock bears annual dividends, at the rate of
$.90 per share payable in cash, property or common stock, which are cumulative
and have priority over dividends on the common stock. Accrued Class A preferred
stock dividends totaled $-0-, $81,835 and $-0- at December 31, 1994, December
31, 1993 and August 31, 1993, respectively. On June 30, 1994, 9,212 shares of
common stock were issued as full payment of all preferred dividends in arrears
at that time. On September 15, 1994 the Board of Directors declared a preferred
dividend for 1994 to holders of record September 21, 1994. As of September 30,
1994, accrued dividends were $39,298. On October 6, 1994, these dividends were
paid by the issuance of 7,302 common shares and $45 cash for fractional shares.
Each share of Class A preferred is convertible into .225 shares of common stock
at the holder's option. In the years ended December 31, 1994 and August 31,
1993, 1,800 shares and 500 shares of Class A preferred stock were converted into
404 shares and 112 shares of common stock, respectively. There were no
conversions of preferred stock for the four months ended December 31, 1993. 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.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE E--INVESTMENT SECURITIES
The Company's investment in debt and equity securities comprises the following
held as available for sale:
<TABLE>
<CAPTION>
December 31, August 31,
1994 1993 1993
-------------------- ---- ------------------
Market Book Market Book
Value Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
75,000 Common Shares in
PNC Bank Corporation $1,618,250 $1,618,250 -0- -0- -0-
U.S. Treasury Notes due
September 30, 1993 -0- -0- -0- $400,000 $400,903
--------- --------- --- ------- -------
$1,618,250 $1,618,250 -0- $400,000 $400,903
--------- --------- --- ------- -------
--------- --------- --- ------- -------
</TABLE>
The Company purchases certain of its securities through a brokerage in
Louisville, Kentucky, using a margin account arrangement. The margin account
allows the Company to borrow up to 50% of the purchase price of equity
securities and 60% of the purchase price of corporate and municipal debt
securities. The Margin Account Agreement provides the broker with the
unilateral authority to dispose of, or otherwise set off, the Company's
investments against its debts to the broker.
At December 31, 1994, the Company owed $1,084,541 on its margin account
comprising common stock with a year-end market value of approximately
$1,618,250. The broker call rate on the margin accounts is generally prime rate
or less, and the account is collateralized by Company investment securities
purchased through such accounts.
NOTE F--STOCK OPTIONS
In addition to the options and warrant discussed in Notes B and C, respectively,
the Company has various non-qualified and incentive 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.
During fiscal 1993, the Company canceled all stock option plans and related
stock options which had been granted before August 31, 1992.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE F--STOCK OPTIONS--CONTINUED
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 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 "piggyback" registration rights for
all shares issued upon exercise (See Note K).
On April 21, 1994, the Company adopted a new Nonqualified Stock Option Plan,
subject to shareholder approval, under which options up to an amount equal to 5%
of the Company's issued and outstanding shares of Common Stock can be issued to
the Company's non-director employees. Also on April 21, 1994, 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 for a period of one year from grant or in the case
of directors, one year from their 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 hence.
NOTE G--INCOME TAXES
At December 31, 1994, the Company had tax net operating loss (NOL) carryforwards
of approximately $10,766,000 available to offset future taxable income. This
amount includes approximately $3,924,000 representing losses incurred by SCOPE
while it was a subsidiary of the Company. Such losses were reattributed to the
Company by agreement in accordance with Section 1.1502-20(g)(1) of the Internal
Revenue Code (IRC).
These NOL carryforwards expire fifteen years from the year in which the losses
were incurred or at various intervals through fiscal 2009. However, virtually
all of the Company's NOL carryforwards which can be utilized to
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE G--INCOME TAXES--CONTINUED
offset future taxable income are limited to approximately $95,000 per fiscal
year under Section 382 of the IRC because Freedom's stock purchase discussed in
Note B was considered a change in ownership under the "deemed exercise rule" of
IRC Section 382. As a result, only the net operating losses attributable to the
period after the "change in ownership" (approximately $386,000) are not subject
to the Section 382 limitation.
The Company has approximately $1,361,000 in capital loss carryforwards which
expire in 1996 to offset future taxable capital gains. In addition, the Company
has unused general business tax credits of approximately $137,000. These
credits expire at various dates through the year 2001 to offset any future tax
liabilities of the Company.
NOTE H--LOSS PER COMMON SHARE
The loss per common share was calculated based on the net loss, the amount of
the preferred stock dividend and the weighted average number of outstanding
common shares (2,184,949, 1,503,240 and 1,093,256 for calendar 1994, the four
months ended December 31, 1993 and fiscal 1993, respectively). Options
outstanding and the Bristol Warrant were not considered in the computations of
loss per common share as they were anti-dilutive.
NOTE I--RELATED PARTY TRANSACTIONS
NOTES RECEIVABLE FROM FORMER SHAREHOLDERS: At August 31, 1992, the Company held
a note receivable from a former shareholder, director and officer, which accrued
interest at 6.5% per annum and was to be repaid in monthly installments of
$1,000 via the Company withholding the individual's monthly director fee. This
note was the result of a settlement agreement arranged when the Company
determined the individual was unable to pay an obligation in December, 1990.
The balance on this note at August 31, 1992, was $36,236, net of an allowance
for doubtful loans of $35,000.
In connection with the March 31, 1993, Stock Purchase Agreement discussed in
Note B and the resulting termination of this individual as a director of the
Company, the Company charged off this note as other expense in the accompanying
statement of operations. The remaining balance on this note was $66,866 at that
date less the $35,000 allowance previously provided.
A second former officer had previously defaulted on a note that was
collateralized by 3,950 shares of the Company's common stock which the Company
repossessed, converting the balance of a court judgment of $54,758
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE I--RELATED PARTY TRANSACTIONS--CONTINUED
to a six-year term note receivable due in monthly installments. At December 31,
1994 and 1993 and August 31, 1993, the balances remaining on this note were
$17,758, $26,829 and $29,928, respectively.
Selling, general and administrative expenses include the following amounts paid
to members of the Board of Directors of the Company:
Four months Fiscal year
Year ended ended ended
December 31, December 31, August 31,
1994 1993 1993
----------- ------------ ----------
Directors' fees $14,000 $ 4,000 $23,100
Directors' expense reimbursements $ 3,109 $ -0- $14,566
Management consulting $34,416 $12,000 $49,000
Included in amounts shown as management consulting are fees paid to a former
director and an independent director through March 1993 for services rendered in
connection with arranging a stock sale for the Company, resulting in the
agreement discussed in Note B. The remaining management consulting fees were
paid to the independent director for services rendered between June 1993, and
December, 1994 in connection with acquisition investigations for the Company.
On August 26, 1994, Freedom Financial Corporation exercised its option in part
(See Note B) 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.
NOTE J--ACQUISITION OF JAI ALAI FACILITIES
On October 6, 1993, the Company entered into a Sale and Purchase Agreement with
WJA Realty Limited Partnership (an unaffiliated Company), whereby the Company
acquired the real property and equipment, of a jai-alai fronton located in Fort
Pierce, Florida. The business consists of, among other things, conducting live
jai-alai and related pari-mutuel wagering, inter-track wagering and the sale of
food and alcoholic and non-alcoholic beverages.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE J--ACQUISITION OF JAI ALAI FACILITIES--CONTINUED
Consideration for the acquisition comprised $2,500,000 and 200,000 shares of the
Company's common stock with certain "piggyback" registration rights. (See Note
K). The $2,500,000 was paid or is payable as follows:
* $100,000 deposited in an escrow account upon signing of the
Agreement; also dated October 6, 1993, transferred upon closing
in 1993;
* $1,400,000 cash at closing;
* $1,000,000 promissory note delivered at closing bearing interest at 8%
per annum (payable quarterly), with annual principal payments of $100,000;
secured by a first lien on the property acquired.
The market value per share of the Company's stock was $2.23 at February 1, 1994,
the closing date. Accordingly, the total purchase price for the facility was
$2,946,500.
Company management allocated the above cost to the acquired land, buildings,
equipment and improvements based on available land appraisals, original cost
records of such property, and their knowledge of the relative values of each
segment of the acquisition. The cost was allocated as follows:
Description Amount
----------- ------
34.36 acres developed land $ 900,000
78,000 square foot building 1,500,000
Land improvements and paving 200,000
Equipment, furniture and fixtures 346,500
---------
$2,946,500
---------
---------
NOTE K--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
the Fort Pierce Jai-Alai Fronton (See Note B). The plaintiff accepted a cash
payment of $29,551 from the Company in settlement of this
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
case, which case was dismissed with prejudiced on December 15, 1994. However, a
related case was then filed on December 16, 1994, 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
in to 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 and $270,000 of the Fronton's 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 any time 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 judgment that is material to the results of its operations and financial
condition.
On December 16, 1994, General Realty and Finance Co. filed 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 the commission; however, Mr. Fielding has rejected
payment. The Company denies the allegations and believes the proceeding is not
likely to result in an adverse judgment that is material to the results of this
operation and financial condition.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
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 the next 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, intertrack wagering and all other non-casino
related activities. Each corporation will receive a management fee based on
costs. The Letter of Intent provides that Casino America has the exclusive
right to enter into a Joint Venture with the Company for six years and Casino
America has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture. The formation of the Joint Venture is subject to certain
conditions, including the satisfactory completion of due diligence by Casino
America, the receipt of all required regulatory approvals, the approval of each
partner's board of directors, the execution of a definitive joint venture
agreement, and the approval of the Company's stockholders, if required by law.
If no definitive Joint Venture agreement is executed by March 31, 1995, and the
Letter of Intent is not extended by either party no later than June 30, 1995,
either party may terminate 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.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
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. Casino
America is the sole holder of Freedom Preferred 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 1,399,480 shares of the Company's 3,119,246 shares of
issued and outstanding Common Stock. (See Notes B and I)
PIGGYBACK 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 "piggybacked"
shares to be publicly traded. Reference is made to Notes F, J and M for details
of those transactions involving "piggyback rights". A summary of such shares is
as follows:
Shares issued in 1994 to acquire
the Ft. Pierce fronton 200,000
Shares issued in 1994 to acquire
St. Lucie County real estate 47,336
Shares under option to a former
officer and director 84,250
-------
331,586
-------
-------
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
LEASES: The Company rents totalisator (autotote) and other equipment under
leases which expire at various dates through 1997. The totalisator leases
require a minimum annual rental plus contingent rentals based on a percentage of
the handle in excess of the minimum annual rental. Total totalisator and other
equipment rental expense under operating leases for the year ended December 31,
1994 was approximately $224,000. The remaining minimum lease commitments under
all operating leases at December 31, 1994, are as follows:
Minimum
Year Annual Rental
---- -------------
1995 $172,210
1996 130,000
-------
$302,210
-------
-------
STOCK APPRECIATION GUARANTEES: In connection with the purchase of certain real
estate described in Note M, the Company issued 47,336 shares of its $.10 par
value stock having a quoted market value of $3.10 on the date of issue. The
real estate purchase agreement included the Company's guarantee of the
appreciation in value of such stock as follows:
* If the seller holds the stock for at least three years from the date
of closing, (the "$10.00 Guaranty Date") the market value of the
stock at the end of the three year period will be at least $10.00 per
share.
* If the Company or its successors or assigns or any entity in which the
Company has an interest is approved as a casino permit holder within
three years from the date of closing this transaction, and in fact
does open a casino, then in that event the Company guarantees that the
market value of the stock will be at least $20.00 per share, two years
from the date that the Company or its successors or assigns or any
entity in which the Company has an interest actually opens and is
operating a casino, (the "$20.00 Guaranty Date".)
* For the purpose of the agreement, the price per share on the $10.00
Guaranty Date and the $20.00 Guaranty Date shall be the over the
counter bid price, ("Market Value"). On the $10.00 and $20.00
Guaranty Date, Seller shall request in writing to the Company to
reimburse Seller for the difference between the market value of the
shares and the guaranteed price. Seller shall remit with said
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
request evidence that Seller is still in ownership and possession of
said stock. The Company shall pay the difference to Seller within
ninety (90) days from receipt of Seller's request.
In addition to the Company's guarantee, Freedom Financial Corporation provided a
similar guarantee as a further inducement to the seller of the real estate.
Based on the December 31, 1994 closing value of the Company's common stock, a
payment of $366,854 or $840,214, the equivalent of 163,046 shares or 373,428
shares would have had to be made at that date to satisfy the terms of the $10
and $20 guarantees, respectively.
OTHER COMMITMENTS: Subsequent to December 31, 1994, the Company entered into
certain arrangements with potential coventurers to explore possible
opportunities for gaming ventures. In connection with one such project, the
Company has agreed, contingent upon another coventurer's procurement of approval
from regulatory authorities of an application to qualify to operate a gaming
venture and of a business plan and site for the venture, to provide up to $15
million in financing to construct a gaming facility. The Company may terminate
this arrangement upon its determination, at its sole discretion, that the
project is no longer feasible because such qualification and approvals will not
be obtained or a suitable site cannot be acquired in 1995 or the coventurers
have ceased to cooperate with one another in a constructive manner. There can
be no assurance that the conditions to the Company's obligations will be met.
The Company has retained consultants and other advisors to assist the Company in
the evaluation of the proposed project and has financed certain organizational
costs of the venture. These organizational costs included acquisition of an
option on certain real estate that management has determined not to purchase.
The cost of such option and related investigation costs totaled $78,886 during
1994. These costs are included as Other Expenses in the accompanying 1994
Statement of Operations. The Company's retention of consultants and other
advisors requires the payment of $15,000 per month commencing January 1, 1995
through the date of termination of the above- described agreements.
LITIGATION COSTS: In addition to legal fees incurred in the normal course of
the Company's business activities, during 1994 the Company paid approximately
$111,000 for settlement costs and legal fees associated with the defense of the
various lawsuits described above. Such costs are included in Other Expenses in
the Statement of Operations.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE K--COMMITMENTS AND CONTINGENCIES--CONTINUED
bonuses based on pari-mutuel handle, certain cesta allowances and retirement
benefits. The agreement continues from year to year unless timely notice of
termination is given by either party to the agreement.
NOTE L--LONG-TERM DEBT
The Company's notes payable and long-term debt comprise the following at
December 31, 1994:
Current Long-Term
------- ---------
Mortgage note dated September 30, 1994 secured
by 18.584 acres in St. Lucie County, Florida
(Graham Road); payable in monthly installments
of $2,042 including interest at 10% per annum
through August 30, 1997 with a balloon payment
of $172,888, including interest, due on
September 30, 1997. $ 5,905 182,708
Note payable dated February 1, 1994 secured by
a Trustee's deed for the St. Lucie County real
estate on which the Fronton is located; interest
is payable in quarterly installments at 8%
per annum with the principal payable in annual
installments of $100,000 through
January 31, 2004. 100,000 900,000
Mortgage note dated June 17, 1994 secured by real
estate located in St. Lucie County; payable in
monthly installments of $425 including interest
at 8% per annum through June 17, 2004. 2,480 31,353
------- ---------
$108,385 $1,114,061
------- ---------
------- ---------
The approximate maturities of the Company's long-term debt for the five years
after December 31, 1994 are as follows: 1995--$108,385; 1996--$109,210;
1997--$279,093; 1998--$103,151; 1999--$103,412; thereafter--$519,195.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
December 31, 1993 and 1994
and August 31, 1993
NOTE M--PROPERTY, PLANT AND EQUIPMENT
Reference is made to Note J for details of the Company's purchase of the Ft.
Pierce Jai Alai facilities and the related allocation of cost to land,
buildings, equipment and improvements.
Plant and equipment are summarized as follows:
December 31, December 31, August 31,
1994 1993 1993
----------- ----------- ----------
Land and improvements $1,631,865 $ -0- $ -0-
Buildings and improvements 1,799,962 -0- -0-
Equipment 374,838 -0- -0-
Furniture and fixtures 43,177 -0- -0-
Vehicles 4,581 -0- -0-
Less accumulated
depreciation (141,962) -0- -0-
---------- ---------- ---------
$3,712,461 $ -0- $ -0-
---------- ---------- ---------
---------- ---------- ---------
In addition to the purchase of the Ft. Pierce Jai Alai, the Company made three
other purchases of undeveloped land during 1994. The three purchases comprised
approximately 20 acres, including two separate lots, all of which are adjacent
to the Jai Alai property. The amounts paid for this property totaled $529,864
including debt assumptions of $190,000, cash payments of $185,000 and the
issuance of 47,336 shares of the Company's common stock.
Reference is made to Note K for information pertaining to guarantees of the
value of such stock at various futures dates and "piggyback" registration rights
granted with respect to the shares issued.
Subsequent to December 31, 1994, the Company acquired an additional 80 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 long-term debt
of $845,000. The Company has no definitive plans for the property acquired;
however due to its proximity to the Jai Alai facilities, it is expected to be
used in similar or supporting activities.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to its Form 10-KSB to be signed
on its behalf by the undersigned thereunto duly authorized.
FLORIDA GAMING CORPORATION
(Registrant)
Date: January 29, 1996 By: /s/ Timothy L. Hensley
------------------------------------------
Timothy L. Hensley
Executive Vice President and
Chief Financial Officer
