<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 June 30, 1997
Commission file number 0-9099
FLORIDA GAMING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 59-670533
------------------------------ ------------------
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3500 NW 37TH AVENUE, MIAMI, FLORIDA 33142-0000
---------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
Former name, former address and former fiscal year, if changed since
last report 1750 S. KINGS HWY, FT. PIERCE, FL 33495-3099
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
5,322,431 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, AUGUST 14, 1997.
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 June 30, 1997 (unaudited) and December 31, 1996....... 3
Statements of Operations (unaudited) Three & Six Months ended June 30,
1997 and 1996............................................................ 5
Statements of Cash Flows (unaudited) Six Months ended June 30, 1997
and 1996................................................................. 6
Notes to Financial Statements (unaudited).................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 15
PART II. OTHER INFORMATION................................................ 22
SIGNATURES................................................................. 24
2
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PART I.FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
JUNE 30, JUNE 30,
1997 1996
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents (Note 2).............. $1,202,107 $907,527
Accounts receivable & current portion of notes
receivable (Note 6)............................. 2,869,042 2,100,259
Inventory (Note 2)............................... 148,608 169,419
Prepaid expense and other........................ 701,144 103,200
----------- -----------
Total current assets 4,920,901 3,280,405
PROPERTY AND EQUIPMENT:
Land (Notes 2 and 8)............................. 11,647,485 11,457,495
Building and Improvements (Notes 2 and 8)........ 9,931,335 9,747,978
Furniture, fixtures and equipment (Notes 2 and 8) 3,538,931 1,717,520
----------- -----------
25,117,751 22,922,993
Less accumulated depreciation.................... (800,258) (528,700)
----------- -----------
24,317,493 22,394,293
----------- -----------
GAMING VENTURE INVESTMENTS........................ 310,000 310,000
OTHER ASSETS....................................... 851,050 320,351
----------- -----------
$30,399,444 $26,305,049
=========== ===========
continued
3
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, JUNE 30,
1997 1996
----------- -----------
CURRENT LIABILITIES
Accounts payable (Note 2)....................... $ 5,161,365 $ 3,124,426
Other accrued expenses.......................... 1,221,402 1,180,123
Short-term borrowing and current portion of
long-term debt................................. 2,004,346 1,423,703
----------- -----------
Total current liabilities..................... 8,387,113 5,728,252
LONG-TERM LIABILITIES
Long-term portion note payable................... 6,248,671 7,095,289
STOCKHOLDER'S EQUITY (See Notes 2,4,5, and 7):
Class A convertible preferred stock, convertible
to common stock; $.10 par value, 1,200,000
shares authorized, 34,435 shares issued
and outstanding at June 30, 1997, and
December 31, 1996............................... 3,443 3,443
Class B convertible preferred stock;
convertible to common stock, 5,000
shares authorized; 545 and 1,990
shares issued and outstanding at
June 30, 1997 and December 31, 1996,
respectively................................... 54 199
Class C 8% cumulative convertible preferred
stock, convertible to common stock,
5,000 shares authorized; 550 shares issued
and outstanding at June 30, 1997 and
December 31, 1996............................. 55 55
Class D 8% cumulative convertible preferred
stock, 5,000 shares authorized; 275 shares
issued and outstanding at June 30, 1997 and
December 31, 1996............................. 28 65
Class E 8% cumulative convertible preferred
stock, 5,000 shares authorized; 2000 shares
issued and outstanding at June 30, 1997...... 200 ---
Common stock, $.10 par value, authorized
15,000,000 shares, 5,214,200 issued and
outstanding at June 30, 1997, and
4,340,626 shares issued and outstanding at
December 31, 1996............................ 521,421 434,063
Capital in excess of par value................ 36,386,448 35,276,095
Accumulated deficit........................... (21,147,989) (22,232,412)
----------- -----------
Total stockholders equity.................. 15,763,660 13,481,508
----------- -----------
Total liabilities and stockholders equity.. $30,399,444 $26,305,049
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
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FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
HANDLE:
Jai-Alai. $ 25,225,117 $ 795,457 $ 54,414,727 $ 3,665,582
Inter- Track Wagering (ITW) 14,286,418 5,368,428 28,976,938 11,493,570
------------- -------------- -------------- -------------
Total Pari-Mutuel Handle 39,511,535 6,163,885 83,391,665 15,159,152
============= ============== ============== =============
REVENUE:
On Site Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $ 4,100,204 $ 175,820 $ 8,978,619 $ 807,804
Inter-Track Mutuel Commissions 1,272,672 533,852 2,639,501 1,140,602
------------- -------------- -------------- -------------
Net Pari-Mutuel Revenue 5,372,876 709,672 11,618,120 1,948,406
Cardroom Income 99,649 --- 99,649 ---
Admissions Income 148,824 32,822 325,599 77,334
Programs, Food, Beverage and Other 1,022,980 160,187 2,286,877 496,565
------------- -------------- -------------- -------------
Total Operating Revenue $ 6,644,329 $ 902,681 $ 14,330,245 $ 2,522,305
============= ============== ============== =============
COSTS AND EXPENSE:
Operating $ 5,027,498 $ 806,651 $ 9,943,955 $ 2,139,357
General and Administrative 2,382,931 487,685 4,793,045 913,911
Depreciation & Amortization 73,711 48,600 291,722 97,200
Summer Jai-Alai 22,334 ---- 22,334 ---
------------- -------------- -------------- -------------
Total Costs and Expense 7,506,474 1,342,936 15,051,056 3,150,468
------------- -------------- -------------- -------------
Net Income (Loss) From Operations $ (862,145) $ (440,255)$ (720,811)$ (628,163)
============= ============== ============== =============
OTHER INCOME (EXPENSES)
Interest and Other Income 144,392 60,208 211,561 104,905
------------- -------------- -------------- -------------
Net Income (loss) $ (717,753) $ (380,047)$ (509,250)$ (523,258)
============= ============== ============== =============
Earnings (loss) per Common Share $ (0.15) $ (0.11) $ (0.11) $ (0.16)
Earnings per Common Share (fully diluted See Note 4) N/A N/A N/A N/A
Weighted Avg. Common Shares Outstanding 4,916,825 3,321,972 4,688,763 3,261,093
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
June 30, June 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income
(loss).................................................................... $ (509,249) $ (523,258)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization....................................... 291,722 96,050
Loss on sale of assets.............................................. 0 0
Equity in earnings of Summer Jai-Alai............................... 22,335 0
Realized gain on sale of marketable securities...................... 0 0
Accounts receivable, net............................................ (270,316) (30,013)
Prepaid expenses and other current assets........................... (597,945) (39,303)
Other assets........................................................ (263,201) (11,162)
Inventories......................................................... 20,810 966
Accounts payable.................................................... 2,036,939 (21,244)
Accrued expenses.................................................... 41,279 (74,219)
----------- ----------
Total adjustments................................................ 1,281,623 (78,925)
Net cash provided (used) by operating activities.................. $ 772,374 $ (602,183)
----------- ----------
Investing activities:
Loan to affiliated company.............................................. (808,466) (572,641)
Capital Expenditures (Note 8)........................................... (2,194,754) (130,038)
----------- ----------
Net cash provided from (used in) investing activities................... $(3,003,220) $ (702,169)
----------- ----------
Financing activities:
Net proceeds from borrowing/Repayment of Borrowings..................... (265,975) (119,738)
Stockholders Equity:
Issuance of Common & Preferred Stock, net proceeds.................... 2,791,401 2,067,508
----------- ----------
Net cash provided (used) from financing activities...................... $ 2,525,426 $1,947,770
NET INCREASE (DECREASE) IN CASH........................................... $ 294,580 $ 642,908
CASH AND EQUIVALENT AT BEGINNING OF YEAR.................................. $ 907,527 $2,721,865
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER............................... $1,202,107 $3,364,773
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.............................................................. 316,274 81,750
Income Taxes.......................................................... 0 0
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(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
DISCLOSURE: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live
Jai Alai games and Inter-Track Wagering ("ITW') on Jai-Alai, horse racing
and dog racing in Miami, Tampa, Ocala, and Ft. Pierce Florida.
Approximately 45% of the Company's common stock is controlled by the
Company's Chairman either directly or beneficially through his ownership of
Freedom Financial Corporation (Freedom) a closely held corporation.
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.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided using the straight-line and accelerated
methods over the estimated useful life of the related assets.
REAL ESTATE HELD FOR EXPANSION: The Company's investment in undeveloped land
($1,617,495 at June 30, 1997, December 31, 1996 and 1995, respectively) 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 or 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
off-site ITW events. On-site live Jai-Alai 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. Off-site 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 $66,623 and $40,646 at June 30, 1997 and December 31,
1996, respectively. Unclaimed winnings totaled $685,591 and $930,017 at June
30, 1997 and December 31, 1996, respectively, including $851,163 assumed in
connection with the Company's
7
<PAGE>
purchase of three (3) Jai Alai facilities on December 31, 1996 (See Note 8).
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 1994. There was no material impact on the
Company's financial position or results of operations related to the
implementation of the new standard.
STOCK OPTIONS: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted market
price of the stock over the option price on the grant date (measurement date).
The Company's stock option plans require the issuance of all options at a price
equal to the market price of the stock on the grant date. Stock options issued
for non-compensation purposes are accounted
for at fair value pursuant to FASB 123.
RECLASSIFICATION: Certain 1996 amounts have been reclassified to conform with
their 1997 presentation.
(3) INCOME TAXES
At December 31, 1996, the Company had tax net operating loss (NOL) carryforwards
of approximately $11,752,000 available to offset future taxable income. These
NOL carryforwards expire fifteen years from the year in which the losses were
incurred or at various intervals through fiscal year 2011. However, virtually
all of the Company's NOL carryforwards which can be utilized to offset future
taxable income are limited to approximately $95,000 per fiscal year under
Section 382 of the IRC because Freedom's stock purchase discussed in Note D 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 $1,381,000 are not subject to the
Section 382 limitation).
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.
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.
(4) INCOME PER COMMON SHARE
The net loss per common share was calculated based upon net loss and the
weighted average number of outstanding common shares (4,916,825 and 3,321,972
for the three months ended June 30, 1997, and 1996, respectively). Weighted
average outstanding common shares for the six months ended June 30, 1997, and
1996, were 4,688,763 and 3,261,093, respectively. Options and convertible
securities were not included in the computations of loss per shares for these
periods because their inclusion would be anti-dilutive. 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. Class A preferred stock
dividends totaled $31,040 and $31,712 during 1996 and 1995 respectively. These
dividends were paid by the issuance of 5,164 common shares and $49 cash in lieu
of fractional shares in 1996 and 2,337 common shares and $83 cash in lieu of
fractional shares in 1995.
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, 1996 and 1995, 300
shares and 8,929 shares of Class A preferred stock were converted into 67 shares
and 2,008 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.
8
<PAGE>
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% to 10% 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. On December 15, 1995, the Board of
Directors reserved 600,000 shares of the Company's common stock for issuance
upon conversion of the Series B preferred stock. Upon liquidation, the
holders of Series B preferred shares shall be entitled to be paid $1,000 per
share plus 8% to 10% 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.
During 1996, the Company issued an additional 2,300 Series B shares at
$925 per share and 2,707.5 Series B shares were converted to 473,588 shares of
common stock. During the six months ended June 30, 1997, 357.5 Series B
shares were converted to 76,051 shares of common stock.
The Company is authorized to issue 5,000 shares of Series C 8% Cumulative
Convertible Preferred Stock, $.10 par value (the "Series C Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board
of Directors, such dividends may be paid in shares of the Series C Preferred
Stock.
Holders of Series C Preferred Stock may convert all or any of such shares to
the Company's Common Stock (the "Series C Conversion Shares") beginning 90
days after the issuance of the Series C Preferred Stock. If not converted
earlier by the holder, the Series C Preferred Stock shall be converted
automatically on December 31, 1998. In general, the number of Series C
Conversion Shares issuable on conversion of each share of Series C Preferred
Stock shall equal the consideration paid for such share together with accrued
and unpaid dividends on such share, if any, divided by the lesser of (i)
$7.50 or (ii) 80% of the closing bid price of the Common Stock on the five
trading days before conversion. A holder of Series C Conversion Shares may
not sell more than 33% of such shares between 90 and 120 days of his purchase
of Series C Preferred Stock converted into such shares and 67% of such shares
between 121 and 150 days of his purchase; a holder may generally sell all of
his Series C Conversion Shares 151 days after his purchase.
All shares of Series C Preferred Stock have been sold pursuant to offshore
transactions exempt from registration pursuant to Regulation S promulgated
under the Securities Act. The Series C Conversion Shares must be resold in
transactions exempt under Regulation S or another applicable exemption under
the Securities Act, or (if the exemption under Regulation S becomes
unavailable at any time before the third anniversary of the purchase of the
Series D Preferred Stock) pursuant to the registration of the Series C
Conversion Shares by the Company.
Upon liquidation, the holders of Series C Preferred Shares shall be entitled
to be paid $1,000 per share plus 8% accrued dividends before any distribution
to holders of Common Stock. The Company has the right to redeem the shares
of Series C Preferred Stock if a holder of such shares exercises his right of
conversion at a time when the conversion price is below $5.00. The
redemption price to be paid by the Company is 125% of the Stated Value of
such shares together with all accrued and unpaid dividends thereon.
During 1996, the Company issued 550 Series C shares at $1,000 per share.
The Company is also authorized to issue up to 5,000 shares of Series D 8%
Cumulative Convertible Preferred Stock (the "Series D Preferred Stock"),
which provides annual dividends at the rate of 8% of the shares' Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board
of Directors, such dividends may be paid in shares of the Series D Preferred
Stock.
Holders of Series D Preferred Stock may convert all or any of such shares to
the Company's Common Stock beginning 90 days after the issuance of the Series
D Preferred Stock. If not converted earlier by the holder, the Series D
Preferred Stock shall be converted automatically on December 31, 1998. The
Company is obligated to file a registration statement (the "Series D
Registration Statement") covering the shares of Common Stock issuable on
conversion of the Series D Preferred Stock (the "Series D Conversion Shares")
and to use its best efforts to cause the Series D Registration Statement to
become effective. In general, the number of Series D Conversion Shares
issuable on conversion of each share of Series D Preferred Stock shall equal
the Stated Value together with accrued and unpaid dividends on such shares,
if any, divided by the Conversion Price, which is defined as the lesser of
(i) $7.50 or (ii) 80% of the closing bid price of the Common Stock on the
five trading days before conversion. If the Series D Registration Statement
has not been declared effective within 120 days from December 31, 1996 (the
"Initial Issuance Date"), the Conversion Price shall be reduced by an amount
between 3% and 20% (resulting in the
9
<PAGE>
issuance of a larger number of Series D Conversion Shares) based on the
extent of such delay. No Series D Conversion Shares may be sold before the
earlier of March 13, 1997 or the date on which the Series D Registration
Statement becomes effective. Notwithstanding the effectiveness of the Series
D Registration Statement, generally a holder of Series D Conversion Shares
may not sell more than 33% of such shares between March 13, 1997 and April
12, 1997, and 67% of such shares between April 13, 1997 and May 22, 1997, a
holder may generally sell all of the Series D Conversion Shares after May 13,
1997.
If the Series D Registration Statement has not been declared effective within
365 days of the Initial Issuance Date, a holder of Series D Preferred Stock
shall receive a preferential dividend equal to 10% of the Stated Value on the
Stated Value on the 366th day after the Initial Issuance Date and preferential
dividends of either 3% or 10% of the Stated Value every 30 days thereafter until
the 726th day after the Initial Issuance Date.
Upon liquidation, the holders of Series D Preferred Shares shall be entitled to
be paid $1,000 per share plus 8% accrued dividends before any distribution to
holders of Common Stock. The Company has the right to redeem the shares of
Series D Preferred Stock if a holder of such shares exercises his right of
conversion at a time when the Conversion Price is below $5.00 or if the Series D
Registration Statement has not become effective within 120 days of the Initial
Issuance Date. The redemption price to be paid by the Company is determined
using a ratio based on the trading price of the Company's Common Stock and the
Stated Value.
During 1996, the Company issued 650 Series D shares at $1,000 per share and on
January 16, 1997 the Company issued another 525 shares . During the six months
ended June 30, 1997, 900 Series D shares were converted to 278,745 shares of
common stock.
The Company is authorized to issue 2,000 shares of Series E 8% Cumulative
Convertible Preferred Stock, $.10 par value (the "Series E Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's Stated Value.
The Stated Value per share equals $1,000 (as adjusted for any stock dividends,
combination or split). At the discretion of the Company's Board of Directors,
such dividends may be paid in shares of the Series E Preferred Stock.
Holders of Series E Preferred Stock may convert part of such shares to the
Company's Common Stock (the "Series E Conversion Shares") beginning 120 days
after the issuance of the Series E Preferred Stock and any or all such shares
after 180 days. If not converted earlier by the holder, the Series E Preferred
Stock shall be converted automatically on April 4, 1999. In general, the number
of Series E Conversion Shares issuable on conversion of each share of Series E
Preferred Stock shall equal the consideration paid for such share together with
accrued and unpaid dividends on such share, if any, divided by the lesser of (i)
$7.50 or (ii) 80% of the closing bid price of the Common Stock on the five
trading days before conversion. sell all of his Series E Conversion Shares
151 days after his purchase.
All shares of Series E Preferred Stock have been sold pursuant to offshore
transactions exempt from registration pursuant to Regulation S promulgated under
the Securities Act. The Series E Conversion Shares must be resold in
transactions exempt under Regulation S or another applicable exemption under the
Securities Act.
Upon liquidation, the holders of Series E 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 1997, the Company has issued 200 Series E shares at $1,000 per share.
The Class A Convertible Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, and the Series D Preferred Stock are all equal in
rank with respect to the payment of dividends and the distribution of assets
upon liquidation of the Company.
(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 1,030,000 shares at an exercise price of $1.25 per share. On
April 21, 1997, the independent Directors of the Company adopted a resolution
extending Freedom's options to March 31, 2000. On May 1, 1997 Freedom exercised
its option to acquire an additional 300,000 shares for
10
<PAGE>
$375,000. On August 1, 1997 Freedom exercised its option to acquire an
additional 25,000 shares for $31,250. 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, prior to the transaction
that resulted in current management assuming control of the Company, 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 Non-qualified Stock Option Plan,
subject to shareholder approval, under which options up to an amount equal to
5% of the Company's issued and outstanding shares of Common Stock can be
issued to the Company's non-director employees. On April 21, 1994, pursuant
to this plan options for 50,000 shares of Common Stock were granted to the
Company's Executive Vice President (prior to his becoming a director) and
options for 25,000 shares were granted to the Company's Chief Financial
Officer, each with an exercise price per share of $7.50.
During August, 1994, the Company initiated a new stock option plan for
directors pursuant to which each current and future director will receive a
one-time grant of options of 25,000 Common Shares. Options for 150,000
shares were granted under this plan in 1994. The option prices for these
shares are the market value at the respective dates of grant (range from
$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 was 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.
On February 26 and 27 of 1997 the Company granted 390,000 Non-qualified
options to Chairman Collett and the other Directors pursuant to and
consisting of 25,000 shares under the existing Directors Plan, 240,000 shares
under newly adopted grants for Directors based on years of service to the
Company, and additional grant of 125,000 shares for Chairman/CEO Collett.
(See Exhibits to this 10QSB listed in Item #6).
Under the Officer Non-qualified Stock Option plan (adopted in April 1994) the
Company issued 25,000 in options exerciseable at $4.125 to two executive
officers and 15,000 options at $4.125 to another officer.
Included in notes receivable is an approximately $2,600,000 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 May 13, 1994, American Jai-Alai, Inc. ("American") filed suit
in the Circuit Court of the Fifteenth Circuit in Florida, Palm Beach County,
against the Company. American alleges that in August 1993, the Company
entered into a contract with American that American would manage the Fronton
if the Company acquired it. American alleges that the Company and American
agreed to enter into a five-year renewable management contract pursuant to
which American would guarantee a $480,000 annual payment to the Company. An
additional sum of the Fronton's net operating income above $480,000 would be
paid to the Company, with American receiving 25% of all net operating income
above $750,000 annually.
In addition, American 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 also alleges that the Company granted it an option to
purchase
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100,000 shares of Common Stock at $2.50 throughout the alleged management
contract, but not to exceed 1997.
In addition, American alleges that the Company agreed to pay American 25% of
any profit realized from the sale of the Fronton, if such sale was not to
American pursuant to its alleged right of first refusal.
In the Complaint, American alleges, among other claims, breaches of fiduciary
duty, breach of contract and fraud. On May 20, 1994, counsel for American
stated that American 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 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. An
Amended Complaint was filed on January 25, 1995, and the Company filed its
responsive pleading on April 25, 1995, denying the allegations in the Amended
Complaint. The Company filed a Motion for Summary Judgment on February 20,
1996, in which the Company asserts that, as a matter of law, no written
management agreement exists between the parties.
On or about October 22, 1996, authorized representatives of the Company and
American entered into a letter agreement of settlement in this matter, which
is referred to as the "Memorandum of Understanding" or "MOU". Since that
date, the parties have been attempting to memorialize the MOU in final
settlement documents and the Company has filed a motion to compel settlement.
If that motion is successful, the case should be settled and, therefore,
dismissed. 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.
Subsequent to December 31, 1996, as part of an agreement to settle this
litigation, the Company negotiated an option agreement with the principal of
American providing American with a 6 month option to acquire the Company's
Ocala Jai Alai for $2,000,000 and the right to receive 15,000 shares of the
Company's common stock. This agreement was finalized and the suit
voluntarily dismissed on March 26, 1997. The 15,000 shares were issued by the
Company on April 28, 1997. These shares carry certain "piggyback"
registration rights.
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. A Motion to Transfer Venue
was filed January 30, 1995, seeking to have venue transferred to St. Lucie
County. The Company previously paid a commission to a party to the suit and
has attempted to pay the principal of General Realty, for the commission;
however, the payment was rejected. On January 3, 1996, the Company filed a
Motion for Partial Summary Judgment as to the allegations that the Company
breached a written commission agreement. On January 29, 1996, the court
issued an Order granting the Company's Motion for Partial Summary Judgment
finding, as a matter of law, that there was no written commission agreement
between General Realty and the Company. General Realty filed its Second
Amended Complaint on February 13, 1996, adding allegations that General
Realty and the Company had an oral or implied commission agreement which had
been breached by the Company. The Company filed a responsive pleading to the
Amended Complaint, and again moved from, and was granted, a summary judgment
finding, as a matter of law, that there was no oral commission agreement
between General Realty and the Company. That summary judgment left only
equitable theories of recovery available to General Realty. On or about
December 12, 1996, the parties reached a settlement in mediation. On April
16, 1997, a final settlement was agreed to and the suit was voluntarily
dismissed. Per the settlement agreement Florida Gaming issued 7,000 in
common stock, paid $30,000 in cash and issued a $30,000 promissory Note
to General Realty and Finance payable in equal installments through December
1, 1997. This note was paid off in July of 1997.
CASINO AMERICA: On October 4, 1994, the Company entered into a letter of
intent (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 Fort Pierce 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 by 2000, 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 by
2000, 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.
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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
Mandatory Redeemable Preferred Stock (the "Freedom Preferred Stock"). The
Freedom Preferred Stock is convertible into shares of the Company's Common
Stock owned by Freedom at prices ranging from $7.50 per share of Common Stock
to $15.00 per share of Common Stock, depending upon the timing of the
conversion and possible passage of an amendment to the Florida Constitution
permitting casino gaming at the Fronton. The Freedom Preferred Stock is
convertible into a minimum of 150,000 shares and a maximum of 300,000 shares
of the Common Stock. 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
1,030,000 shares of the Company's Common Stock, Freedom now owns directly
1,649,480 shares of the Company's 4,948,121 shares of issued and outstanding
Common Stock. On May 1, 1997 Freedom exercised its option to acquire an
additional 300,000 shares for $375,000.
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.
LEASES: The Company rents totalizator (Autotote) and other equipment under
leases which expire at various dates through 1999. The totalizator leases
require a minimum annual rental plus contingent rentals based on a percentage
of the handle in excess of the minimum annual rental.
STOCK APPRECIATION GUARANTEES: In connection with the purchase of certain
real estate, 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 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, 1996 closing price of the Company's
common stock ($5.31), a payment of $222,006, the equivalent of 41,809 shares
would be due under the $10 guarantee and a payment of $695,366, the
equivalent of 130,954 shares, would have had to be made at that date to
satisfy the terms of the $20 guarantees.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the
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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 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.
CONCENTRATION OF CREDIT: The Company maintains significant cash balances
with financial institutions in excess of the insurance provided by the
Federal Deposit Insurance Corporation (FDIC).
(8) ACQUISITION OF WJA ASSETS
On September 12, 1996, the Company acquired notes (the "WJA Notes") of WJA
Realty Limited Partnership ("WJA"), with balances aggregating about
$20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma. The WJA Notes
were secured by, among other collateral, real estate and improvements
consisting of three jai-alai and ITW facilities located in Miami, Tampa and
Ocala, Florida (the "WJA Frontons"). Consideration for the WJA Notes was a
combination of $2,000,000 in cash, a $6,000,000 promissory note bearing
interest at the prime rate, 703,297 shares of the Company's Common Stock and
a $1,000,000 non-interest bearing contingent note.
On November 25, 1996, the Company entered into an agreement with WJA and
Florida Gaming Centers, Inc. a wholly-owned subsidiary of the Company (the
"Subsidiary"), pursuant to which the Subsidiary agreed to acquire the WJA
properties. The acquisition was consummated as of December 31, 1996 for
accounting purposes. The WJA Frontons acquired were combined with the Fort
Pierce Fronton into a new Subsidiary, Florida Gaming Centers, Inc.
The consideration for the acquisition included (i) the cancellation of WJA
Notes and related obligations acquired by the Company from the Bank of
Oklahoma, NA, (ii) the retention by WJA of 200,000 shares of the Company's
common stock owned by WJA, and (iii) a profit sharing arrangement described
in more detail below. The Company also assumed the principal amount
outstanding under a $500,000 promissory note owed to Wheeler-Phoenix, Inc.,
with the terms amended to provide for repayment of principal over a ten year
period following the closing in equal annual installments of $50,000 each and
an annual interest rate of 6%.
The profit sharing arrangement is based on the Subsidiary's net profits from
Jai Alai operations as defined, before income taxes. The Company will pay
WJA 20% of the defined cumulative net profits of the Subsidiary for each of
the ten full calendar years 1997 through 2006, subject to a cumulative
$1,000,000 per year cap described below. The cumulative $1,000,000 cap is
equal to the product of $1,000,000 multiplied by the number of years in the
ten-year period completed, minus the sum of all amounts previously paid under
the 20% profit sharing arrangement. In addition, if the Subsidiary has net
profits in any calendar year during the ten-year period in excess of
$5,000,000, and WJA does not receive a 20% payment on the entire amount
because of the cumulative $1,000,000 per year cap, the Subsidiary shall pay
WJA 5% of the portion of the net profits on which the 20% payment is not
made. No net profit payments will be due after the ten year period. If
during the ten year period, the Subsidiary disposes of any of its significant
assets or operations, then WJA would be entitled to receive an amount equal
to ten percent of the Subsidiary's gain, if any, on the asset or operations
disposition.
Two principals of WJA, also entered into consulting arrangements with the
Subsidiary. One principal entered into a ten-year consulting agreement with
the Subsidiary, with annual compensation of $100,000 during the first five
years of the agreement and annual compensation of $50,000 during the second
five years of the agreement. The other principal entered into a five-year
consulting agreement with the Subsidiary, with annual compensation of
$240,000, plus certain benefits. These two individuals were also granted
stock options on the Company's stock with a fair value of $150,298.
A summary of the WJA assets acquired and consideration therefor is as follows:
ALLOCATED
ASSETS ACQUIRED AMOUNT
Jai Alai Frontons in Miami, Tampa,
and Ocala, $17,428,059
Cash 381,997
Notes receivable 167,934
Inventory 134,974
Other assets 308,279
-----------
$18,421,243
===========
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Management allocated the purchase price to the basis of the assets acquired
based on available appraisals or other fair value information.
CONSIDERATION PAID AMOUNT
Cancellation of notes and interest
receivable from WJA at Company
carrying value $14,692,298
Accounts payable and other accrued
expenses assumed 3,078,647
Assumption of Wheeler-Phoenix note 500,000
Fair value of stock options issued 150,298
-----------
$18,421,243
===========
(9) GAMING VENTURE INVESTMENTS
During 1995, the Company entered into several arrangements with different
Native American Tribes to explore possible opportunities for gaming ventures.
The arrangements generally provide the Company the right to receive
compensation from the Tribe's share of the potential gaming profits for
supplying the management services and/or financing necessary for the
construction and operation of the gaming facilities. The Company's commitment
to provide construction financing and working capital is contingent upon the
Tribes' procurement of judicial or regulatory approval to operate a gaming
venture. At December 31, 1996, the Company's contingent commitment to
provide financing to potential gaming ventures totaled $5,000,000.
Management expects the funds necessary to meet this commitment to be obtained
through the issuance of additional debt or equity securities should the
gaming operations materialize. The Company expended $21,000 and $729,347
during 1996 and 1995, respectively related to these gaming venture
arrangements of which $-0- and $406,347 are included in Other Expense in the
accompanying 1996 and 1995 Statements of Operations, respectively. Funds
expended in 1996 and 1995 in amounts of $21,000 and $323,000, respectively,
were made to one Tribe as working capital loans and are carried as an
Investment on the accompanying Balance Sheets based on the Company's
financing ("loan") agreement with the recipient Tribe. Recovery of these
funds under the "loan" agreement is contingent upon such agreement becoming
effective after the Tribe receives judicial approval to establish the
intended gaming operation. The Tribe has not been able to obtain the
necessary regulatory or judicial approval to operate the contemplated gaming
ventures. The financing agreement which is carried as an investment on the
accompanying balance sheet expired on June 30, 1997, unless extended.
Management has provided a reserve of $34,000 against the investment to
reflect the diminished expectation of success in the short-term.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates four
jai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton,"
and collectively, the "Frontons") located in South and Central Florida. The
Company's business consists primarily of its operations at the Frontons,
which include, among other things, live jai-alai, inter-track pari-mutuel
wagering ("ITW") on jai-alai, thoroughbred racing, harness racing, and dog
racing, poker, dominoes, and the sale of food and alcoholic beverages.
The Company's Fort Pierce, Tampa and Ocala locations provide audio, video and
Inter-Track Wagering ("ITW") on live inter-track and interstate broadcasting
of horse racing, dog racing and jai-alai from around the State of Florida as
well as the rest of the country. The Miami location receives limited ITW
broadcasts, but broadcasts its jai-alai performances to other gaming
facilities in Florida, the rest of the United States, and Mexico. ITW
provides significant additional revenue as well as providing additional
entertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of
the public against each other, as used in this report includes wagering on
both live Jai-Alai performances and ITW.
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Since its inception, and before the acquisition of the Fort Pierce, Fronton
in February 1994, the Company engaged in several other lines of business,
none of which are currently in operation. In March, 1993, the Company sold
699,480 shares of common stock to Freedom Financial Corporation ("Freedom")
and present management assumed operating control of the Company.
The Company's principal place of business and executive offices are located
at 3500 NW 37th Avenue, Miami, Florida 33142. The Company changed its name
from Lexicon Corporation to Florida Gaming Corporation on March 17, 1994.
The Company was incorporated in Delaware in 1976.
ACQUISITION OF FRONTONS/DEVELOPMENT OF CARDROOMS
ACQUISITION OF THE FT. PIERCE FRONTON. The Company acquired the Ft. Pierce
Fronton from WJA Realty Limited Partnership ("WJA") pursuant to an agreement
with WJA dated October 6, 1993. On February 1, 1994, the Company received
approval from the Florida Department of Business and Professional Regulation,
Division of Pari-Mutuel Wagering (the "DPMW") to transfer the pari-mutuel
permit for the Ft. Pierce Fronton from WJA to the Company. The purchase
transaction with WJA was also closed on that date. Consideration for the
acquisition consisted of 200,000 shares of Company Common Stock and
$1,500,000 in cash at closing, plus $1,000,000 in the form of a ten-year 8%
mortgage.
ACQUISITION OF THE MIAMI, TAMPA AND OCALA FRONTONS. On September 12, 1996,
the Company acquired secured notes (the "WJA Notes") of WJA, with balances
aggregating $20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma.
The WJA Notes were secured by real estate and improvements consisting of
three jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida
(the "WJA Frontons") plus other collateral. Consideration for the WJA Notes
was a combination of $2,000,000 in cash, a $6,000,000 promissory note bearing
interest at the prime rate, 703,297 shares of the Company's Common Stock and
a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA and
Florida Gaming Centers, Inc., a wholly-owned subsidiary of the Company (the
"Subsidiary"), pursuant to which the Subsidiary agreed to acquire the WJA
assets. The acquisition was consummated as of January 1, 1997. The WJA
Frontons acquired were combined with the Fort Pierce Fronton into the
Subsidiary.
The consideration for the acquisition included (i) the cancellation of WJA
Notes and related obligations acquired by the Company from the Bank of
Oklahoma, NA, (ii) the retention by WJA of 200,000 shares of the Company's
common stock owned by WJA, and (iii) a profit sharing arrangement described
in more detail below. The Company assumed all liabilities of WJA arising in
the ordinary course of the business, subject to certain limitations and
exceptions. The Company also assumed the principal amount outstanding under
a $500,000 promissory note owed to Wheeler-Phoenix, Inc., with the terms
amended to provide for repayment of principal over a ten year period
following the closing in equal annual installments of $50,000 and an annual
interest rate of 6%.
The profit sharing arrangement is based on the Subsidiary's net profits, as
defined, before income taxes. The Company will pay WJA 20% of the cumulative
net profits of the Subsidiary for each of the ten full calendar years 1997
through 2006, subject to a cumulative $1,000,000 per year cap described
below. The cumulative $1,000,000 cap is equal to the product of $1,000,000
multiplied by the number of years in the ten-year period completed, minus the
sum of all amounts previously paid under the 20% profit sharing arrangement.
In addition, if the Subsidiary has net profits in any calendar year during
the ten-year period in excess of $5,000,000, but does not receive a 20%
payment on the entire amount because of the cumulative $1,000,000 per year
cap, the Subsidiary shall pay WJA 5% of the portion of the net profits on
which the 20% payment is not made. No net profit payments will be due after
the ten year period. If during the ten year period, the Subsidiary disposes
of any of its significant assets or operations, then WJA would be entitled to
receive an amount equal to ten percent of the Subsidiary's gain, if any, on
the disposition.
Two principals of WJA, Roger M. Wheeler, Jr. and Richard P. Donovan, have
entered into consulting arrangements with the Subsidiary. Mr. Wheeler has
entered into a ten-year consulting agreement with the Subsidiary, with annual
compensation of $100,000 during the first five years of the agreement and
annual compensation of $50,000 during the second five years of the agreement.
Mr. Donovan has entered into a five-year consulting agreement with the
Subsidiary, with annual compensation of $240,000, plus certain benefits.
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In 1980, WJA and three other pari-mutuel permit holders formed Summer
Jai-Alai Partners ("SJA"), a Florida general partnership, to conduct
pari-mutuel jai-alai operations at the Miami Fronton during the summer months
("Summer Operations"). As part of the acquisition of the WJA assets, the
Company acquired and currently owns a 21% interest in SJA. Under the terms of
the partnership agreement, certain of the Company's costs and expenses will
be allocated to Summer Operations based upon specific formulas set forth in
the agreement. In addition, pursuant to a lease agreement which expires in
the year 2004, SJA rents the Miami Fronton for the time in which the summer
jai-alai season is conducted. The rental is based upon 1% of handle, plus
applicable Florida sales tax. The Company's 21% interest in SJA is
accounted for under the equity method.
CARD ROOM DEVELOPMENT. Florida House Bill No. 337 (now known as section
849.086 of the Florida Statutes) became effective June 1, 1996. This
legislation authorized card rooms at licensed pari-mutuel facilities
beginning in January, 1997. The card rooms aree administered and regulated
by the Florida Department of Par-Mutuel Wagering ("DPMW"). Games are limited
to non-banked poker games and dominoes. Card room authorization is also
subject to approval by the county commission in which the pari-mutuel
facility is located. This same bill also authorized full-card --simulcasting
of races from out of state tracks such as Belmont, Meadowlands, Philadelphia
Park, and Monmouth. The Frontons in Fort Pierce, Tampa and Ocala are
currently carrying several of these signals. This legislation also reduced
the pari-mutuel tax on handle from 5% to 4.25% at the Tampa, Fort Pierce, and
Ocala frontons. The pari-mutuel tax at Miami was reduced from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough County,
Florida, passed legislation permitting card rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
opened card rooms in Miami (on June 19th with 40 tables initially) and Tampa
(on May 22nd with 30 tables initially) during the second quarter of 1997.
Pursuant to Florida Statue 849.086 the Miami and Tampa facilities conduct low
stakes ($10 per hand) poker and dominoes at these facilities two hours prior
to, during and two hours following live jai-alai performances. A rake of
$.25 per person is the pari-mutuel's revenue from each hand dealt. Dominoes
tables are rented at the rate of $1.50 per half hour per player. Florida
state taxes will be paid at 10% of this revenue and 4% of the revenues will
be paid to the Jai-Alai players.
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 state-wide on-track handle
per performance for the state of Florida fiscal years ended June 30, 1996 and
1995 was approximately $79,004 and $87,512, respectively. Aggregate handle
for the fiscal year ended June 30, 1996 decreased approximately $10 million
or 5%. 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, 1995 and 1996 increased to approximately $443 million and $480 million,
respectively. ITW handle at the Company's Frontons (including the newly
acquired Miami, Tampa and Ocala facilities) have demonstrated similar growth
in recent years, increasing from $46.8 million in the year ended December 31,
1995 to approximately $50.3 million for the year ended December 31, 1996.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS 1997 COMPARED WITH THREE AND
SIX MONTHS 1996
During the quarter and six months ended June 30, 1997, the Company's
operations reflects six months' operation of live Jai-Alai performances at
Miami and Tampa. The Ft. Pierce Fronton conducted live jai-alai
performances January through April. A full schedule of inter-track wagering
was also conducted at all facilities with the exception of Miami, which
offers limited ITW product due to blackouts imposed as a result of its close
proximity to other South Florida pari-mutuels. The Miami facility, however,
broadcasts its jai-alai performances to other gaming facilities in Florida,
the rest of the United States, and Mexico. The Ocala Fronton only operated
inter-track wagering during the first quarter and began its live season May
25th.
HANDLE ANALYSIS
Total Handle (amount of money wagered) for the quarter ended June 30, 1997
was $39,511,535 of which $25,225,117
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was from live and host jai-alai wagering and $14,286,418 was from inter-track
guest wagering Total handle for the six months ended June 30, 1997 was
$83,391,665, of which $54,414,727 was from live and host jai-alai wagering
and $28,976,938 was from guest inter-track wagering.
Total handle for the quarter ended June 30, 1996 was $6,163,885 of which
$795,457 was from live jai-alai wagering and $5,368,428 was from inter-track
wagering. Total handle for the six months ended June 30, 1996 was
$15,159,152, of which, $3,665,582 was from live jai-alai wagering and
$11,493,570 was from inter-track wagering.
HANDLE INCREASE
Total handle for the quarter ended June 30, 1997 was $39,511,535, an increase
of $33,347,650 over the same period in 1996. The increase consisted of an
increase in live and host jai-alai handle of $24,429,660 and an increase of
$8,917,990 in ITW handle.
Total handle for the six months ended June 30, 1997 was $83,391,665, an
increase over the same period in 1996 of $68,232,513. This increase was
attributable to an increase in live and host jai-alai wagering handle of
$50,749,145 and an increase in inter-track wagering handle of $17,483,368.
These increases were primarily the result of the pari-mutuel operations
acquired from World Jai-Alai as described above.
REVENUES
Pari-mutuel revenues( net of state pari-mutuel taxes) for the quarter ended
June 30, 1997 were $5,372,876 compared to pari-mutuel revenues of $709,672
for the same period in 1996. Pari-mutuel revenues for the six months ended
June 30, 1997 were $11,618,120 compared to pari-mutuel revenues of $1,948,466
for the same period in 1996. Revenues for the quarter ended June 30, 1997
($5,372,876) consisted of $4,100,204 from jai-alai wagering and $1,272,672
from inter-track wagering. Revenues for the quarter ended June 30, 1996
($709,672) consisted of $175,820 from live jai-alai wagering and $533,852
from inter-track wagering. Revenues for the six months ended June 30, 1996
($1,948,466) consisted of $807.804 from live jai-alai and $1,140,602 from
inter-track wagering. These increases were primarily the result of the
pari-mutuel operations acquired from World Jai-Alai as described above.
During the Quarter ended June 30, 1997, the Company opened two card room
facilities at Tampa on May 22nd and Miami on June 19th. Consequently, the
quarter and six months ended June 30, 1997, reflects only nine (9) days of
operations in Miami and twenty-nine (29) days of operations at the Tampa
facility. Card room revenue for this short period of operations was $99,649.
Admissions income, net of state taxes, for the three and six months periods
ended June 30, 1997 were $148,824 and $325,599 respectively. This compares to
$32,822 and $77,334 for the three and six month period ended June 30, 1996.
Food, beverage and other income for the quarter and six months ended June 30,
1997 were $1,022,980 and $2,286,877, respectively. This compares to the
three and six month period ended June 30, 1996 of $160,187 and $496,565,
respectively. These increases were primarily the result of the WJA sset
acquisition. Attendance for live jai-alai performances and ITW performances
was approximately 304,053 and 666,316 for the quarter and six months ended
June 30, 1997, respectively. This compares to 362,263 and 639,137 for the
same periods in 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses were $2,382,931 and
$4,793,045 for the three months and six months ended June 30, 1997,
respectively. This compares to $487,685 and $913,911 for the three months
and six months ended June 30, 1996, respectively. The increase of $1,895,246
for the quarter ended June 30, 1997, as compared to the same period in 1996
resulted from taking on the cost of administration for three additional
Jai-Alai facilities in Miami, Tampa, and Ocala, Florida, net of staff
reductions and consolidations.
Significant categories of general and administrative expenses and their
comparison to the second quarter last year are as follows. Executive salaries
were $213,735 for the second quarter of 1997 compared $144,912 for the
quarter ended June 30, 1996. Advertising increased $425,708 to $484,085, with
approximately $200,000 utilized in the promotion and introduction of the new
card room facilities. Professional fees were $85,065 compared to $39,051 for
the same three month period in 1996. Consulting fees increased from $10,026
to $86,200. Former executives of World Jai-Alai were paid $82,000, pursuant
to the purchase agreement. Travel and entertainment expense totaled $116,451
for the second quarter of 1997, compared to $62,484 for the second quarter of
1996. Another significant cost included is approximately $311,488 in payroll
taxes. Employee benefits increased to $201,104. Property taxes increased
significantly to $213,078 as a result of the WJA purchase. Insurance also
increased significantly to $76,071 as a result of the company's expanded
operations. Public company costs including shareholder relations/information
and filing fees increased to $35,908 from $27,882. Interest expense totaled
$163,123 and $40,460 for the three month period ended June 30, 1997 and June
30, 1996, respectively. The $122,663 increase in interest expense was
primarily the
18
<PAGE>
result of the bank debt incurred which was related to the purchase of the WJA
facilities described earlier.
Significant categories of general and administrative expenses and their
comparison on a six month period in 1997 versus 1996 are as follows.
Executive salaries were $542,698 for the six months ended June 30, 1997,
compared to $289,825 for 1996. Advertising increased $570,897 to $860,722.
Professional fees were $150,729 compared to $94,725 for the same period in
1996. Consulting fees increased from $20,907 to $174,100. Former executives
of World Jai-Alai were paid $164,000, pursuant to the purchase agreement.
Travel and entertainment expense totaled $207,988 compared to $102,848 for
the first six months of 1996. Another significant cost included is
approximately $677,463 in payroll taxes. Employee benefits increased to
$381,884. Public relations expense increased to $150,409 as the result
primarily of admission and other discounts at the expanded group of
facilities. Property taxes increased significantly to $387,744 as a result of
the company's expanded operations. Insurance also significantly to $239,243
as a result of the company's expanded operations. Public company costs
including shareholder relations/information and filing fees increased to
$81,471 from $63,275. Interest expense totaled $316,274 and $81,749 for the
six month period ended June 30, 1997 and June 30, 1996, respectively. The
$234,525 increase in interest expense was primarily the result of the bank
debt incurred which was related to the purchase of the WJA facilities
described earlier.
OPERATING EXPENSES 2ND QUARTER
The Company's operating expenses for the three months ended June 30, 1997 and
June 30, 1996 were $5,027,498 and $806,651, respectively. Depreciation and
amortization expense for the three months ended June 30, 1997 and June 30,
1996, was $73,711 and $48,600, respectively. Player costs, which include
salaries, benefits, and support staff, represent a significant portion of
operational expenses. Player costs for the quarter ending June 30, 1997 and
June 30, 1996, were $1,633,284 and $177,320, respectively, reflecting the
expanded operation of two year-round schedules in Miami and Tampa and one and
a half month's operation in Ocala compared to one month of jai-alai operation
at the Ft. Pierce fronton during this period in 1996. Rental and service
costs for totalizator wagering equipment and satellite receiving/television
equipment also represent a significant portion of operating expenses. These
expenses totaled $576,587, for the three months ended June 30, 1997, compared
to $90,409 for three months ended June 30, 1996. The components of the 1997
total ($576,587) were $85,058 in ITW tote, interface, and telephone charges;
$220,952 in totalizator equipment rental; $146,553 in satellite charges and
$124,025 in camera/television rental. Utilities expense totaled $285,459 and
$32,334 respectively, for the three months periods ended June 30, 1997 and
June 30, 1996. Program costs totaling $188,931 and $28,193, respectively, are
also included in the total operating expenses for the three month periods
ended June 30, 1997 and 1996. Operating expenses, including payroll costs for
the bar, restaurant, souvenir and concessions costs were $703,564 and $94,680
for the three month periods which ended June 30, 1997 and June 30, 1996,
respectively. Operating payrolls and contract costs totaled $1,253,640 and
$234,915 for the three month periods ended June 30, 1997 and June 30, 1996,
respectively, excluding player costs and payroll costs included in the bar,
restaurant, souvenir and concessions areas. Of the $1,253,640, $438,467 was
mutuels payroll, $354,398 was maintenance and $305,092 was security.
Maintenance expense for the three months ended June 30, 1997, totaled
$170,245. These increases were primarily the result of the expanded
pari-mutuel operations due to acquisition of the assets of World
Jai-Alai.
OPERATING EXPENSES SIX MONTHS
The Company's operating expenses for the six months ended June 30, 1997 and
June 30, 1996 were $9,943,955 and $2,139,357, respectively. Depreciation
and amortization expense for the six month period ended June 30, 1997 and
June 30, 1996, was $291,722 and $97,200, respectively. Player costs, which
include salaries, benefits, and support staff, which represents a significant
portion of operational expenses. Player costs for the six months ended June
30, 1997 and June 30, 1996, were $3,310,563 and $669,322, respectively,
reflecting the expanded operation of two year-round schedules in Miami and
Tampa and one and a half month's operation in Ocala compared to only four
months of jai-alai operation at only the Ft. Pierce fronton during this same
period in 1996. Rental and service costs for totalizator wagering equipment
and satellite receiving/television equipment also represent a significant
portion of operating expenses. These expenses totaled $1,143,384, for the
six months ended June 30, 1997, compared to $217,057 for six months ended
June 30, 1996. The components of the 1997 total were $152,277 in ITW tote,
interface, and telephone charges; $451,631 in totalizator equipment rental;
$287,553 in satellite charges and $251,923 in camera/television rental.
Utilities expense totaled $523,004 and $66,882 respectively, for the six
months periods ended June 30, 1997 and June 30, 1996. Program costs totaling
$355,996 and $68,173, respectively, are also included in the total operating
expenses for the six month periods ended June 30, 1997 and 1996. Operating
expenses, including payroll costs for the bar, restaurant, souvenir and
concessions costs were $1,476,489 and $245,423 for the six month periods
which ended June 30, 1997 and June 30, 1996, respectively. Operating
payrolls and contract costs totaled $2,527,031 and $575,906 for the six month
periods ended June 30, 1997 and June 30, 1996, respectively, excluding player
costs and payroll costs included in the bar, restaurant, souvenir and
concessions areas. Of the $2,527,031, $889,963 was mutuels payroll, $695,863
was maintenance and $620,623 was security. Maintenance expense for the six
months ended June 30, 1997, totaled $307,029. These increases were primarily
the result of the expanded pari-mutuel operations due to acquisition of
19
<PAGE>
the facilities of World Jai-Alai.
OTHER INCOME
The Company had net interest and other income of $144,392 and $211,561 for
the three and six month period ended June 30, 1997, respectively, as compared
to $60,208 and $104,905 for the three and six month periods ended June 30,
1996. The increase in interest income was the result of an increase of
funds invested in short term cash equivalent funds during the first quarter
of 1997 due to additional equity capital being injected during the first
quarter of 1997 and an increase in the credit line with Freedom Financial
Corporation (See Liquidity and Capital Resources). Approximately $79,000 in
allocation income related to the operation of the Summer Jai-Alai in
Miami is included for the second quarter.
TAX LOSS CARRYFORWARDS
At December 31, 1996, the Company had approximately $11,752,000 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 $1,381,000 attributed to the period after the change of
ownership are not subject to the Section 382 limitation.
SUMMARY OF OPERATIONS
The Company had a net loss of $717,753 or $0.15 per common share, for the
three months ended June 30, 1997, compared to a net loss of $380,047 or $.11
per common share for the three month period ended June 30, 1996. The Company
had a net loss of $509,250 or $0.11 per common share, for the six months
ended June 30, 1997, compared to a net loss of $523,258 or $.16 per common
share for the three month period ended June 30, 1996. The increased loss for
the quarter ended June 30, 1997 was primarily caused by the factors discussed
above. The most dramatic being the business expansion due to the acquisition
of the World Jai-Alai properties and costs associated with the card room
introductions while being open only 21% of the quarter.
The Company has expended approximately $2,194,754 for the period ended June
30, 1997 in capital improvements related primarily to the construction of
Poker Room facilities at Miami and Tampa. Total renovation costs are
anticipated to be approximately $2.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at June 30, 1997 was
$1,202,107. At June 30, 1997 the Company had a decrease in working capital
of $1,018,365 from December 31, 1996. The decrease was primarily the result
of the construction and pre-opening costs associated with the card rooms in
Tampa and Miami ( approximately $2 million), growth in accounts payable
(approximately $2 million), and a $581,000 increase in the current portion
of long term debt maturing within one year. The decrease in liquidity is also
net of $2,416,401 in additional funds received January and April in
connection with Regulation D and Regulation S Convertible Preferred Stock
offerings.
During the six months ended June 30, 1997, net cash provided by in the
Company's operating activities was $772,374. The Company's continuing
operating expenses consisted principally of office expenses, general and
administrative expenses, and costs associated with Fronton operations.
Principal revenues were from net pari-mutuel wagering commissions on live
jai-alai and ITW events. The Company expects that net cash flows from the
operation of current business activities will be adequate to meet operational
needs.
During the six months ended June 30, 1997, cash flow used by investing
activities was $3,003,220. Of this $2,194,754 was the result of additions to
plant and equipment, the bulk of which was attributable to card room
construction. During the fourth quarter of 1995, the Company lent an
affiliated company (Freedom Financial) funds on a demand secured credit line,
which bears interest at the prime rate plus 2% (10.50%). Funds advanced
during the six months ended June 30, 1997 under this agreement totaled
$808,466.
During the six months ended June 30, 1997, cash flow from financing
activities was $2,525,426. Cash flow from financing activities consisted of
approximately $2,416,401 in net funds generated from the sale of convertible
preferred stock; and $375,000 generated when Freedom Financial exercised
options for 300,000 common shares. The company had a net reduction of
$265,975 in borrowings for the six months ended June 30, 1997. Subsequent to
June 30, 1997, the Company raised another $1.16 million in funds via the sale
of convertible debenture as described in its Current Report on Form 8K
dated July 14, 1997.
The Company has terminated discussions relative to gaming ventures
with all Native American tribes except for the
20
<PAGE>
Rincon Luiseno Band of the Mission Indians in San Diego County, California.
Due to adverse decisions in other Courts in related cases in California and
the opinion issued by the U.S. Supreme Court in the Seminole case and
continuing delays in the opening of the Rincon Casino with gaming machines,
both Florida Gaming and the Rincon tribe have requested arbitration relative
to the Company's Loan Agreement. The outstanding balance on the loan to the
Rincon tribe was $310,000 as of June 30, 1997.
Additional capital will be required for the recently announced expansion
concerning the potential acquisition of a 200 room hotel and casino in Las
Vegas, Nevada, as described in Exhibit 99.1 in Part II of this report.
Although the Company is in the process of due diligence and no definitive
agreement has been reached , the casino bank and purchase price could require
a much as $18 million in cash. Florida Gaming is in the process of trying to
obtain approval for a card room at its Ft. Pierce facility and is considering
the addition of flea markets at Ft. Pierce and Tampa. The company also has
substantial mortgage debt repayments of $2 million due over the next twelve
months with $1.8 million of this due to the Bank of Oklahoma ("BOK") .
In light of items described in the preceding paragraph the Company is
currently evaluating sources of funding including long-term equity and debt
financing, including discussions with investment banking firms. These include
mortgage debt utilizing the values of the existing and recently acquired real
estate (see Note 8 to the Financial Statements - Acquisition of WJA Assets).
On May 1, 1997 Freedom exercised 300,000 of its options for $375,000 and on
August 1, 1997 Freedom exercised options for an additional 25,000 shares
($31,250). The company believes that its current financial condition
provides adequate capital reserves and liquidity.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) In May 5, 1997, the Company issued 4,977 shares
of Common Stock upon the conversion of 22.5 shares of
Series B Preferred Stock. On May 14, 1997, the Company
issued 32,664 shares of Common Stock upon the
conversion of 121 shares of Series D Preferred Stock.
On May 15, 1997, the Company issued 10,257 shares of
Common Stock upon the conversion of 38 shares of Series
D Preferred Stock. On May 29, 1997, the Company issued
13,871 shares of Common Stock upon the conversion of
43 shares of Series D Preferred Stock. On May 30,
1997, the Company issued 15,827 shares of Common Stock
upon the conversion 50 shares Series D Preferred Stock.
On June 5, 1997, the Company issued 16,014 shares of
Common Stock upon the conversion of 48 shares of Series
D Preferred Stock. On June 6, 1997, the Company issued
20,826 shares of Common Stock upon the conversion of
62 shares of Series D Preferred Stock. On June 9, 1997,
the Company issued 28,506 shares of Common Stock upon
the conversion of 84 shares of Series D Preferred
Stock. On June 11, 1997, the Company issued 68,937 shares
of Common Stock upon the conversion of an aggregate of
22.5 shares of Series B Preferred Stock and 189 shares
of Series D Preferred Stock. On June 18, 1997, the Company
issued 25,383 shares of Common Stock upon the conversion of
75 shares of Series D Preferred Stock. On June 24, 1997,
the Company issued 15,141 shares of Common Stock upon the
conversion of 50 shares of Series D Preferred Stock. On
July 1, 1997, the Company issued 3,631 shares of Common Stock
upon the conversion of 12 shares of Series D Preferred
Stock. On July 8, 1997, the Company issued 23,775
shares of Common Stock upon the conversion of an
aggregate of 50 shares of Series C Preferred Stock and
25 shares Series D Preferred Stock. On July 21, 1997,
the Company issued 34,404 shares of Common Stock upon
the conversion of 100 shares of Series C Preferred
Stock. On July 22, 1997, the Company issued 26,258
shares of Common Stock upon the conversion of 75 shares
of Series D Preferred Stock. On July 25, 1997, the
Company issued 8,789 shares of Common Stock upon the
conversion of 25 shares of Series D Preferred Stock.
No underwriters were used in any of these conversions.
The shares
21
<PAGE>
were issued in accordance with Section 3(a)(9) of the
Securities Act of 1933.
On August 1, 1997, the Company issued 25,000 shares of
its common stock to Freedom Financial Corporation
("Freedom") for cash consideration of $31,250. The
issuance was in connection with the exercise in part of
the options previously issued to Freedom pursuant to a
Stock Purchase Agreement dated March 31, 1993. Freedom
retains an option to purchase 1,005,000 shares of
common stock at an exercise price of $1.25 per share.
No underwriters were used in these transactions. The
shares of common Stock were issued in transactions not
involving a public offering in accordance with Section 4(2)
of the Securities Act of 1933, as amended.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS FILED.
Exhibit 27 - Financial Data Schedule.
Exhibit 99.1 - Letter of Intent dated July 30, 1997
between the Company and Flamingo Street, LLC.
(b) REPORTS ON FORM 8-K.
During the quarter ended June 30, 1997, the Company
filed a (i) Form 8-K Current Report dated April 4,
1997, concerning Item 9, SALES OF EQUITY SECURITIES
PURSUANT TO REGULATION S, reporting the issuance of 200
shares of the Company's Series E 8% Cumulative
Convertible Preferred Stock and (ii) a Form 8-K Current
Report dated May 1, 1997, concerning Item 5, OTHER
EVENTS, reporting Freedom Financial Corporation's
exercise of its options to purchase 300,000 shares of
the Company's Common Stock at a per share exercise
price of $1.25. Following the quarter ended June 30,
1997, the Company filed a Form 8-K Current Report dated
July 10, 1997, concerning Item 9, SALES OF EQUITY
SECURITIES PURSUANT TO REGULATION S, reporting the
issuance of a $1,200,000 5% Cumulative Convertible
Debenture due December 31, 1998. No financial
statements were filed as a part of these Form 8-K
Current Reports.
22
<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: AUGUST 14, 1997 By: /s/ W.B. COLLETT
----------------------------------------
W.B. COLLETT
Chairman of the Board
and Executive Officer
(Principal Executive Officer)
Date: AUGUST 14, 1997 By: /s/ TIMOTHY L. HENSLEY
----------------------------------------
Timothy L. Hensley
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting Officer)
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10QSB
FOR THE PERIOD ENDED JUNE 30, 1997 AND SHOULD BE READ IN CONJUNCTION WITH THOSE
FINANCIAL STATEMENTS AND FOOTNOTES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1202
<SECURITIES> 0
<RECEIVABLES> 2869
<ALLOWANCES> 0
<INVENTORY> 149
<CURRENT-ASSETS> 4920
<PP&E> 25118
<DEPRECIATION> 800
<TOTAL-ASSETS> 30399
<CURRENT-LIABILITIES> 8387
<BONDS> 0
4
0
<COMMON> 521
<OTHER-SE> 15239
<TOTAL-LIABILITY-AND-EQUITY> 30399
<SALES> 0
<TOTAL-REVENUES> 14330
<CGS> 0
<TOTAL-COSTS> 15051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 316
<INCOME-PRETAX> (509)
<INCOME-TAX> 0
<INCOME-CONTINUING> (509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (509)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
FLAMINGO STREET, LLC
C/O Tarsadia Hotels
650 Town Center Drive, Suite 1910
Costa Mesa, CA 92626
Telephone: (714) 549-2931
Telephone: (714) 549-2927
July 30, 1997
VIA FACSIMILE (561-464-0099)/MAIL
FLORIDA GAMING CORPORATION
1750 South Kings Highway
Ft. Pierce, FL 34945
Attention: Mr. W. Bennett Collett
Chairman and Chief Executive Officer
Re: Letter of Intent
Bourbon Street Hotel (the "HOTEL")
Dear Mr. Collett:
The purpose of this correspondence is to set forth the terms, on a
preliminary and general basis, under which FLAMINGO STREET, LLC, a California
limited liability company ("SELLER"), would agree to sell FLORIDA GAMING
CORPORATION ("BUYER"), subject to the execution, and the terms and
conditions, of the Definitive Agreement (as hereinafter defined), fee title
to that certain real property, and all improvements constructed thereon
(including, without limitation, the improvements through which the Hotel is
operated and a parking structure) commonly known as 120 East Flamingo Road,
Las Vegas, Nevada (the "REAL PROPERTY"), together with all of Seller's right,
title and interest in and to the personal property (including all
transferable permits and licenses) and other assets located thereon and used
on connection with the operation thereof (subject to any equipment leases
affecting the same), on, by and through which Seller conducts a
hotel/hospitality business under the name "Bourbon Street Hotel"
(collectively, with the Real Property, the "PROPERTY") for the purchase price
and under the terms set forth hereinbelow.
1. PURCHASE PRICE. The purchase price for the Property would be the
aggregate of the following amounts (the "PURCHASE PRICE");
(a) Thirteen Million Dollars ($13,000,000) in the form of cash,
cashier's check or wire transferred funds; and
(b) Two hundred thousand (200,000) shares of free trading common
stock of Buyer. Immediately upon the expiration of the Inspection Period (as
hereinafter defined), Buyer would commence, and diligently pursue to
completion, the registration of such shares of stock and would complete such
registration on or before October 1, 1998, and if such registration would not
then be completed, pay to Seller, at the option of Seller, cash in the amount
equal to the then trading price per share of the registered stock of Buyer.
Buyer would file all necessary documents and respond to all tendered
interrogatories concerning the registration promptly. Upon such
registration, Seller would have the right to sell such shares without
restriction, except that no sale would be made by it in excess of fifty
thousand shares (50,000) during any ninety (90) day period. Should Seller
24
<PAGE>
hold such shares of common stock for a period of thirty-six (36) months from
the Close of Escrow (as defined hereinbelow), Buyer would guarantee a sales
price per share of not less than Seven Dollars Fifty Cents ($7.50) by either
(i) issuing additional shares of its common stock to Seller, or (ii) paying
to Seller any difference in the then trading price, in cash. In the event
Buyer shall make application to the Nevada Gaming Commission (the
"Commission") for a gaming license, finding of suitability and/or
registration as a publicly traded corporation, seller shall reasonably
cooperate with the Commission's requests for information regarding Seller.
2. PAYMENT TERMS.
(a) EARNEST MONEY DEPOSIT. Upon the mutual execution of the
Definitive Agreement, Buyer will deliver to Escrow Holder (as defined
hereinbelow) a cashier's check or wire transfer in the amount of Five Hundred
Thousand Dollars ($500,000) as a deposit (the "EARNEST MONEY DEPOSIT"). The
Earnest Money Deposit shall be held by Escrow Holder in an interest bearing
account for the benefit of Buyer. In the event Buyer cancels or terminates
this agreement and/or the Definitive Agreement prior to the expiration of the
Inspection Period, the Earnest Money Deposit and all interest accrued thereon
shall be immediately refunded to Buyer. In the event Buyer does not
terminate this agreement or the Definitive Agreement, as the case may be,
upon the expiration of the Inspection Period, the Earnest Money Deposit
thereon shall become non-refundable and be released to seller. Subject to the
foregoing, the Earnest Money Deposit AND ALL INTEREST ACCRUED THEREON shall
be credited to the Purchase Price.
(b) BALANCE OF PURCHASE PRICE. The balance of the Purchase Price
would be paid in form described in Section 1 above.
3. ASSUMPTION OF CONTRACTS AND LEASES. For purposes of this agreement,
the term "Contracts" shall mean and include: all contracts, agreements and
leases incurred in connection with the business of the Property, currently
existing or incurred after the date hereof and prior to the Close of Escrow
in the normal and ordinary course of business. As additional consideration
in connection with the acquisition of the Property by Buyer, Seller would
assign to Buyer, and Buyer would assume, all of Seller's obligations under
all Contracts.
4. ESCROW. After the execution by Buyer and Seller of the Definitive
Agreement, Buyer and Seller would open an escrow (the "ESCROW") with
Chicago/United Title Company ("ESCROW HOLDER") in Las Vegas, Nevada. Escrow
would provide for a closing date ninety (90) days after the expiration of the
Inspection Period. The closing of the transaction (the "CLOSE OF ESCROW")
would be the date the Warranty Deed transferring fee title to the Real
Property is recorded in the Las Vegas County Recorder's Office.
Notwithstanding the foregoing, Buyer would have the option to extend the
Close of Escrow for an additional sixty (60) days by making, fourteen (14)
days prior to the Close of Escrow, an additional non-refundable deposit to
Escrow Holder, which would be immediately released to Seller, in the amount
of Two Hundred Fifty Thousand Dollars ($250,000), which payment would be
credited to the Purchase Price.
5. TITLE REPORT AND TITLE POLICY. Title to the Real Property would be
subject to all conditions, covenants, reservations, rights-of-way, easements,
and other exceptions to title not otherwise objected to by Buyer during the
Inspection Period. On the Close of Escrow, Seller would cause an A.L.T.A.
Policy of Title Insurance (extended coverage) to be issued by Chicago/United
Title Company for the benefit of the Buyer. The cost of the C.L.T.A. portion
thereof would be paid by Seller, and any excess thereof (including the cost
of any survey or updating thereof) would be paid by Buyer.
6. COST AND PRORATIONS. All real and personal property taxes, utility
charges, expenses, rents, and other income from the operation of the Property
would be prorated as of the Close of Escrow. Escrow fees would be divided
equally by Buyer and Seller. All escrow fees, motor vehicle transfer taxes,
vehicle registration fees, sales, use and excise taxes and documentary stamp
or transfer taxes (including, but not limited to, those set forth in NRS
375.020) relating to the purchase and sale of the Property shall be borne and
paid one-half (1/2) by Buyer and one-half (1/2) by Seller. All fees for
recording any grant, bargain and sale deed or deeds and assignments of the
Property to be conveyed and assigned pursuant hereto shall be borne and paid
by Buyer. All other costs shall be paid in accordance with the custom of Las
Vegas, Nevada.
7. INSPECTION AND DUE DILIGENCE. Buyer's obligation to purchase the
Property would be specifically contingent upon its inspection and due
diligence review of, and with respect to, the Property. Buyer would have
until 1:00 P.M. California time on the date thirty (30) days from the date of
the delivery to buyer of a draft of the Definitive Agreement OR AUGUST 18,
1997, WHICHEVER DATE IS LATER to inspect and conduct its due diligence review
of the Property and the business conducted thereon (the "INSPECTION PERIOD").
Seller would permit Buyer and its representatives access to the Real Property
at all reasonable times upon one (1) business day prior notice to Seller for
purposes of Buyer's inspection and due diligence review. In connection with
such review, Buyer would be afforded the opportunity to review all available
records, contracts, and leases affecting the Property which are in or under
Seller's control and relate to Seller's operation of the Property. Buyer
would not, however, have the right to contact or otherwise discuss this
transaction and/or the operation of the Hotel with any on-site employees of
the Hotel, UNLESS A REPRESENTATIVE OF THE SELLER IS PRESENT. Within ten (10)
days of mutual execution of this letter of intent, Seller shall deliver to
Buyer all reports relating to environmental audit/study performed on the
Property and available to Seller.
All materials delivered will be without any representations by Seller and
Buyer must rely on independent studies and advise. Buyer would also be
afforded the opportunity to conduct an environmental audit/study, PROVIDED
such environmental audit/study is non-evasive and non-intrusive and does not
include the drilling into or boring of the Property, or any portion thereof.
Any
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environmental audit/study proposed to be undertaken by buyer would be subject
to Seller's approval prior to the commencement thereof. Seller could
withhold its approval of any environmental audit/study which Seller, in its
reasonable determination, deems unreasonable or a threat to damage any
portion of the Property.
The costs of all such inspections would be borne by Buyer and Buyer would
indemnify Seller from any losses arising from, or damages made by, any party
from such inspections or damage caused by Buyer and its agents and
representatives from such inspections.
Seller acknowledges that Buyer is a publicly traded corporation that must
make public disclosure of pending transactions. Seller shall have the right
to review and approve in writing all items of public disclosure made by Buyer
until the end of the due diligence period. To the extent information,
documentation or other items of due diligence regarding the Property and this
transaction need not be publicly disclosed, as determined by Buyer in its
sole discretion, such information shall remain confidential. Notwithstanding
the foregoing, Buyer may disclose all information, documentation or other
items of due diligence to its lenders, investors, partners, affiliates,
advisors, accountants and attorneys. Without the prior written consent of
Seller, Buyer shall not disclose the existence of this correspondence or the
proposed transaction referenced herein to any employee of Seller or the Hotel.
8. EXECUTION OF FORMAL AGREEMENT. Except as otherwise noted in this
letter of intent, the obligations of Buyer and Seller hereunder are
conditioned upon their execution of a formal and definitive purchase and sale
agreement (the "DEFINITIVE AGREEMENT"), to be drafted by Seller's counsel.
The Definitive Agreement would include the terms of this proposed
transaction. In connection therewith, Buyer and Seller would prepare and
execute such additional documents as may be necessary to effectuate the
transactions memorialized herein.
9. BROKERS. Any commission owned by reason of either party obtaining
representation by a real estate broker or other licensee would be borne
solely by that party who would fully indemnify the other party against
liability therefor.
10. ATTORNEY'S FEES. In the event of any legal proceeding to interpret,
challenge or otherwise address any of the provisions of this letter of intent
are instituted, a court of competent jurisdiction may award the prevailing
party reasonable attorneys' fees and costs.
11. GOVERNING LAW. This letter of intent shall be governed by and
construed in accordance with the laws of the state of California applicable
to agreements made to be performed therein.
12. LIQUOR LICENSE AND LIQUOR ASSETS. Concurrently with the execution
of the Definitive Agreement, Buyer and Seller would enter into a definitive
liquor license and liquor asset purchase and sale agreement for the purchase
and sale of the liquor license, liquor and food inventory, and restaurant
furniture, fixtures and equipment owned and used in connection with the
operation of the restaurant on the Real Property.
13. EXCLUSIVE DEALINGS. Seller agrees that, upon the mutual execution
of this letter of intent, and for a period of twenty-eight (28) days
thereafter, Seller will not accept any offers, of any level, with any other
person or entity regarding the sale, lease or other conveyance of the
Property, unless Buyer (i) notifies Seller of its intent not to proceed with
the purchase transaction, or (ii) defaults in any of its obligations to
Seller.
14. BINDING AND NON-BINDING EFFECT. Buyer and Seller agree that it is
their intention that a binding contract and agreement shall exist between
them and shall be effective ONLY when the Definitive Agreement is signed by
all parties. The parties further agree that until all parties have signed
the Definitive Agreement, any party may discontinue negotiations, at any
time, and for any reason. The parties further agree that until the
Definitive Agreement is signed by all parties, any letters, drafts, or other
communications shall have absolutely no legal effect, shall not be used to
impose any legally binding obligation on the other party, and shall not be
used as evidence of any oral or implied agreement between the parties or as
evidence of the terms and conditions of any implied agreement.
Notwithstanding the foregoing, (i) Buyer's obligations with respect to
indemnification and confidentiality under Section 7 above in connection with
its inspection and due diligence review shall be binding on Buyer, (ii)
Seller's obligations under Section 13 above shall be binding on Seller, and
(iii) the provisions of Section 10 and 11 above shall be binding on both
Seller and Buyer. Subject to the foregoing, the legal rights and obligations
of the parties hereto will consist only of those which are set forth in the
Definitive Agreement.
This proposal will be deemed withdrawn if not accepted by 5:00 P.M.
California time on August 5, 1997 as evidenced by the delivery to Seller of
an executed copy of this letter of intent by said date and time. Please
indicate your agreement to the foregoing by executing and returning to the
undersigned one (1) copy of this letter of intent by the date and time
referenced above.
Very truly yours,
FLAMINGO STREET, LLC, a California
limited liability company
BY: /s/ BOUCHART PATTEL
----------------------------------------------
NAME: BOUCHART PATTEL
TITLE: MANAGING PARTNER
-------------------------------------------
AGREED AND ACCEPTED this 5th day of August, 1997
FLORIDA GAMING CORPORATION
BY: /s/ W. B. COLLETT
----------------------------------------------
NAME: W. BENNETT COLLETT
TITLE: CHAIRMAN AND CEO
-------------------------------------------
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