<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 31, 1996
FLORIDA GAMING CORPORATION
(Exact name of registrant as specified in charter)
Delaware 0-9099 59-1670533
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
1750 South Kings Highway
Fort Pierce, Florida 34945
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 464-7500
3500 N.W. 37th Avenue
Miami, Florida 33142
(Former name or former address,
if changed since last report.)
<PAGE>
The Registrant hereby amends its Current Report on Form 8-K dated
December 31, 1996 to set forth Item 5 below and amend its Item 7 to read in
its entirety as set forth below:
Item 5. Other Events.
Reporting of Certain Financial Information.
In connection with the consummation of the acquisition of the tangible
and intangible properties and assets owned by WJA Realty Limited Partnership
(World Jai-Alai) ("WJA") and in accordance with Rule 3-05 of Regulation S-X,
the Registrant is filing herewith certain historical and pro forma financial
information relating to such consummated acquisition. In addition, the
Registrant is filing herewith audited consolidated financial statements for
the Registrant's years ended December 31, 1996 and 1995. Such financial
information is attached hereto as Exhibit 99.1 and is hereby incorporated by
reference. The following financial statements of the Registrant are included
in Exhibit 99.1:
Report of Independent Auditors.
Balance Sheets as of December 31, 1996 and 1995.
Statements of Operations for the years ended December 31, 1996 and
1995.
Statements of Stockholders' Equity for the two years ended
December 31, 1996.
Statements of Cash Flows for the years ended December 31, 1996 and
1995.
Notes to Financial Statements.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The following historical financial statement of WJA required by this
Item 7(a) are attached hereto as Exhibit 99.2 and incorporated
herein by reference:
Report of Independent Auditors.
WJA Realty Limited Partnership
Balance Sheet as of December 31, 1996 and 1995.
WJA Realty Limited Partnership
Statements of Operations for the years ended
December 31, 1996 and 1995.
WJA Realty Limited Partnership
Statements of Partners' Deficit for the years ended
December 31, 1996 and 1995.
WJA Realty Limited Partnership
Statements of Cash Flows for the years ended
December 31, 1996 and 1995.
WJA Realty Limited Partnership
Notes to Financial Statements as of
December 31, 1996 and 1995.
(b) PRO FORMA FINANCIAL INFORMATION.
The following pro forma financial information required by this Item 7(b)
is attached hereto as Exhibit 99.3 and incorporated herein by reference:
Florida Gaming Corporation Pro Forma Consolidating
Balance Sheet as of December 31, 1996 (unaudited).
Florida Gaming Corporation Pro Forma Consolidating
Statements of Operations for the years ended
December 31, 1996 and 1995 (unaudited).
Florida Gaming Corporation
Notes to Pro Forma Consolidating Financial
Statement (unaudited).
(c) Exhibits.
Exhibit 2.1 -- Assets Purchase Agreement dated as of November 20, 1996
between the Registrant, Florida Gaming Centers, Inc., and WJA Realty
Limited Partnership (World Jai-Alai), as incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K dated
November 25, 1996 [File No. 0-9099]. Omitted from this Exhibit, as
filed, are the schedules and annexes as referenced in the Agreement.
The Registrant will furnish supplementally a copy of any such
schedules and annexes to the Commission upon request.
Exhibit 10.1 -- Totalisator Services Agreement dated November 11, 1993
between Autotote Systems, Inc. and W.J.A. Realty Limited Partnership,
D.B.A. Miami Jai Alai. (previously filed).
Exhibit 10.2 -- Consulting and Noncompetition Agreement dated December
31, 1996 by and among Florida Gaming Centers, Inc. and Richard P.
Donovan. (previously filed).
Exhibit 10.3 -- Consulting and Noncompetition Agreement dated December
31, 1996 by and among Florida Gaming Centers, Inc. and Roger M.
Wheeler, Jr. (previously filed).
Exhibit 10.4 -- Credit Line Agreement dated October 1, 1996 from
Freedom Financial Corporation to Florida Gaming Corporation.
(previously filed).
Exhibit 10.5 -- Mortgage dated December 31, 1996 by Florida Gaming
Corporation and Florida Gaming Centers, Inc. to Bank of Oklahoma, N.A.
(previously filed).
Exhibit 10.6 -- Promissory Note dated September 12, 1996 from Florida
Gaming Corporation to Bank of Oklahoma, N.A. (previously filed).
Exhibit 10.7 -- Promissory Note dated October 1, 1990 from WJA Realty
Limited Partnership to Wheeler-Phoenix, Inc. (previously filed).
23.1 Consent of King & Company, PSC
23.2 Consent of McKean, Paul, Chrycy, Fletcher & Co
27. Financial Data Schedule (for SEC use only)
99.1 Financial Statements of the Registrant listed at Item 5 of
this Report
99.2 Financial Statements of WJA listed at Item 7(a) of this Report
99.3 Pro forma financial information of the Registrant listed at
Item 7(b) of this Report
<PAGE>
SIGNATURE
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
By /s/ Timothy L. Hensley
Timothy L. Hensley
Executive Vice President,
Treasurer
and Chief Financial Officer
Date: March 17, 1997
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Florida Gaming Corporation on Forms S-3
(Registration Nos. 33-99380, 333-10535, and 333-21497).
/s/ King & Company, PSC
KING & COMPANY, PSC
Louisville, Kentucky
March 17, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Florida Gaming Corporation on Forms S-3
(Registration Nos. 33-99380, 333-10535, and 333-21497).
/s/ McKean, Paul, Chrycy, Fletcher & Co.
MCKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida
March 17, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 908
<SECURITIES> 0
<RECEIVABLES> 2,100
<ALLOWANCES> 0
<INVENTORY> 169
<CURRENT-ASSETS> 3,177
<PP&E> 22,923
<DEPRECIATION> (529)
<TOTAL-ASSETS> 26,305
<CURRENT-LIABILITIES> 5,729
<BONDS> 0
4
0
<COMMON> 434
<OTHER-SE> 13,044
<TOTAL-LIABILITY-AND-EQUITY> 26,305
<SALES> 0
<TOTAL-REVENUES> 4,952
<CGS> 0
<TOTAL-COSTS> 5,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> (519)
<INCOME-TAX> 0
<INCOME-CONTINUING> (519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (519)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Audited Consolidated Financial Statements
FLORIDA GAMING CORPORATION AND SUBSIDIARY
December 31, 1996 and 1995
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------
Independent Auditors' Report...........................................1
Consolidated Financial Statements
Balance Sheets.......................................................2
Statements of Operations.............................................4
Statement of Changes in Stockholders' Equity.........................5
Statements of Cash Flows.............................................6
Notes to Financial Statements........................................7
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
and Shareholders
Florida Gaming Corporation
Ft. Pierce, Florida
We have audited the accompanying consolidated balance sheets of Florida Gaming
Corporation and Subsidiary (a Delaware Corporation) as of December 31, 1996 and
1995 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florida Gaming
Corporation as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ King & Company, PSC
KING & COMPANY, PSC
Louisville, Kentucky
February 25, 1997
<PAGE>
CONSOLIDATED BALANCE SHEETS
FLORIDA GAMING CORPORATION AND SUBSIDIARY
December 31,
1996 1995
---------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 907,527 $2,721,865
Note receivable from related
party--Notes G and K 1,796,860 350,000
Other notes receivable 184,051 30,596
Inventory 169,419 33,582
Interest receivable from related
party--Notes G and K 119,348 2,215
---------- ---------
3,177,205 3,138,258
PROPERTY, PLANT AND EQUIPMENT--Notes C and J
Land 11,457,495 2,732,525
Buildings and improvements 9,747,978 1,898,151
Furniture, fixtures and equipment 1,717,520 590,405
---------- ---------
22,922,993 5,221,081
Less accumulated depreciation (528,700) (336,644)
---------- ---------
22,394,293 4,884,437
GAMING VENTURE INVESTMENTS--Notes H and L 310,000 323,000
OTHER ASSETS--Note C 423,551 29,986
---------- ---------
$26,305,049 $8,375,681
---------- ---------
---------- ---------
2
<PAGE>
December 31,
1996 1995
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Unclaimed winnings--Note C $ 930,017 $ 83,039
ITW Liability 40,647 55,796
Accrued payroll and related
expenses 203,338 120,492
Accounts payable and accrued
expenses--Note C 3,130,547 250,388
Current portion of long-term
debt--Note I 1,423,703 131,567
--------- ---------
5,728,252 641,282
LONG-TERM DEBT (less current portion)--NOTE I 7,095,289 1,822,447
STOCKHOLDERS' EQUITY--Notes B, D and H
Class A convertible preferred stock,
convertible to common stock; 1,200,000
shares authorized; 34,435 and 34,735
shares issued and outstanding in 1996
and 1995, respectively; aggregate 1996
liquidation preference of $375,341 3,443 3,473
Series B convertible preferred stock;
5,000 shares authorized; 1,990 and 2,400
shares issued and outstanding in 1996 and
1995, respectively; aggregate 1996
liquidation preference of $2,154,930 199 240
Series C 8% cumulative convertible preferred
stock, 5,000 shares authorized; 550 shares
issued and outstanding in 1996; aggregate
1996 liquidation preference of $552,893 55 -0-
Series D 8% cumulative convertible preferred
stock, 5,000 shares authorized; 650 shares
issued and outstanding in 1996; aggregate
1996 liquidation preference of $654,913 65 -0-
Common stock, $.10 par value; 15,000,000
shares authorized; 4,340,626 and 3,123,586
issued and outstanding in 1996 and 1995,
respectively 434,063 312,359
Capital in excess of par value 35,276,095 27,278,152
Accumulated deficit (22,232,412) (21,682,272)
---------- ----------
13,481,508 5,911,952
COMMITMENTS AND CONTINGENCIES--Note H ---------- ----------
$ 26,305,049 $ 8,375,681
---------- ----------
---------- ----------
See notes to financial statements
3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FLORIDA GAMING CORPORATION AND SUBSIDIARY
For the years ended December 31, 1996 and 1995
1996 1995
---------- ---------
ON SITE MUTUEL REVENUE $ 893,464 $1,213,178
Less parimutuel taxes to State of Florida (85,659) (122,109)
INTER TRACK MUTUEL COMMISSIONS 2,126,283 2,047,335
---------- ---------
Net parimutuel revenue 2,934,088 3,138,404
ADMISSION INCOME 134,464 151,438
PROGRAM REVENUE 204,958 215,132
FOOD AND BEVERAGE 450,104 532,032
OTHER 48,920 49,020
---------- ---------
TOTAL OPERATING REVENUE 3,772,534 4,086,026
OPERATING EXPENSES
Staff payroll and related costs 1,006,673 973,214
Player payroll and related costs 665,401 725,395
Food and beverage costs 321,641 358,819
Repairs and maintenance 109,801 84,766
Totalizator/teleview rent--Note H 294,309 309,750
Depreciation 193,205 194,682
Utilities 115,941 141,913
Programs 131,389 135,988
Other 155,989 144,004
---------- ---------
TOTAL OPERATING EXPENSES 2,994,349 3,068,531
GENERAL AND ADMINISTRATIVE
Officers' compensation 686,056 219,650
Directors' fees--Note G 18,000 16,000
Management consulting 38,907 11,712
Advertising and promotions 250,569 211,231
Telephone and travel 222,842 126,024
Professional fees--Note H 289,045 318,184
Interest expense 327,486 167,206
Property taxes 72,079 77,076
Other--Notes H and L 538,101 614,979
---------- ---------
2,443,085 1,762,062
---------- ---------
(LOSS) FROM OPERATIONS (1,664,900) (744,567)
OTHER INCOME (EXPENSE):
Interest and dividend income--Notes C and K 1,179,386 77,673
Realized gain on marketable securities -0- 195,939
Gain on disposal of assets 414 -0-
Provision for loss on gaming venture
investment--Note L (34,000) -0-
---------- ---------
1,145,800 273,612
---------- ---------
NET LOSS $ (519,100) $ (470,955)
---------- ---------
---------- ---------
LOSS PER COMMON SHARE--Note F $ (.15) $ (.15)
---------- ---------
---------- ---------
See notes to financial statements
4
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FLORIDA GAMING CORPORATION AND SUBSIDIARY
For the two years ended December 31, 1996
<TABLE>
<CAPTION>
Class A Series B Series C Series D
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Par Value $.10 Par Value $.10 Par Value $.10 Par Value $.10
---------------- ---------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------- ------- ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1995 43,664 $4,366 -0- -0- -0- $-0- -0- $-0-
Sales of stock--Note B 2,400.0 $ 240
Conversion of Class A
preferred stock to
common stock--Note B (8,929) (893)
Dividend on Class A preferred
stock--$.90 per share--Note B
Net loss for the year
Treasury stock purchase
------- ------- ------- ------- ------- ------ ------- ------
BALANCES AT
DECEMBER 31, 1995 34,735 3,473 2,400.0 240 -0- -0- -0- -0-
Sales of stock--Notes B and C 2,300.0 230 550 55 650 650
Conversion of preferred stock
to common stock--Note B (300) (30) (2,707.5) (271)
Dividend on Class A preferred
stock--$.90 per share
Net loss for the year
Stock options granted--
Note C and D
------- ------- ------- ------- ------- ------ ------- ------
BALANCES AT
DECEMBER 31, 1996 34,435 $3,443 1,992.5 $ 199 550 $ 55 650 $ 65
------- ------- ------- ------- ------- ------ ------- ------
------- ------- ------- ------- ------- ------ ------- ------
<CAPTION>
Common Stock Capital in
Par Value $.10 Excess of Accumulated
-------------------
Shares Amount Par Value Deficit
------ ------ --------- -------
<S> <C> <C> <C> <C>
Balances at
January 1, 1995 3,119,246 $311,924 $25,026,362 $(21,179,605)
Sales of stock--Note B 2,219,760
Conversion of Class A
preferred stock to
common stock--Note B 2,008 202 681
Dividend on Class A preferred
stock--$.90 per share--Note B 2,337 234 31,395 (31,712)
Net loss for the year (470,955)
Treasury stock purchase (5) (1) (46)
--------- ------- ---------- -----------
BALANCES AT
DECEMBER 31, 1995 3,123,586 312,359 27,278,152 (21,682,272)
Sales of stock--Notes B and C 738,221 73,822 7,939,260
Conversion of preferred stock
to common stock--Note B 473,655 47,366 (46,814)
Dividend on Class A preferred
stock--$.90 per share 5,164 516 30,475 (31,040)
Net loss for the year (519,100)
Stock options granted--
Note C and D 150,528
--------- ------- ---------- -----------
BALANCES AT
DECEMBER 31, 1996 4,340,626 $434,063 $35,276,095 $(22,232,412)
--------- ------- ---------- -----------
--------- ------- ---------- -----------
</TABLE>
See notes to financial statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FLORIDA GAMING CORPORATION AND SUBSIDIARY
For the years ended December 31, 1996 and 1995
1996 1995
----------- -----------
OPERATING ACTIVITIES
Net loss $ (519,100) $ (470,955)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 193,205 194,682
Realized gain on marketable securities -0- (192,939)
Increase in interest receivable (117,133) -0-
Provisions for loss on gaming venture 34,000 -0-
Increase in inventory (135,837) (4,072)
Increase in unclaimed winnings (4,185) 26,710
Increase in accounts payable and
accrued expenses 220,732 178,586
----------- -----------
NET CASH (USED IN) OPERATING ACTIVITIES (328,678) (270,988)
INVESTING ACTIVITIES
Proceeds from the sale of marketable
securities -0- 1,814,189
Purchases of marketable securities -0-
Purchases of property and equipment (17,552,533) (1,366,658)
Increase in other assets (393,565) (30,850)
Investments in gaming ventures (21,000) (323,000)
(Increase) decrease in notes receivable (153,455) 19,111
Loan to affiliated company (1,446,860) (350,000)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (19,567,413) (237,208)
FINANCING ACTIVITIES
Long-term debt issued net of repayments 6,564,978 763,280
Proceeds from sale of stock 7,969,168 2,219,860
Repayments on margin account -0- (1,084,541)
Dividend on preferred stock (31,040) (31,712)
Liabilities assumed in asset purchase 3,578,647 -0-
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,081,753 1,866,887
----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,814,338) 1,358,691
Cash and cash equivalents at beginning
of period 2,721,865 1,363,174
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 907,527 $ 2,721,865
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES
Issuance of common stock pursuant to-
-Conversion of preferred stock $ 552 $ 893
-Asset acquisitions 4,747,255 -0-
Interest paid 327,486 167,206
Payment of dividend through issuance
of common stock 31,040 31,712
See notes to financial statements
6
<PAGE>
NOTE A--SUMMARY OF 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 a live
Jai Alai fronton in Ft. Pierce, Florida. The Company also conducts intertrack
wagering (ITW) on jai alai, horse racing and dog racing in Florida. On December
31, 1996, the Company acquired additional live Jai Alai frontons in Miami, Tampa
and Ocala, Florida.
Approximately 49% 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 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.
PARIMUTUEL WAGERING: Revenue is derived from acceptance of wagers under a
parimutuel wagering system. The Company accepts wagers on both on-site and ITW
events. On-site wagers are accumulated in pools with a portion being returned
to winning bettors, a portion paid to the State of Florida and a portion
retained by the Company. ITW wagers are also accepted and forwarded to the
"host" facility after retention of the Company's commissions. The Company's
liability to host tracks for ITW collections totaled $40,646 and $55,796 at
December 31, 1996 and 1995, respectively. Unclaimed winnings totaled $930,017
and $83,039 at December 31, 1996 and 1995, respectively, including $851,163
assumed in connection with the Company's purchase of 3 Jai Alai facilities on
December 31, 1996 (See Note C).
7
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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 1995 amounts have been reclassified to conform with
their 1996 presentation.
NOTE B--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>
NOTE B--PREFERRED STOCK--CONTINUED
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.
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.
9
<PAGE>
NOTE B--PREFERRED STOCK--CONTINUED
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 exercise 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'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 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 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
10
<PAGE>
NOTE B--PREFERRED STOCK--CONTINUED
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 366the 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 exercise 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.
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.
NOTE C--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 note.
11
<PAGE>
NOTE C--ACQUISITION OF WJA ASSETS--CONTINUED
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
Frontons. The acquisition was consummated as of December 31, 1996 for
accounting purposes. The WJA Frontons acquired have been combined with the Fort
Pierce Fronton into a new 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 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 and an annual interest rate of 6% (See Note I).
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, 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 for any year
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, 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, (See Note D).
12
<PAGE>
NOTE C--ACQUISITION OF WJA ASSETS--CONTINUED
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, Florida $17,428,059
Cash 381,997
Notes receivable 167,934
Inventory 134,974
Other assets 308,279
------------
$18,421,243
------------
------------
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
-----------
-----------
NOTE D--STOCK OPTIONS
The Company has various non-qualified and incentive stock option plans and
agreements which grant options with Board approval to employees, officers and
directors. Under each plan or agreement, the exercise price for each option
granted must be at least 100% of the fair market value of the Company's common
stock on the date the option is granted.
13
<PAGE>
NOTE D--STOCK OPTIONS--CONTINUED
Under a Stock Purchase Agreement, dated March 31, 1993 Florida Gaming granted
Freedom options to purchase 2,030,000 shares of Common Stock at an exercise
price of $1.25 per share, exercisable at any time prior to the fifth anniversary
of the closing. Reference is made to Note H for details of certain options
exercised by Freedom during 1994. Freedom has options for 1,330,000 shares at
$1.25 per share at December 31, 1996 and 1995.
The Company has separate 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 of 84,250 of the
Company's common stock at an exercise price of $2.50 per share. These options
are currently exercisable through December 31, 1997 and include certain
registration rights for all shares issued upon exercise (See Note H).
The Company has a Nonqualified Stock Option Plan, which received shareholder
approval on July 7, 1995, and which provides that 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. Any options issued pursuant to
this plan expire five years from date of grant.
The Company also has a 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 25,000 shares were granted under this plan in 1995.
The option price for these shares is the market value at the date of grant. The
options are not exercisable for a period of one year from grant or in the case
of directors, one year from their date of election to the Board. The options
expire five years from 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 was exercisable after November 8, 1995
and also expires five years from date of grant.
A summary of the Company's current stock-based employee compensation
arrangements is as follows:
At January 1, 1995
-------------------------------
Number Weighted Average
of Options Exercise Price
1993 Plans 84,250 $2.50
1994 Plans 250,000 $6.20
14
<PAGE>
NOTE D--STOCK OPTIONS--CONTINUED
At December 31, 1995
-------------------------------
Number Weighted Average
of Options Exercise Price
1993 Plans 84,250 $2.50
1994 Plans 250,000 $6.20
1995 Plans 344,000 $5.46
At December 31, 1996
-------------------------------
Number Weighted Average
of Options Exercise Price
1993 Plans 84,250 $2.50
1994 Plans 250,000 $6.20
1995 Plans 344,000 $5.46
1996 Plans 100,000 $6.31
Expiration Weighted Average
Year Grant Date Fair Value
---------- ---------------------
1993 Plans 1997 $0.83
1994 Plans 1999 $2.34
1995 Plans 2000 $2.06
1996 Plans 2001 $2.38
No options from the above plans were exercised or forfeited in either 1996 or
1995. The fair value of the options was determined using the Black-Scholes
option pricing model. The assumptions used during 1996 to value the Company's
stock options were as follows:
Risk-free rate of return 6.000%
Expected forfeitures None
Expected volatility 30.00%
Expected dividends None
No compensation cost was recognized during 1996 or 1995 for stock options issued
to employees and directors. Had the Company accounted for stock options issued
using the fair value method (FASB 123), the Company's compensation expense would
have been increased by $238,362 and $709,892, respectively. The fair value of
stock options granted in connection with the Company's acquisition of the Jai
Alai facilities described in Note C was $150,298. Such amount is included in
the basis of the assets acquired and in capital in excess of par value in the
accompanying 1996 balance sheet.
15
<PAGE>
NOTE E--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 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.
NOTE F--LOSS PER COMMON SHARE
The loss per common share was calculated based on the net loss, the amount of
the preferred stock dividend and the weighted average number of outstanding
common shares (3,598,905 and 3,120,674, for 1996 and 1995, respectively).
Options outstanding were not considered in the computations of loss per common
share as they were anti-dilutive.
NOTE G--RELATED PARTY TRANSACTIONS
General and administrative expenses include the following amounts paid to
members of the Board of Directors of the Company:
Years ended December 31,
1996 1995
----------- -----------
Directors' fees $18,000 $16,000
Directors' expense reimbursements -0- $ 1,542
Reference is made to Note K for details pertaining to the Company's credit
facility with Freedom Financial Corporation, a closely-held corporation owned
substantially by the Company's Chairman.
During 1996, the Board of Directors established the Chairman's annual salary at
$360,000, payable monthly. The Chairman had previously received no salary.
16
<PAGE>
NOTE H--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 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.
17
<PAGE>
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
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. Any such shares issued would carry "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 has 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 has 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. Since that date, the parties have been attempting to memorialize
the settlement reached and have exchanged several drafts of settlement. The
Company believes this matter will ultimately be settled or that this case will
be dismissed.
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
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
18
<PAGE>
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
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.
The Letter of Intent provides that Casino America will be the manager of the
casino and all casino-related improvements. The Company will manage the
operation of the jai-alai fronton, intertrack wagering and all other
non-casino related activities. Each corporation will receive a management
fee based on costs. The Letter of Intent provides that Casino America has
the exclusive right to enter into a Joint Venture with the Company for six
years and Casino America has a right of first refusal to enter into other
potential gaming opportunities in Florida with the Company for such period
and during the term of the Joint Venture. The formation of the Joint Venture
is subject to certain conditions, including the satisfactory completion of
due diligence by Casino America, the receipt of all required regulatory
approvals, the approval of each partner's board of directors, the execution
of a definitive joint venture agreement, and the approval of the Company's
stockholders, if required by law. Either party may terminate discussions in
connection with the Joint Venture and neither party shall have any liability
to the other, except as otherwise specified in the Letter of Intent.
Freedom Financial Corporation ("Freedom") has informed the Company that Casino
America has purchased 22,500 shares of Freedom's 7% Series AA Mandatorily
Redeemable Preferred Stock (the "Freedom Preferred Stock"). The Freedom
Preferred Stock is convertible into shares of the Company's Common Stock owned
by Freedom at prices ranging from $7.50 per share of Common Stock to $15.00 per
share of Common Stock, depending upon the timing of the conversion and possible
passage of an amendment to the Florida Constitution permitting casino gaming at
the Fronton. The Freedom Preferred Stock is convertible into a minimum of
150,000 shares and a maximum of 300,000 shares of the Common Stock. Casino
America is the sole holder of Freedom Preferred Stock. On October 12, 1994,
Freedom purchased 300,000 shares of Common Stock from the Company by partial
exercise of its option to purchase up to 1,630,000 shares (at that date) of the
Company's Common Stock at an exercise price of $1.25 per share. In addition to
its remaining option to purchase 1,330,000 shares of the Company's Common Stock,
Freedom now owns directly 1,349,480 shares of the Company's 4,340,626 shares of
issued and outstanding Common Stock. (See Note D.)
19
<PAGE>
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
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. Reference is made to Notes D and J for details of those
transactions involving these registration rights. A summary of such shares is
as follows:
Shares issued in 1994 to acquire
the Ft. Pierce fronton 200,000
Shares issued in 1994 to acquire
St. Lucie County real estate 47,336
Shares under option to a former
officer and director 84,250
--------
331,586
--------
--------
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. Total totalizator and other
equipment rental expense under operating leases for the year ended December 31,
1996 and 1995 was approximately $294,000 and $310,000, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1996, including those obligations assumed in connection with the Company's
acquisition of certain WJA assets (see Note C), are as follows:
Minimum
Year Annual Rental
---- -------------
1997 $1,150,000
1998 1,050,000
1999 400,000
----------
$2,600,000
----------
----------
20
<PAGE>
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
STOCK APPRECIATION GUARANTEES: In connection with the purchase of certain real
estate described in Note J, 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.
OTHER COMMITMENTS: Reference is made to Note L for details of the Company's
commitments arising from the pursuit of additional gaming ventures.
LITIGATION COSTS: In addition to legal fees incurred in the normal course of
the Company's business activities, during 1996 and 1995 the Company paid
approximately $107,000 and $99,000, respectively for settlement costs and legal
fees associated with the defense of the various lawsuits described above. Such
costs are included in Professional Fees in the accompanying Statements of
Operations.
21
<PAGE>
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and
bonuses based on parimutuel 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).
NOTE I--LONG-TERM DEBT
The Company's long-term debt comprises the following at December 31, 1996:
CURRENT LONG-TERM
------- ---------
Mortgage note dated September 30, 1994 secured
by 18.584 acres in St. Lucie County, Florida
(Graham Road); payable in monthly installments
of $2,042 including interest at 10% per annum
through August 30, 1997 with a balloon payment
of $172,888, including interest, due on
September 30, 1997. $175,606 -0-
Mortgage note dated June 17, 1994 secured by real
estate located in St. Lucie County; payable in
monthly installments of $425 including interest
at 8% per annum through June 17, 2004. 2,909 $ 25,524
Mortgage noted dated January 3, 1995 secured
by real estate located in St. Lucie county;
payable in monthly installments of $1,980
including interest at 9.5% per annum through
December 3, 1999 with a balloon payment of
$226,774, plus interest, due on January 3,
2000. 1,741 230,790
Mortgage note dated January 3, 1995 secured
by real estate located in St. Lucie county;
payable in monthly installments of $2,079
including interest at 9.5% per annum
through December 3, 1999 with a balloon
payment of $238,113, plus interest due
on January 3, 2000. 1,828 240,238
22
<PAGE>
NOTE I--LONG-TERM DEBT--CONTINUED
CURRENT LONG-TERM
------- ---------
Mortgage note dated January 31, 1995
secured by real estate located in St. Lucie
county; payable as follows: $2,655 monthly
at 8% per annum through February 1, 1996;
$4,548 monthly at 9% per annum from March 1,
1996 through February 1, 1998; $4,017 monthly
at 9.5% or prime rate plus 2% (whichever is
greater) per annum from March 1, 1998 through
February 1, 2000; a balloon payment of
approximately $277,958, plus interest, due on
February 1, 2000. $ 24,952 $ 315,404
A non-interest bearing note payable dated
September 12, 1996 unsecured; payable in
quarterly installments based on net cash
flow calculations computed by the note
maker (Florida Gaming Corporation) at the
end of each quarter; note maker has no
obligation to pay principal under the note
except to the extent of an undivided fifty
percent (50%) of all collections in excess
of $12,000,000 United States dollars in
respect of the WJA (World Jai Alai) notes -0- 1,000,000
Mortgage note dated September 12, 1996
secured by real estate located in Tampa,
Ocala, Fort Pierce, and Miami, Florida;
also secured by security agreement on
furniture, fixtures, equipment, receivables
and intangibles in Tampa, Ocala, and Miami,
Florida payable as follows: interest only
on the last day of January and February 1997
at prime rate per annum; principal amount
of $83,333.33 plus interest on the last day
of March 1997, April 1997, May 1997, June 1997,
July 1997, and August 1997 at prime rate per
annum; principal amount of $166,666.66 plus
interest on last day of September 1997 and
thereafter on the last day of each month
until August 31, 1998 at prime rate per annum;
a final installment in the amount of all
principal then outstanding plus interest on
September 12, 1998 at prime rate per annum. 1,166,667 4,833,333
23
<PAGE>
NOTE I--LONG-TERM DEBT--CONTINUED
CURRENT LONG-TERM
------- ---------
Note payable to Wheeler-Phoenix, Inc.,
assumed in connection with the
acquisition of assets described in Note C;
payable in 10 annual installments plus
interest at 6%. $ 50,000 $ 450,000
---------- ----------
$1,423,703 $7,095,289
---------- ----------
---------- ----------
The approximate maturities of the Company's long-term debt for the five years
subsequent to December 31, 1996 are as follows: 1997--$1,373,703;
1998--$4,856,105; 1999--$28,272; 2000--$745,646; 2001--$4,002;
thereafter--$1,011,264.
NOTE J--PROPERTY, PLANT AND EQUIPMENT
Plant and equipment comprise the following:
December 31,
1996 1995
----------- ----------
Land (undeveloped) $ 1,617,495 $1,617,495
Land (improved) 9,840,000 1,115,030
Buildings and improvements 9,597,450 1,898,151
Equipment, furniture and fixtures 1,663,669 543,390
Vehicles 59,851 47,015
Less accumulated depreciation (528,700) (336,644)
----------- ----------
$22,243,765 $4,884,437
----------- ----------
----------- ----------
The Company made three purchases of undeveloped land during 1994. The three
purchases comprised approximately 20 acres, including two separate lots, all of
which are adjacent to the Ft. Pierce Jai Alai property. The amounts paid for
this property totaled $529,864 including debt assumptions of $190,000, cash
payments of $185,000 and the issuance of 47,336 shares of the Company's common
stock.
Reference is made to Note H for information pertaining to guarantees of the
value of such stock at various futures dates and certain registration rights
granted with respect to the shares issued.
24
<PAGE>
NOTE J--PROPERTY, PLANT AND EQUIPMENT--CONTINUED
During 1995, the Company acquired an additional 80 acres of undeveloped land
adjacent to its other properties in Ft. Pierce, Florida at a cost of $1,088,000
through cash payments of $243,000 and the issuance of long-term debt of
$845,000. The Company has no definitive plans for the property acquired;
however due to its proximity to its Ft. Pierce Jai Alai facilities, it is
expected to be used in similar or supporting activities.
NOTE K--NOTES RECEIVABLE
Included in notes receivable in the accompanying 1996 and 1995 balance sheets is
a note comprising a line of credit granted to Freedom Financial Corporation on
December 15, 1995. The balances of such line were $1,796,860 and $350,000 at
December 31, 1996 and 1995, respectively. The credit facility, which is secured
by refundable income taxes and real estate owned by Freedom, is due on demand
and bears interest at 2% above prime. Interest receivable on this line of
credit totaled $119,348 and $2,215 at December 31, 1996 and 1995, respectively.
Freedom paid no interest to the Company during 1996. Freedom Financial is owned
substantially by the Company's Chairman. No independent determination of the
loan to collateral value ratio has been made.
As described in Note C, during 1996 the Company acquired certain notes of WJA
with a face value of approximately $20,000,000. These notes were ultimately
canceled by the Company in exchange for substantially all of the assets of WJA.
The Company accrued interest income of $1,101,087 on these notes from their date
of acquisition to their date of cancellation.
NOTE L--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 instruments should the gaming operations materialize.
The Company expended $21,000 and
25
<PAGE>
NOTE L--GAMING VENTURE INVESTMENTS--CONTINUED
$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. $21,000 and
$323,000 of the funds expended in 1996 and 1995, 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 expires 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.
26
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995
TOGETHER WITH
REPORT OF INDEPENDENT AUDITORS
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of WJA Realty
Limited Partnership:
We have audited the accompanying balance sheets of WJA Realty Limited
Partnership as of December 31, 1996 and 1995, and the related statements of
operations, partners' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WJA Realty Limited
Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 2, on January 1, 1997, Florida Gaming Corporation
("FGC") acquired the frontons including assets and permits used in the
conduct of the business in exchange for cancellation of the partnership's
loan payable (including accrued interest) to FGC and the assumption of WJA's
other liabilities (subject to certain limitations). The 200,000 shares of
FGC common stock valued at $1,062,600 at December 31, 1996 remained as an
asset of the partnership. The partnership will recognize a gain for
financial statement purposes of approximately $11,300,000 in 1997 as a result
of the acquisition.
/s/ McKean, Paul, Chrycy, Fletcher & Co.
McKEAN, PAUL, CHRYCY, FLETCHER & CO.
Miami, Florida
February 25, 1997
1
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
---- ----
<S> <C> <C>
Cash $ 381,995 $ 491,202
Receivables, net 156,086 164,707
Note receivable - Florida Gaming Corporation 800,000 900,000
Florida Gaming Corporation common stock at market value 1,062,600 200,000
Investment in Summer Jai-Alai 78,838 145,647
Inventories 134,971 144,450
Prepaid expenses and other 266,095 331,176
Property, plant and equipment, at cost:
Land 6,456,036 6,456,038
Buildings and improvements 24,222,415 24,160,398
Furniture and equipment 3,778,107 3,721,432
----------- -----------
34,456,558 34,337,868
Less - Accumulated depreciation (21,851,745) (21,186,820)
----------- -----------
12,604,813 13,151,048
----------- -----------
$15,485,398 $15,528,230
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Loan payable to Florida Gaming Corporation $16,882,234 $ -
Loan payable to bank - 17,051,258
Subordinated note payable to limited partner 500,000 500,000
Accounts payable and accrued expenses 8,348,229 6,483,063
----------- -----------
Total liabilities 25,730,463 24,034,321
PARTNERS' DEFICIT (10,245,065) (8,506,091)
----------- -----------
$15,485,398 $15,528,230
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
2
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Pari-mutuel revenues, net of $4,094,144 and $4,019,180 in 1996
and 1995, respectively, paid to the State of Florida $13,069,417 $13,066,474
Inter-track-wagering commissions 2,802,628 2,492,794
Admissions, net of $179,159 and $179,585 in 1996 and 1995,
respectively, paid to the State of Florida 431,428 465,496
Food, beverage and other 3,043,939 3,418,614
----------- -----------
Total revenues 19,347,412 19,443,378
EXPENSES:
Operating 13,468,173 12,700,509
Food, beverage and other 2,527,727 2,324,592
General and administrative 3,368,146 3,393,280
Depreciation and amortization 664,920 710,480
----------- -----------
Total expenses 20,028,966 19,128,861
----------- -----------
----------- -----------
Income (loss) from operations (681,554) 314,517
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,900,000) (1,838,286)
Interest income, net 25,789 81,524
Equity in earnings (loss) of Summer Jai-Alai (Note 4) (45,809) 133,857
----------- -----------
Total other income (expense) (1,920,020) (1,622,905)
----------- -----------
Net income (loss) ($2,601,574) $(1,308,388)
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partners Partners Deficit
-------- -------- -------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ (73,416) $ (7,124,287) $ (7,197,703)
Net loss (13,346) (1,295,042) (1,308,388)
---------- ------------ ------------
BALANCE AT DECEMBER 31, 1995 (86,762) (8,419,329) (8,506,091)
---------- ------------ ------------
Net loss (26,536) (2,575,038) (2,601,574)
Unrealized gain on Florida Gaming
Corporation common stock 8,799 853,801 862,600
---------- ------------ ------------
BALANCE AT DECEMBER 31, 1996 $ (104,499) $(10,141,166) $(10,245,065)
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($2,601,574) $(1,308,388)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 664,925 710,480
Equity in earnings (loss) of Summer Jai-Alai 45,809 (133,857)
(Increase) decrease in operating assets-
Receivables 8,621 99,776
Inventories 9,479 (17,051)
Prepaid expenses and other 65,081 243,661
Increase in operating liabilities-
Accounts payable and accrued expenses 1,865,166 426,888
---------- -----------
Net cash provided by operating activities 57,507 21,509
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash distributions from Summer Jai-Alai 21,000 105,000
Payments received on note receivable - Florida Gaming Corporation 100,000 100,000
Purchases of property, plant and equipment (118,690) (141,961)
---------- -----------
Net cash provided by investing activities 2,310 63,039
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on loan payable to Florida Gaming
Corporation (169,024) -
Principal payments on loan payable to bank - (196,775)
---------- -----------
Net cash used in financing activities (169,024) (196,775)
---------- -----------
NET DECREASE IN CASH (109,207) (112,227)
CASH, beginning of year 491,202 603,429
---------- -----------
CASH, end of year $ 381,995 $ 491,202
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURES:
Interest paid $ - $ 700,437
---------- -----------
---------- -----------
Unrealized gain on Florida Gaming Corporation common stock $ 862,600 $ -
---------- -----------
---------- -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
WJA REALTY LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(1) GENERAL:
WJA Realty Limited Partnership ("WJA") is a limited partnership which operates
jai-alai frontons in the State of Florida ("the State") for pari-mutuel wagering
on the game of jai-alai. Pari-mutuel wagering is betting by members of the
public against each other. Wagers may be placed at the fronton on performances
conducted by WJA (live wagering) or at other betting facilities (Guests)
receiving transmissions from WJA (inter-track wagering). At WJA's Miami (in
1996 only), Tampa and Ocala frontons, wagers may also be placed on performances
conducted by other pari-mutuel operators (Hosts) sending transmissions to WJA.
WJA acts as the broker for wagers placed by the public and deducts a commission
from the total pari-mutuel handle (total wagering) as defined by Florida
statutes. The commission is shared by WJA and the State. Participating Guests
earn a contractual percentage of WJA's total wagering from inter-track wagering.
WJA, in turn, earns a contractual percentage of the total wagers placed on
performances transmitted to WJA that are conducted by other Hosts.
The frontons are able to conduct an unlimited number of performances per year,
except that the Miami fronton does not operate during the dates that have been
set aside for the operations of Summer Jai-Alai ("SJA") as discussed in Note 4.
The dates for SJA were from May 1 to August 16, in 1996 (3 1/2 months) and July
1 to November 30, in 1995 (5 months).
(2) SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF FINANCIAL STATEMENT PRESENTATION -
The financial statements reflect the operations of the three frontons and
its related net assets as of December 31, 1996 and 1995. On January 1,
1997, Florida Gaming Corporation ("FGC") acquired the frontons including
all assets and permits used in the conduct of the business in exchange for
the cancellation of the partnership's loan payable (including accrued
interest) to FGC and the assumption of WJA's other liabilities (subject
to certain limitations). The 200,000 shares of FGC common stock valued at
$1,062,600 at December 31, 1996 remained as an asset of the partnership.
The partnership will recognize a gain for financial statement purposes of
approximately $11.3 million in 1997 as a result of the acquisition.
Under the terms of the acquisition agreement, WJA will receive 20% of the
cumulative net profits for each of the next 10 years (1997 - 2006) subject
to a cumulative $1 million cap per year. Other aspects of the 20% profit
provision may affect the profit payout.
(b) MARKETABLE SECURITIES -
At December 31, 1995, WJA had 200,000 restricted shares of Class A common
stock of Florida Gaming Corporation valued at $200,000. The restriction on
the sale of these shares terminated on February 1, 1997. WJA valued the
200,000 shares at market value
6
<PAGE>
at December 31, 1996 and classified the shares as "available for sale", and
recorded an unrealized holding gain of $862,600 in 1996 as a separate
component of partners' deficit.
(c) DEPRECIATION METHODS -
Depreciation of property is provided by using both straight-line and
accelerated methods. The estimated useful lives used in computing
depreciation are as follows:
Buildings and building improvements 5 - 40 years
Equipment, furnishings and fixtures 3 - 15 years
(d) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and revenue and expenses during the periods reported.
Actual results could differ from those estimates.
(e) INCOME TAXES -
Under Federal income tax laws, a partnership is not subject to tax; rather,
the income or loss is includible in the income tax returns of the partners.
Accordingly, there is no tax benefit reflected in the accompanying
financial statements.
(f) RECLASSIFICATION -
Certain reclassifications have been made to the 1995 financial statement
amounts to conform to the 1996 presentation.
(3) LIMITED PARTNERSHIP AGREEMENT:
The limited partnership agreement provides for allocations of income or loss and
distributions (as defined) among the general and limited partners of WJA. The
partnership agreement provides that the limited partnership will be dissolved on
or before December 31, 2027, upon agreement of all the partners.
(4) INVESTMENT AND PARTICIPATION IN SUMMER JAI-ALAI:
WJA and three other pari-mutuel permit holders own Summer Jai-Alai ("SJA"), a
partnership formed for the purpose of conducting pari-mutuel jai-alai operations
at WJA's Miami fronton during the six months between May 1 to October 31
("Summer Jai-Alai Operations"). WJA has a 21 % interest in the partnership
which is accounted for under the equity method. SJA is governed by an operating
agreement with WJA. Under the terms of the agreement, certain of WJA's costs
and expenses are allocated to Summer Jai-Alai Operations based upon specific
formulas as set forth in the agreement. Total expenses allocated to Summer Jai-
Alai aggregated approximately $1,919,000 and $2,740,000 in 1996 and 1995,
respectively.
7
<PAGE>
During 1996 and 1995, WJA and SJA shared dates and performances at the Miami
fronton as follows:
1996 1995
---- ----
WJA SJA WJA SJA
--- --- --- ---
No. of months of operation
included in revenues 8 1/2 3 1/2 7 5
----- ----- ----- ----
----- ----- ----- ----
No. of performances 329 135 272 196
----- ----- ----- ----
----- ----- ----- ----
WJA has allocated to SJA the operating income (loss) which would have occurred
had SJA been operating during its normal six month period of May 1, through
October 31. These allocated amounts of an operating loss of ($217,771) in 1996
and income of $274,289 in 1995 are included in operating expenses in the
accompanying statements of operations.
In addition, pursuant to a lease agreement which expires in 2004, Summer Jai-
Alai Operations rents the Miami fronton from WJA for the time in which its
season is conducted. The rental is based upon 1% of handle, plus applicable
Florida sales tax. Rent from Summer Jai-Alai Operations approximated $216,000
and $325,000 in 1996 and 1995, respectively, and is included in food, beverage
and other revenues in the accompanying statements of operations.
(5) LOAN PAYABLE TO THE BANK:
The $17,051,258 loan payable to a bank at December 31, 1995 had been past due
and in default. The bank had entered into two Forbearance Agreements, without
waiving the original default provisions of the loan, and had agreed to extend
the loan until June 30, 1996 if certain conditions were met. On September 12,
1996, Florida Gaming Corporation purchased the WJA Realty Limited Partnership
loan payable to a bank. As discussed in Note 2, on January 1, 1997 the loan
and accrued interest was cancelled in exchange for the acquisition of
substantially all of WJA's assets.
(6) LEGAL MATTERS:
(a) ESCHEATED UNCLAIMED WINNINGS -
Certain unclaimed winnings, which relate to the period during which the
Jai-Alai industry was deregulated in the State of Florida, were not
remitted to the State of Florida and are accrued in the accompanying
balance sheet. During 1996, Florida Gaming Corp. ("FGC") agreed to pay the
State of Florida $150,000 (of which $25,000 was paid in January, 1997) by
April 30, 1997 as a condition of the State's approval of FGC's acquisition
of substantially all the assets of WJA.
8
<PAGE>
(b) OTHER CLAIMS -
There are various other matters of litigation pending against WJA which
management has reviewed with legal counsel and which are substantially
covered by insurance or are accrued in the accompanying financial
statements. Management believes that the aggregate liability to WJA beyond
amounts already accrued, if any, resulting from these matters will not be
material.
The Partnership is self insured for certain general liability claims up to
$100,000 per occurrence. The estimated cost of the claims is recognized as
an expense (approximately $290,000 and $200,000 in 1996 and 1995,
respectively) when there is a likelihood that the Partnership has a
reasonable probability of making a settlement. At December 31, 1996 and
1995, the Partnership had an accrued liability of approximately $174,000
and $73,000, respectively, for self insurance claims.
(7) COMMITMENTS:
WJA rents totalisator equipment at each fronton under leases which expire at
various dates through 1999. The totalisator leases require a minimum annual
rental plus contingent annual rentals based on a percentage of handle in excess
of the minimum annual rental at two of WJA's frontons. Total totalisator rental
expense under operating leases for the years ended December 31, 1996 and 1995
was approximately $900,000 and $855,000, respectively. The remaining minimum
lease commitments under all operating leases at December 31, 1995, are as
follows:
Minimum
Year Annual Rental
---- -------------
1997 $ 850,000
1998 750,000
1999 400,000
----------
$2,000,000
----------
----------
The minimum annual rental includes amounts relating to Summer Jai-Alai
Operations. Totalisator rental expense is allocated to Summer Jai-Alai
Operations based on its pro rata share of total handle at the Miami fronton.
Total lease expense allocated to Summer Jai-Alai Operations was approximately
$222,000 and $236,000 for the years ended December 31, 1996 and 1995,
respectively.
(8) RELATED PARTY TRANSACTIONS:
WJA paid an aggregate of approximately $123,000 and $104,000 in 1996 and 1995,
respectively, to related parties for consulting services and various expenses.
Additionally, during 1990, WJA received a $500,000 loan in the form of a
subordinated note from Wheeler Phoenix, Inc. ( a limited partner). The limited
partner had waived any interest payments on the Note which was due July 1992.
The Note has been assumed by FGC in conjunction with their acquisition discussed
in Note 2.
9
<PAGE>
In 1996 and 1995, WJA received approximately $192,000 and $310,000,
respectively, in inter-track wagering commissions from SJA for wagers placed on
SJA performances transmitted to WJA's Ocala and Tampa frontons. At December 31,
1996 and 1995, $38,818 and $129,218, respectively, was due to Summer Jai-Alai
Operations and is included in accounts payable and accrued expenses in the
accompanying balance sheets.
(9) BENEFIT PLANS:
WJA, as required by the Collective Bargaining Agreement, has established a
defined contribution plan for certain eligible employees covered under the
Bargaining Agreement, allowing for the deferral of salary and employer matching
under the provisions of Internal Revenue Code Section 401 (k). WJA also
established a similar plan for employees not covered under the Bargaining
Agreement. WJA has recorded a provision of approximately $116,000 and $111,000
related to the matching costs under these plans for the years ended December 31,
1996 and 1995, respectively.
10
<PAGE>
FLORIDA GAMING CORPORATION
AND
WJA REALTY LIMITED PARTNERSHIP
INTRODUCTORY HEAD NOTE
TO PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
UNAUDITED
On December 31, 1996, Florida Gaming Corporation (the "Company") acquired
substantially all of the assets of WJA Realty Limited Partnership (WJA), in
exchange for the cancellation of WJA's notes payable to the Company totaling
$14,692,298, including accrued interest, the assumption of approximately
$3,578,647 of other liabilities of WJA and the issuance of stock options with a
fair value of $150,298 at date of grant. The Company did not acquire the
200,000 shares of Florida Gaming stock owned by WJA.
The Company accounted for the acquisition of WJA's assets using the purchase
method of accounting. The total purchase price was $18,621,243 comprising the
above note cancellation, debt assumption and estimated professional fees of
$200,000 associated with the transaction. In accordance with generally accepted
accounting principles, the purchase price was allocated to the assets acquired
based on their fair value at the date of acquisition. Management estimated fair
value using available appraisals or other cost information with respect to the
individual assets.
The pro forma consolidating financial statements should be read in conjunction
with:
The Company's audited financial statements and related notes as of December
31, 1996 and December 31, 1995 included in the Form 8-K-A (No. 0-9099)
filed by the Company under the Securities Exchange Act of 1934.
WJA's audited financial statements and related notes as of December 31,
1996 and 1995 and for the years then ended.
The notes to the pro forma consolidating financial statements.
The pro forma consolidating financial statements combine the historical balance
sheet of the Company with the historical balance sheet of WJA as of December 31,
1996. The historical statements of operations of the Company have been combined
with the historical statements of operations of WJA for the years ended December
31, 1996 and year ended December 31, 1995.
<PAGE>
FLORIDA GAMING CORPORATION
AND
WJA REALTY LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATING
HISTORICAL FLORIDA GAMING & WJA REALTY
-----------------------------------------------------------------------------
FLORIDA ADJUSTMENTS PRO FORMA
GAMING CORP WJA REALTY (SEE NOTE 3) CONSOLIDATED
------------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $907,527 $381,995 ($381,995) $907,527
RECEIVABLES $2,100,259 $156,086 ($156,086) $2,100,259
$0 $0 $0 $0
PREPAID AND OTHER $0 $266,095 ($266,095) $0
INVENTORIES $169,419 $134,971 ($134,971) $169,419
$0 $0 $0 $0
---------------------------------------------------- ------------
TOTAL CURRENT ASSETS $3,177,205 $939,147 ($939,147) $3,177,205
PROPERTY, PLANT AND EQUIPMENT
LAND $11,457,495 $6,456,036 ($6,456,036) $11,457,495
BUILDINGS AND IMPROVEMENTS $9,747,978 $24,222,415 ($24,222,415) $9,747,978
FURNITURE, FIXTURES AND EQUIPMENT $1,717,520 $3,778,107 ($3,778,107) $1,717,520
---------------------------------------------------- ------------
$22,922,993 $34,456,558 ($34,456,558) $22,922,993
LESS ACCUMULATED DEPRECIATION ($528,700) ($21,851,745) $21,851,745 ($528,700)
---------------------------------------------------- ------------
$22,394,293 $12,604,813 ($12,604,813) $22,394,293
OTHER ASSETS
NOTE RECEIVABLE -FLORIDA GAMING CORP $0 $800,000 ($800,000) $0
INVESTMENT, SJA PARTNERSHIP $0 $78,838 ($78,838) $0
GAMING VENTURE INVESTMENTS $310,000 $0 $0 $310,000
FLORIDA GAMING STOCK $0 $1,062,600 ($1,062,600) $0
OTHER ASSETS $423,551 $0 $0 $423,551
---------------------------------------------------- ------------
$733,551 $1,941,438 ($1,941,438) $733,551
---------------------------------------------------- ------------
$26,305,049 $15,485,398 ($15,485,398) $26,305,049
---------------------------------------------------- ------------
---------------------------------------------------- ------------
(CONTINUED)
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES
ACCOUNTS PAYABLE $3,130,547 $8,348,229 ($8,348,229) $3,130,547
OTHER ACCRUED EXPENSES $243,985 $0 $0 $243,985
UNCLAIMED WINNINGS $930,017 $0 $0 $930,017
CURRENT PORTION OF LONG-TERM DEBT $1,423,703 $0 $0 $1,423,703
NOTE PAYABLE TO FLORIDA GAMING $0 $16,882,234 ($16,882,234) $0
---------------------------------------------------- ------------
TOTAL CURRENT LIABILITIES $5,728,252 $25,730,463 ($25,730,463) $5,728,252
LONG-TERM DEBT $7,095,289 $500,000 ($500,000) $7,095,289
PARTNERSHIP CAPITAL (DEFICIT) $0 ($10,245,065) $10,245,065 $0
SHAREHOLDERS' INVESTMENT
CLASS A PREFERRED STOCK, CONVERTIBLE
TO COMMON STOCK; $.10 PAR VALUE $3,443 $0 $0 $3,443
CLASS B PREFERRED STOCK, CONVERTIBLE
TO COMMON STOCK; $.10 PAR VALUE $199 $0 $0 $199
CLASS C PREFERRED STOCK, CONVERTIBLE
TO COMMON STOCK; $.10 PAR VALUE 55 $0 $0 $55
CLASS D PREFERRED STOCK, CONVERTIBLE
TO COMMON STOCK; $.10 PAR VALUE 65 $0 $0 $65
COMMON STOCK, $.10 PAR VALUE, AUTHORIZED
15,000,000 SHARES, 4,340,626 SHARES
ISSUED AND OUTSTANDING $434,063 $0 $0 $434,063
CAPITAL IN EXCESS OF PAR VALUE $35,276,095 $0 $0 $35,276,095
ACCUMULATED DEFICIT ($22,232,412) $0 $0 ($22,232,412)
---------------------------------------------------- ------------
TOTAL SHAREHOLDERS' INVESTMENT $13,481,508 ($10,245,065) $10,245,065 $13,481,508
---------------------------------------------------- ------------
$26,305,049 $15,485,398 ($15,485,398) $26,305,049
---------------------------------------------------- ------------
---------------------------------------------------- ------------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
FLORIDA GAMING CORPORATION
AND
WJA REALTY LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL FLORIDA GAMING & WJA REALTY
-----------------------------------------------------------------------------
FLORIDA ADJUSTMENTS PRO FORMA
GAMING CORP WJA REALTY (SEE NOTE 3) CONSOLIDATED
------------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
REVENUES
PARI-MUTUEL REVENUES $2,934,088 $13,069,417 $0 $16,003,505
ADMISSIONS AND PROGRAMS $339,422 $3,475,367 $0 $3,814,789
FOOD, BEVERAGE AND OTHER $499,024 $2,802,628 $0 $3,301,652
---------------------------------------------------- ------------
TOTAL REVENUES $3,772,534 $19,347,412 $0 $23,119,946
EXPENSES
OPERATING ($2,801,144) ($15,995,900) $0 ($18,797,044)
GENERAL AND ADMINISTRATIVE ($2,443,085) ($3,368,146) $70,000 ($5,741,231)
DEPRECIATION AND AMORTIZATION ($193,205) ($664,920) $244,988 ($613,137)
---------------------------------------------------- -------------
TOTAL OPERATING EXPENSE ($5,437,434) ($20,028,966) $314,988 ($25,151,412)
---------------------------------------------------- ------------
INCOME (LOSS) FROM OPERATIONS ($1,664,900) ($681,554) $314,988 ($2,031,466)
OTHER INCOME (EXPENSE)
INTEREST EXPENSE $0 ($1,900,000) $1,900,000 $0
INTEREST INCOME $1,179,386 $25,789 ($1,101,087) $104,088
GAIN ON SALE OF ASSETS $414 $0 $0 $414
GAIN/(LOSS) IN SJA PARTNERSHIP $0 ($45,809) $0 ($45,809)
OTHER, NET ($34,000) $0 $0 ($34,000)
---------------------------------------------------- ------------
NET INCOME (LOSS) BEFORE TAXES ($519,100) ($2,601,574) $1,113,901 ($2,006,773)
---------------------------------------------------- ------------
---------------------------------------------------- ------------
NET INCOME (LOSS) PER COMMON SHARE ($0.15) ($0.46)
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
FLORIDA GAMING CORPORATION
AND
WJA REALTY LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL FLORIDA GAMING & WJA REALTY
-----------------------------------------------------------------------------
FLORIDA ADJUSTMENTS PRO FORMA
GAMING CORP WJA REALTY (SEE NOTE 3) CONSOLIDATED
------------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
REVENUES
PARI-MUTUEL REVENUES $3,138,404 $15,391,066 $0 $18,529,470
ADMISSIONS $151,438 $465,496 $0 $616,934
FOOD, BEVERAGE AND OTHER $1,069,796 $3,586,816 ($72,667) $4,583,945
---------------------------------------------------- ------------
TOTAL REVENUES $4,359,638 $19,443,378 ($72,667) $23,730,349
EXPENSES
OPERATING ($2,873,849) ($15,025,101) $0 ($17,898,950)
GENERAL AND ADMINISTRATIVE ($1,594,856) ($3,393,280) $0 ($4,988,136)
DEPRECIATION AND AMORTIZATION ($194,682) ($710,480) $244,988 ($660,174)
---------------------------------------------------- ------------
TOTAL OPERATING EXPENSE ($4,663,387) ($19,128,861) $244,988 ($23,547,260)
---------------------------------------------------- ------------
INCOME (LOSS) FROM OPERATIONS ($303,749) $314,517 $172,321 $183,089
OTHER INCOME (EXPENSE)
INTEREST EXPENSE ($167,206) ($1,838,286) $1,838,286 ($167,206)
OTHER, NET $0 $215,381 $0 $215,381
---------------------------------------------------- ------------
NET INCOME (LOSS) BEFORE TAXES ($470,955) ($1,308,388) $2,010,607 $231,264
TAXES $0 $0 ($42,301) ($42,301)
---------------------------------------------------- ------------
NET INCOME (LOSS) ($470,955) ($1,308,388) $1,968,306 $188,963
---------------------------------------------------- ------------
---------------------------------------------------- ------------
NET INCOME (LOSS) PER COMMON SHARE ($0.15) $0.06
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
ADDENDUM TO FORM 8-K
FLORIDA GAMING CORPORATION
AND
WJA REALTY LIMITED PARTNERSHIPS
NOTES TO PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
UNAUDITED
(1) The accompanying pro forma consolidating balance sheet and statements
of operations combine the historical balance sheet of the Company at
December 31, 1996 with the historical balance sheet of WJA as of December
31, 1996. The historical statements of operations of the Company for the
years ended December 31, 1996 and 1995, have been combined with the
historical statements of operations of WJA for the year ended December 31,
1996 and 1995, respectively.
(2) Pro forma income/loss per share has been computed based on the weighted
average number of common shares outstanding for the income statement
period.
(3) The following adjustments have been made to give pro forma effect to the
transaction described in the introductory head note:
(A) On December 31, 1996, Florida Gaming Corporation (the "Company")
acquired substantially all of the assets of WJA Realty Limited
Partnership (WJA) in exchange for the cancellation of WJA's notes
payable to the Company with a carrying value of $14,692,298 including
accrued interest of $4,435,003, the assumption by the Company of
$3,578,647 of WJA's other liabilities, the expenditure of an estimated
$200,000 in professional fees related to the transaction and the
issuance of stock options to the sellers with a fair value of $150,298
at grant date. The Company did not acquire the 200,000 shares of
Florida Gaming common stock owned by WJA.
The acquisition of WJA's assets by the Company has been accounted for
as a purchase. Management estimates that the consideration given
approximates the fair value of tangible assets acquired and
accordingly, no goodwill will be recognized at the date of purchase.
(B) WJA has an 8% note receivable from the Company with balances of
$800,000 and $900,000 at December 31, 1996 and December 31, 1995,
respectively. The December 31, 1996 balance sheet was adjusted to
eliminate the note balance. $70,000 and $72,667 in related interest
income and expense has been eliminated from the 1996 and 1995
Statements of Operations, respectively, where appropriate.
(C) WJA holds 200,000 shares of the Company's common stock carried at
$200,000 on the December 31, 1996 balance sheet which was eliminated
in the pro forma consolidation.
<PAGE>
(D) Interest expense on WJA's December 31, 1996 and 1995 Statements of
Operations of $1,900,000 and $1,838,000, respectively related to
notes payable to the Company was eliminated. Interest income on
the Company's December 31, 1996 Statement of Operations of $1,101,087
was also eliminated.
(E) Depreciation expense has been adjusted on the WJA assets to reflect
the new bases resulting from the allocation of the purchase price.
(F) The December 31, 1996 and December 31, 1995 Statements of Operations
have been adjusted to reflect income tax expense on consolidated
pre-tax income at a rate of 40% where appropriate.
(4) A contingent liability exists with respect to future profits under a profit
sharing arrangement. If the facilities acquired are profitable, a portion
of such profits are payable to the sellers of WJA for calendar years 1997
through 2006. The amount of the annual required payment will be calculated
at 20% of income before income taxes for the acquired facilities subject to
a cumulative required payment cap of $1,000,000 per year. If the
$1,000,000 cap is exceeded additional provisions apply.
This contingent liability has not been reflected in the pro forma financial
statements. If additional payments are made to the sellers under the
profit sharing arrangement, such payments will be treated as additional
purchase price and recorded as goodwill prospectively.
