<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission file number 0-9099
FLORIDA GAMING CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 59-670533
______________________ ________________________
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3500 NW 37TH AVENUE, MIAMI, FLORIDA 33142-0000
_______________________________________________________________________
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
_______________
Former name, former address and former fiscal year, if changed since last report
_____________________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
___________ _____________
5,586,940 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, NOVEMBER 14, 1997.
Transitional Small Business Disclosure Format:
YES NO X
______________ _______________
<PAGE>
FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
PAGE NUMBER
___________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations (unaudited) Three & Nine Months ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows (unaudited) Nine Months ended
September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited) . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . 16
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 23
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 30,
1997 1996
_____________ ____________
CURRENT ASSETS:
Cash & cash equivalents (Note 2) . . . . . . $803,025 $907,527
Accounts receivable & current portion
of notes receivable (Note 6). . . . . . . . 3,428,574 2,100,259
Inventory (Note 2) . . . . . . . . . . . . . 92,907 169,419
Prepaid expense and other . . . . . . . . . . 472,673 103,200
---------- ----------
Total current assets 4,797,179 3,280,405
PROPERTY AND EQUIPMENT:
Land (Notes 2 and 8). . . . . . . . . . . . . 11,647,485 11,457,495
Building & Improvements (Notes 2 and 8) . . . 11,714,405 9,747,978
Furniture, fixtures and equipment
(Notes 2 and 8) . . . . . . . . . . . . . . 2,188,785 1,717,520
---------- ----------
25,550,675 22,922,993
Less accumulated depreciation . . . . . . . . (974,612) (528,700)
---------- ----------
24,576,063 22,394,293
---------- ----------
GAMING VENTURE INVESTMENTS . . . . . . . . . 340,000 340,000
RESERVE GAMING V ENTURE LOAN (Note 9). . . . (340,000) (30,000)
OTHER ASSETS. . . . . . . . . . . . . . . . . . 606,953 320,351
---------- ----------
$29,980,195 $26,305,049
========== ==========
continued
3
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 30, 1996
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 2)............................................ $ 5,133,176 $ 3,124,426
Other accrued expenses............................................... 1,377,465 1,180,123
Short-term borrowing and current portion of long-term debt........... 5,834,808 1,423,703
------------ -------------
Total current liabilities...................................... 12,345,449 5,728,252
LONG-TERM LIABILITIES
Long-term portion note payable (Note 2).............................. 3,443,818 7,095,289
STOCKHOLDER'S EQUITY (See Notes 2,4,5, and 7):
Class A convertible preferred stock, convertible to common stock;
$.10 par value, 1,200,000 shares authorized, 34,435 shares
issued and outstanding at September 30, 1997, and December 31, 1996. 3,443 3,443
Class B convertible preferred stock; convertible to common stock,
5,000 shares authorized; 545 and 1,990 shares issued and
outstanding at September 30, 1997 and December 31, 1996,
respectively...................................................... 54 199
Class C 8% cumulative convertible preferred stock, convertible
to common stock, 5,000 shares authorized; 250 shares issued and
outstanding at September 30, 1997 and December 31,1996............. 25 55
Class D 8% cumulative convertible preferred stock, 5,000 shares
authorized; 25 shares issued and outstanding at September 30, 1997
and December 31, 1996............................................. 3 65
Class E 8% cumulative convertible preferred stock, 5,000 shares
authorized; 2000 shares issued and outstanding at
September 30, 1997 ................................................. 200 ---
Common stock, $.10 par value, authorized 15,000,000 shares, 5,538,130
issued and outstanding at September 30, 1997, and 4,340,626 shares
issued and outstanding at December 31, 1996......................... 553,813 434,063
Capital in excess of par value....................................... 36,498,920 35,276,095
Accumulated deficit................................................. (22,865,530) (22,232,412)
------------- -------------
Total stockholders equity.................................. 14,190,928 13,481,508
------------- -------------
Total liabilities and stockholders equity.................. $29,980,195 $26,305,049
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATION
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
HANDLE:
Jai-Alai. $ 6,070,069 $ --- $ 60,484,796 $ 3,665,582
Inter- Track Wagering (ITW) 13,713,488 5,389,831 42,690,426 16,883,401
------------- ----------- ------------- -------------
Total Pari-Mutuel Handle 19,783,557 5,389,831 103,175,222 20,548,983
------------- ----------- ------------- -------------
REVENUE:
On Site Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $1,211,417 --- $ 10,190,036 $ 807,805
Inter-Track Mutuel Commissions 1,220,115 $ 490,704 3,859,616 1,631,305
------------- ----------- ------------- -------------
Net Pari-Mutuel Revenue 2,431,532 490,704 14,049,652 2,439,110
Cardroom Income 206,292 --- 305,941 ---
Admissions Income, Net of state taxes 86,800 26,779 412,399 104,113
Programs, Food, Beverage and Other Income 826,130 106,502 3,113,007 603,067
------------- ----------- ------------- -------------
Total Operating Revenue 3,550,754 $ 623,985 $ 17,880,999 $3,146,290
============ =========== ============ =============
COSTS AND EXPENSE:
Operating $ 2,920,009 $ 495,970 $ 12,863,964 $2,635,327
General and Administrative 1,852,863 489,425 6,645,907 1,403,336
Depreciation & Amortization 191,269 48,600 482,991 145,800
Summer Jai-Alai 31,912 --- 54,247 ---
------------- ----------- ------------- -------------
Total Costs and Expense 4,996,053 1,033,995 20,047,109 4,184,463
------------- ----------- ------------- -------------
Net Income (Loss) From Operations ($1,445,299) ($410,010) ($2,166,110) ($1,038,173)
============ =========== ============ =============
OTHER INCOME (EXPENSES)
Loss Reserve (322,193) --- (322,193) ---
Interest and Other Income 55,517 535,536 267,078 640,441
------------- ----------- ------------- -------------
Net Income (loss) $ (1,711,975) $ 125,526 $ (2,221,225) $(397,732)
============ =========== ============ =============
Earnings (loss) per Common Share $ (0.32) $ 0.04 $ (0.45) $ (0.12)
Earnings per Common Share
(fully diluted See Note 4) N/A $ 0.02 N/A N/A
Weighted Avg. Common Shares Outstanding 5,369,594 3,585,808 4,918,200 3,370,115
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
<S> <C> <C>
Cash flows from operating activities:
Net Income(loss)......................................................... $ (2,221,225) $(397,732)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization.................................... 482,991 145,800
Equity in earnings of Summer Jai-Alai............................ 54,247 ---
Accounts receivable, net......................................... (406,244) (542,135)
Prepaid expenses and other current assets........................ (369,474) (35,131)
Other assets..................................................... (67,932) (12,229)
Inventories...................................................... 76,511 1,818
Due to Summer Jai-Alai........................................... 5,895 ---
Accounts payable................................................. 2,008,750 (82,155)
Accrued expenses................................................. 197,342 46,700
----------- ----------
Total adjustments....................................... 1,982,086 (477,332)
Net cash provided (used) by operating activities................ $(239,139) $(875,064)
----------- ----------
Investing activities:
Loan to affiliated company.................................. (927,966) (1,292,641)
Cash portion of WJA Note Purchase............................ --- (1,980,889)
Capital Expenditures (Note 8)................................ (2,627,677) (243,033)
----------- ----------
Net cash provided from (used in) investing activities........ $(3,555,643) $(3,516,563)
----------- ----------
Financing activities:
Net proceeds from borrowing/Repayment of Borrowings .................... (440,366) (128,653)
Convertible Bond Issue (Guaranteed by Affiliated Company)
(Note 5) ................................................ 1,200,000 ---
Stockholders Equity:
Issuance of Common & Preferred Stock, net proceeds. (Note 5) 2,930,646 2,037,742
----------- ----------
Net cash provided (used) from financing activities........... $3,690,280 $ 1,909,089
----------- ----------
NET INCREASE (DECREASE) IN CASH.......................................... $ (104,502) $(2,482,538)
CASH AND EQUIVALENT AT BEGINNING OF YEAR................................. $ 907,527 $ 2,721,865
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER.............................. $ 803,025 $ 239,327
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.......................................................... 408,423 148,950
IncomeTaxes....................................................... 0 0
Non-cash Items................................................... 322,193 74,151
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
FLORIDA GAMING CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have
been prepared without audit for filing with the Securities and Exchange
Commission. The accompanying unaudited financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Therefore, it is
suggested that the accompanying financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's
latest annual report on Form 10-KSB.
Certain in formation and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the
year, reflects all adjustments of a normal recurring and non-recurring
nature, which, in the opinion of the Company, are necessary to a fair
statement of the results for the periods indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
DISCLOSURE: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live
Jai Alai games and Inter-Track Wagering ("ITW') on Jai-Alai, horse racing
and dog racing in Miami, Tampa, Ocala, and Ft. Pierce Florida. The Company
also operates card rooms at Miami and Tampa.
Approximately 30% 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 September 30, 1997, December 31, 1996 and 1995, respectively)
is carried at cost and is included with land under property, plant and
equipment in the accompanying balance sheet.
INVENTORY: The Company's inventory, comprising food and beverage products
and souvenirs, is stated at the lower of cost or market.
PARI-MUTUEL WAGERING: Revenue is derived from acceptance of wagers under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and
off-site ITW events. On-site live Jai-Alai wagers are accumulated in pools
with a portion being returned to winning bettors, a portion paid to the State
of Florida and a portion retained by the Company. Off-site ITW wagers are
also accepted and forwarded to the "host" facility after retention of the
Company's commissions. The Company's liability to host tracks for ITW
collections totaled, $871,885 and $40,646 at September 30, 1997 and December
31, 1996, respectively. Unclaimed winnings totaled $552,341 and $930,017 at
September 30, 1997 and December 31, 1996, respectively, including $851,163
assumed in connection with the Company's purchase of three (3) Jai Alai
facilities on December 31, 1996 (See Note 8).
7
<PAGE>
INCOME TAXES: In February 1992, the Financial Accounting Standards Board (FASB)
adopted Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting
for Income Taxes". SFAS No. 109 was required to be implemented during the first
quarter of fiscal year 1994. The Company adopted the standard as a cumulative
change in accounting principle during 1994. There was no material impact on the
Company's financial position or results of operations related to the
implementation of the new standard.
STOCK OPTIONS: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted
market price of the stock over the option price on the grant date
(measurement date). The Company's stock option plans require the issuance of
all options at a price equal to the market price of the stock on the grant
date. Stock options issued for non-compensation purposes are accounted for
at fair value pursuant to FASB 123.
RECLASSIFICATION: Certain 1996 amounts have been reclassified to conform
with their 1997 presentation.
(3) INCOME TAXES
At December 31, 1996, the Company had tax net operating loss (NOL)
carryforwards of approximately $11,752,000 available to offset future taxable
income. These NOL carryforwards expire fifteen years from the year in which
the losses were incurred or at various intervals through fiscal year 2011.
However, virtually all of the Company's NOL carryforwards which can be
utilized to offset future taxable income are limited to approximately $95,000
per fiscal year under Section 382 of the IRC because Freedom's stock purchase
discussed in Note D was considered a change in ownership under the "deemed
exercise rule" of IRC Section 382. As a result, only the net operating
losses attributable to the period after the "change in ownership"
(approximately $1,381,000 are not subject to the Section 382 limitation).
The Company has unused general business tax credits of approximately
$137,000. These credits expire at various dates through the year 2001 to
offset any future tax liabilities of the Company.
The provision for income taxes is based on income for financial statement
purposes. Deferred income taxes, which arise from timing differences between
the period in which certain income and expenses are recognized for financial
reporting purposes and the period in which they affect taxable income, are
included in the amounts provided for income taxes. Tax credits are recorded
as a reduction in the provision for federal income taxes in the year the
credits are utilized.
(4) INCOME PER COMMON SHARE
The net income and losses and per common share was calculated based upon net
loss and the weighted average number of outstanding common shares (5,369,594
and 3,585,808 for the three months ended September 30, 1997, and 1996,
respectively). Weighted average outstanding common shares for the nine months
ended September 30, 1997, and 1996, were 4,918,200 and 3,370,115,
respectively. Options and convertible securities were not included in the
computations of loss per shares for these periods because their inclusion
would be anti-dilutive. Options and convertible securities were included in
the computations of income per share on a fully diluted basis for the three
month period ended September 30, 1996. Options and convertible securities
were not included in the computations of loss per shares for all other
periods presented, because their inclusion would be anti-dilutive. Weighted
average equivalent shares on a fully diluted basis for the three months ended
September 30, 1996 were 6,196,500 shares, consisting of 74,250 options held
by two former directors, 54,000 in options held by a Vice President of the
Company, 7,815 shares of equivalent converted Preferred Class A Stock,
494,627 shares of equivalent converted Preferred Class B Stock, 650,000 in
options held by directors and an executive officer under Qualified and
Non-qualified Stock Option Plans, 1,330,000 in options held by Freedom
Financial Corporation, and the 3,585,808 weighted average common shares.
Refer to the Company's latest annual report on Form 10-KSB for more
information on outstanding options, warrants, and conversion features of
preferred stock.
8
<PAGE>
(5) PREFERRED STOCK & CONVERTIBLE DEBENTURE
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.
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% to 10% of the consideration paid for the stock.
Such dividends are payable in shares of the Company's common stock. The
consideration to be received by the Company upon initial issuance of each
share of the Series B shares is $1,000. Holders of Series B shares may
convert all or any of such Series B shares to the Company's common stock
using a ratio based on the consideration paid for the stock and 80% of the
market value of the common stock. On December 15, 1995, the Board of
Directors reserved 600,000 shares of the Company's common stock for issuance
upon conversion of the Series B preferred stock. Upon liquidation, the
holders of Series B preferred shares shall be entitled to be paid $1,000 per
share plus 8% to 10% accrued dividends before any distribution to holders of
common stock. During the year ended December 31, 1995, 2,400 Series B
preferred shares were issued for $2,400,000 to three unrelated parties.
During 1996, the Company issued an additional 2,300 Series B shares at $925
per share and 2,707.5 Series B shares were converted to 473,588 shares of
common stock. During the nine months ended September 30, 1997, 1,447.5
Series B shares were converted to 262,834 shares of common stock.
The Company is authorized to issue 5,000 shares of Series C 8% Cumulative
Convertible Preferred Stock, $.10 par value (the "Series C Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board
of Directors, such dividends may be paid in shares of the Series C Preferred
Stock.
Holders of Series C Preferred Stock may convert all or any of such shares to
the Company's Common Stock (the "Series C Conversion Shares") beginning 90
days after the issuance of the Series C Preferred Stock. If not converted
earlier by the holder, the Series C Preferred Stock shall be converted
automatically on December 31, 1998. In general, the number of Series C
Conversion Shares issuable on conversion of each share of Series C Preferred
Stock shall equal the consideration paid for such share together with accrued
and unpaid dividends on such share, if any, divided by the lesser of (i)
$7.50 or (ii) 80% of the closing bid price of the Common Stock on the five
trading days before conversion. A holder of Series C Conversion Shares may
not sell more than 33% of such shares between 90 and 120 days of his purchase
of Series C Preferred Stock converted into such shares and 67% of such shares
between 121 and 150 days of his purchase; a holder may generally sell all of
his Series C Conversion Shares 151 days after his purchase.
All shares of Series C Preferred Stock have been sold pursuant to offshore
transactions exempt from registration pursuant to Regulation S promulgated
under the Securities Act. The Series C Conversion Shares must be resold in
transactions exempt under Regulation S or another applicable exemption under
the Securities Act, or (if the exemption under Regulation S becomes
unavailable at any time before the third anniversary of the purchase of the
Series D Preferred Stock) pursuant to the registration of the Series C
Conversion Shares by the Company.
Upon liquidation, the holders of Series C Preferred Shares shall be entitled
to be paid $1,000 per share plus 8% accrued dividends before any distribution
to holders of Common Stock. The Company has the right to redeem the shares
of Series C Preferred Stock if a holder of such shares exercises his right of
conversion at a time when the conversion price is below $5.00. The
redemption price to be paid by the Company is 125% of the Stated Value of
such shares together with all accrued and unpaid dividends thereon.
9
<PAGE>
During 1996, the Company issued 550 Series C shares at $1,000 per share.
During the nine months ended September 30, 1997, 300 Series C shares were
converted to 105,131 shares of common stock.
The Company is also authorized to issue up to 5,000 shares of Series D 8%
Cumulative Convertible Preferred Stock (the "Series D Preferred Stock"),
which provides annual dividends at the rate of 8% of the shares' Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board
of Directors, such dividends may be paid in shares of the Series D Preferred
Stock.
Holders of Series D Preferred Stock may convert all or any of such shares to
the Company's Common Stock beginning 90 days after the issuance of the Series
D Preferred Stock. If not converted earlier by the holder, the Series D
Preferred Stock shall be converted automatically on December 31, 1998. The
Company is obligated to file a registration statement (the "Series D
Registration Statement") covering the shares of Common Stock issuable on
conversion of the Series D Preferred Stock (the "Series D Conversion Shares")
and to use its best efforts to cause the Series D Registration Statement to
become effective. In general, the number of Series D Conversion Shares
issuable on conversion of each share of Series D Preferred Stock shall equal
the Stated Value together with accrued and unpaid dividends on such shares,
if any, divided by the Conversion Price, which is defined as the lesser of
(i) $7.50 or (ii) 80% of the closing bid price of the Common Stock on the
five trading days before conversion. If the Series D Registration Statement
has not been declared effective within 120 days from December 31, 1996 (the
"Initial Issuance Date"), the Conversion Price shall be reduced by an amount
between 3% and 20% (resulting in the issuance of a larger number of Series D
Conversion Shares) based on the extent of such delay. No Series D Conversion
Shares may be sold before the earlier of March 13, 1997 or the date on which
the Series D Registration Statement becomes effective. Notwithstanding the
effectiveness of the Series D Registration Statement, generally a holder of
Series D Conversion Shares may not sell more than 33% of such shares between
March 13, 1997 and April 12, 1997, and 67% of such shares between April 13,
1997 and May 22, 1997, a holder may generally sell all of the Series D
Conversion Shares after May 13, 1997.
If the Series D Registration Statement has not been declared effective within
365 days of the Initial Issuance Date, a holder of Series D Preferred Stock
shall receive a preferential dividend equal to 10% of the Stated Value on the
Stated Value on the 366th day after the Initial Issuance Date and
preferential dividends of either 3% or 10% of the Stated Value every 30 days
thereafter until the 726th day after the Initial Issuance Date.
Upon liquidation, the holders of Series D Preferred Shares shall be entitled
to be paid $1,000 per share plus 8% accrued dividends before any distribution
to holders of Common Stock. The Company has the right to redeem the shares
of Series D Preferred Stock if a holder of such shares exercises his right of
conversion at a time when the Conversion Price is below $5.00 or if the
Series D Registration Statement has not become effective within 120 days of
the Initial Issuance Date. The redemption price to be paid by the Company is
determined using a ratio based on the trading price of the Company's Common
Stock and the Stated Value.
During 1996, the Company issued 650 Series D shares at $1,000 per share and
on January 16, 1997 the Company issued another 525 shares . During the nine
months ended September 30, 1997, 1,150 Series D shares were converted to
372,539 shares of common stock. As of October 2, 1997, the last 25 shares of
Series D shares were converted and presently no Series D shares are
outstanding.
The Company is authorized to issue 2,000 shares of Series E 8% Cumulative
Convertible Preferred Stock, $.10 par value (the "Series E Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board
of Directors, such dividends may be paid in shares of the Series E Preferred
Stock.
Holders of Series E Preferred Stock may convert part of such shares to the
Company's Common Stock (the "Series E Conversion Shares") beginning 120 days
after the issuance of the Series E Preferred Stock and any or all such shares
after 180 days. If not converted earlier by the holder, the Series E
Preferred Stock shall be converted automatically on April 4, 1999. In
general, the number of Series E Conversion Shares issuable on conversion of
each share of Series E Preferred Stock shall equal the consideration paid for
such share together with accrued and unpaid dividends on such share, if any,
divided by the lesser of (i) $7.50 or (ii) 80% of the closing bid price of
the Common Stock on the five trading days before conversion. The holder of
the Series E Conversion Shares may sell all of his shares 151 days after his
purchase.
10
<PAGE>
All shares of Series E Preferred Stock have been sold pursuant to offshore
transactions exempt from registration pursuant to Regulation S promulgated
under the Securities Act. The Series E Conversion Shares must be resold in
transactions exempt under Regulation S or another applicable exemption under
the Securities Act.
Upon liquidation, the holders of Series E Preferred Shares shall be entitled
to be paid $1,000 per share plus 8% accrued dividends before any distribution
to holders of Common Stock.
During 1997, the Company has issued 200 Series E shares at $1,000 per share.
The Class A Convertible Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock are all equal in rank with respect to the payment of
dividends and the distribution of assets upon liquidation of the Company.
The Company filed a Form 8-K Current Report dated July 10, 1997, reporting
the issuance of a $1,200,000 5% Cumulative Convertible Debenture due December
31, 1998. The terms of the Debenture provide for interest at the rate of
five percent (5.0%) per year payable until the Debenture has been converted.
The holder, at its option, may convert the Debenture into Common Stock at
$6.00 per share after December 31, 1997. After December 31, 1997, if during
any calendar month (the "Demand Month") the average Closing Bid Price of the
Common Stock for any five consecutive trading day period is at or below $7.00
per share, purchaser will have the option of demanding redemption (the
"Demand Redemption') on part of the Debenture. The principal amount that
the purchaser will be entitled to redeem will be a number up to 25% of the
total amount of the debenture outstanding as of the close of business on
December 31, 1997 (the "Monthly Maximum Demand Redemption Amount"). Any
portion of this amount which is not requested to be redeemed by purchaser in
a Demand Month will only be available for redemption in the fourth month
following that specific Demand month in which it initially became available
for redemption. The Demand Redemption obligations are guaranteed by Freedom
Financial Corporation pursuant to a Guaranty and Stock Pledge Agreement.
(6) RELATED PARTY TRANSACTIONS
On August 26, 1994, Freedom Financial Corporation exercised its option in
part to purchase 400,000 shares of the Company's common stock at an exercise
price of $1.25 per share. On October 12, 1994, Freedom exercised its option
to acquire an additional 300,000 shares. These purchases resulted in
approximately $875,000 in additional equity capital for the Company. Freedom
retains an option to purchase 1,030,000 shares at an exercise price of $1.25
per share. On April 21, 1997, the independent Directors of the Company
adopted a resolution extending Freedom's options to March 31, 2000. On May
1, 1997 Freedom exercised its option to acquire an additional 300,000 shares
for $375,000. On August 1, 1997 Freedom exercised its option to acquire an
additional 25,000 shares for $31,250. See also Note (7) Commitments and
Contingencies - Casino America.
The Company has various non-qualified stock option plans and agreements which
grant options with Board approval to employees, officers, and directors.
Under each plan or agreement, the exercise price for each option granted must
be at least 100% of the fair market value of the Company's common stock on
the date the option is granted.
Under three separate agreements during fiscal 1993, prior to the transaction
that resulted in current management assuming control of the Company, the
Company entered into stock option agreements with an independent director and
two former directors of the Company whereby the Company granted to these
individuals non-qualified options to purchase an aggregate 84,250 shares of
the Company's common stock at an exercise price of $2.50 per share. These
options are currently exercisable, expire December 31, 1997, and include
certain registration rights for all shares issued upon exercise.
On April 21, 1994, the Company adopted a new Non-qualified Stock Option Plan,
subject to shareholder approval, under which options up to an amount equal to
5% of the Company's issued and outstanding shares of Common Stock can be
issued to the Company's non-director employees. On April 21, 1994, pursuant
to this plan options for 50,000 shares of Common
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Stock were granted to the Company's Executive Vice President (prior to his
becoming a director) and options for 25,000 shares were granted to the
Company's Chief Financial Officer, each with an exercise price per share of
$7.50.
During August, 1994, the Company initiated a new stock option plan for
directors pursuant to which each current and future director will receive a
one-time grant of options of 25,000 Common Shares. Options for 150,000
shares were granted under this plan in 1994. The option prices for these
shares are the market value at the respective dates of grant (range from
$5.50 to $5.75 in 1994). The options are not exercisable until one year from
the date of election to the Board.
On November 7, 1994, the Board of Directors granted the Company's Chief
Financial Officer an option to purchase an additional 25,000 shares of common
stock at an exercise price of $5.50 per share, exercisable one year from the
date of grant.
On April 28, 1995, the Company granted a former Director an option to
purchase 19,000 common shares at $5.19 per share. The option was exercisable
after October 29, 1995 and expires five years from date of grant. On the
same date the Company granted its Chairman an additional option to purchase
300,000 common shares at $5.00 per share. The option is exercisable after
November 8, 1995 and also expires five years from date of grant.
On February 26 and 27 of 1997 the Company granted 390,000 Non-qualified
options to Chairman Collett and the other Directors pursuant to and
consisting of 25,000 shares under the existing Directors Plan, 240,000 shares
under newly adopted grants for Directors based on years of service to the
Company, and additional grant of 125,000 shares for Chairman/CEO Collett.
(See Exhibits to this 10QSB listed in Item #6).
Under the Officer Non-qualified Stock Option plan (adopted in April 1994) the
Company issued 25,000 in options exerciseable at $4.125 to two executive
officers and 15,000 options at $4.125 to another officer.
Included in notes receivable is a line of credit granted to Freedom Financial
Corporation in December of 1995. The credit facility, which is secured by
real property owned by Freedom, is due on demand and bears interest at 2%
above prime. Freedom Financial is owned substantially by the Company's
Chairman.. As set forth on its Current Report on Form 8K dated September
24, 1997, and subsequent amendment filed October 10, 1997, Florida Gaming
has agreed to purchase from Interstate Capital Corporation (a wholly owned
subsidiary of Freedom Financial) certain unimproved properties and a
residential real estate development called Tara Club Estates ( collectively,
the "Properties" ) situated in Loganville, Walton County, Georgia. As
consideration for the purchase, Florida Gaming will pay Interstate the sum
of $6,373,265 payable as follows (i) the issuance of 2,084 shares of
proposed Series F 8% Convertible Preferred Stock ( the "Series F Preferred
Stock"), (ii) the assumption by Florida Gaming of $1,081,102 of first
mortgage promissory notes to certain lenders secured by the Properties, and
(iii) the cancellation of $3,208,163 including accrued interest owed by
Freedom Financial under the secured credit line. Florida Gaming has received
an opinion from an investment banker that the consideration for the
Properties is fair, from a financial point of view, to the public
stockholders of Florida Gaming. The Properties consist of a residential and
commercial development of over 100 fully developed, and 150 partially
developed single-family residential lots. About fifty homes have been
constructed and sold at an average price of $250,000 each.
(7) COMMITMENTS AND CONTINGENCIES
On October 4, 1994, the Company entered into a letter of intent (the "Letter
of Intent") with Casino America, Inc. ("Casino America") to form a joint
venture (the "Joint Venture") to build and operate a casino at the Fort
Pierce Fronton. Casino America owns and operates various casinos in the
United States. 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. If the amendment does not pass, then in that event,
the parties will form a joint venture to build a flea market on the Ft.
Pierce property owned by the Company. Casino America will contribute up to
$2,500,000, as needed, to construct a 100,000 square foot indoor facility
suitable for a casino or flea market. If casino gaming is not permitted in
Florida by 2000, Casino America has a continuing option to convert the money
contributed to the Joint Venture to a promissory note from the Joint Venture
payable in equal payments over a ten year period with interest at 8% per
annum. If casino gaming is permitted at the Fronton by 2000, the value of
the assets to be 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
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basis up to $22,500,000. All profits and losses of either Joint Venture will
be allocated between the partners based upon capital accounts.
The Letter of Intent provides that Casino America will be the manager of the
casino and all casino-related improvements. The Company will manage the
operation of the jai-alai fronton, inter-track wagering and all other
non-casino related activities. Each corporation will receive a management
fee based on costs. The Letter of Intent provides that Casino America has
the exclusive right to enter into a Joint Venture with the Company for six
years and Casino America has a right of first refusal to enter into other
potential gaming opportunities in Florida with the Company for such period
and during the term of the Joint Venture. The formation of the Joint Venture
is subject to certain conditions, including the satisfactory completion of
due diligence by Casino America, the receipt of all required regulatory
approvals, the approval of each partner's board of directors, the execution
of a definitive joint venture agreement, and the approval of the Company's
stockholders, if required by law. Either party may terminate discussions in
connection with the Joint Venture and neither party shall have any liability
to the other, except as otherwise specified in the Letter of Intent.
Freedom Financial Corporation ("Freedom") has informed the Company that
Casino America has purchased 22,500 shares of Freedom's 7% Series AA
Mandatory Redeemable Preferred Stock (the "Freedom Preferred Stock"). The
Freedom Preferred Stock is convertible into shares of the Company's Common
Stock owned by Freedom at prices ranging from $7.50 per share of Common Stock
to $15.00 per share of Common Stock, depending upon the timing of the
conversion and possible passage of an amendment to the Florida Constitution
permitting casino gaming at the Fronton. The Freedom Preferred Stock is
convertible into a minimum of 150,000 shares and a maximum of 300,000 shares
of the Common Stock. Casino America is the sole holder of Freedom Preferred
Stock. On October 12, 1994, Freedom purchased 300,000 shares of Common Stock
from the Company by partial exercise of its option to purchase up to
1,630,000 shares (at that date) of the Company's Common Stock at an exercise
price of $1.25 per share. In addition to its remaining option to purchase
1,030,000 shares of the Company's Common Stock, Freedom now owns directly
1,649,480 shares of the Company's 4,948,121 shares of issued and outstanding
Common Stock. On May 1, 1997 Freedom exercised its option to acquire an
additional 300,000 shares for $375,000.
REGISTRATION RIGHTS: The Company has committed upon certain terms and
conditions, to include certain shares held by other parties, in a future
registration statement it files on its own behalf, allowing those shares to
be publicly traded.
LEASES: The Company rents totalizator (Autotote) and other equipment under
leases which expire at various dates through 1999. The totalizator leases
require a minimum annual rental plus contingent rentals based on a percentage
of the handle in excess of the minimum annual rental.
STOCK APPRECIATION GUARANTEES: In connection with the purchase of certain
real estate, the Company issued 47,336 shares of its $.10 par value stock
having a quoted market value of $3.10 on the date of issue. The real estate
purchase agreement included the Company's guarantee of the appreciation in
value of such stock as follows:
* If the seller holds the stock for at least three years from the date of
closing, (the "$10.00 Guaranty Date") the market value of the stock at the
end of the three year period will be at least $10.00 per share.
* If the Company or its successors or assigns or any entity in which the
Company has an interest is approved as a casino permit holder within three
years from the date of closing this transaction, and in fact does open a
casino, then in that event the Company guarantees that the market value of
the stock will be at least $20.00 per share, two years from the date that the
Company or its successors or assigns or any entity in which the Company has
an interest actually opens and is operating a casino, (the "$20.00 Guaranty
Date").
* For the purpose of the agreement, the price per share on the $10.00
Guaranty Date and the $20.00 Guaranty Date shall be the over the counter bid
price, ("Market Value"). On the $10.00 and $20.00 Guaranty Date, Seller
shall request in writing to the Company to reimburse Seller for the
difference between the market value of the shares and the guaranteed price.
Seller shall remit with said request evidence that Seller is still in
ownership and possession of said stock. The Company shall pay the difference
to Seller within ninety (90) days from receipt of Seller's request.
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In addition to the Company's guarantee, Freedom Financial Corporation
provided a similar guarantee as a further inducement to the seller of the
real estate. Based on the December 31, 1996 closing price of the Company's
common stock ($5.31), a payment of $222,006, the equivalent of 41,809 shares
would be due under the $10 guarantee and a payment of $695,366, the
equivalent of 130,954 shares, would have had to be made at that date to
satisfy the terms of the $20 guarantees.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association
U.A.W. Local 8868, AFL-CIO. The agreement allows the Company to negotiate
individual contracts with players and provides for minimum salaries and
bonuses based on pari-mutuel handle, certain cesta allowances and retirement
benefits. The agreement continues from year to year unless timely notice of
termination is given by either party to the agreement.
CONCENTRATION OF CREDIT: The Company maintains significant cash balances
with financial institutions in excess of the insurance provided by the
Federal Deposit Insurance Corporation (FDIC).
(8) ACQUISITION OF WJA ASSETS
On September 12, 1996, the Company acquired notes (the "WJA Notes") of WJA
Realty Limited Partnership ("WJA"), with balances aggregating about
$20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma. The WJA Notes
were secured by, among other collateral, real estate and improvements
consisting of three jai-alai and ITW facilities located in Miami, Tampa and
Ocala, Florida (the "WJA Frontons"). Consideration for the WJA Notes was a
combination of $2,000,000 in cash, a $6,000,000 promissory note bearing
interest at the prime rate, 703,297 shares of the Company's Common Stock and
a $1,000,000 non-interest bearing contingent note.
On November 25, 1996, the Company entered into an agreement with WJA and
Florida Gaming Centers, Inc. a wholly-owned subsidiary of the Company (the
"Subsidiary"), pursuant to which the Subsidiary agreed to acquire the WJA
properties. The acquisition was consummated as of December 31, 1996 for
accounting purposes. The WJA Frontons acquired were combined with the Fort
Pierce Fronton into a new Subsidiary, Florida Gaming Centers, Inc.
The consideration for the acquisition included (i) the cancellation of WJA
Notes and related obligations acquired by the Company from the Bank of
Oklahoma, NA, (ii) the retention by WJA of 200,000 shares of the Company's
common stock owned by WJA, and (iii) a profit sharing arrangement described
in more detail below. The Company also assumed the principal amount
outstanding under a $500,000 promissory note owed to Wheeler-Phoenix, Inc.,
with the terms amended to provide for repayment of principal over a ten year
period following the closing in equal annual installments of $50,000 each and
an annual interest rate of 6%.
The profit sharing arrangement is based on the Subsidiary's net profits from
Jai Alai operations as defined, before income taxes. The Company will pay
WJA 20% of the defined cumulative net profits of the Subsidiary for each of
the ten full calendar years 1997 through 2006, subject to a cumulative
$1,000,000 per year cap described below. The cumulative $1,000,000 cap is
equal to the product of $1,000,000 multiplied by the number of years in the
ten-year period completed, minus the sum of all amounts previously paid under
the 20% profit sharing arrangement. In addition, if the Subsidiary has net
profits in any calendar year during the ten-year period in excess of
$5,000,000, and WJA does not receive a 20% payment on the entire amount
because of the cumulative $1,000,000 per year cap, the Subsidiary shall pay
WJA 5% of the portion of the net profits on which the 20% payment is not
made. No net profit payments will be due after the ten year period. If
during the ten year period, the Subsidiary disposes of any of its significant
assets or operations, then WJA would be entitled to receive an amount equal
to ten percent of the Subsidiary's gain, if any, on the asset or operations
disposition.
Two principals of WJA, also entered into consulting arrangements with the
Subsidiary. One principal entered into a ten-year consulting agreement with
the Subsidiary, with annual compensation of $100,000 during the first five
years of the agreement and annual compensation of $50,000 during the second
five years of the agreement. The other principal entered into a five-year
consulting agreement with the Subsidiary, with annual compensation of
$240,000, plus certain benefits. These two individuals were also granted
stock options on the Company's stock with a fair value of $150,298.
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A summary of the WJA assets acquired and consideration therefor is as follows:
ALLOCATED
ASSETS ACQUIRED AMOUNT
--------------- ---------
Jai Alai Frontons in Miami, Tampa,
and Ocala, $17,428,059
Cash 381,997
Notes receivable 167,934
Inventory 134,974
Other assets 308,279
-----------
$18,421,243
===========
Management allocated the purchase price to the basis of the assets acquired
based on available appraisals or other fair value information.
CONSIDERATION PAID AMOUNT
- ------------------ ------
Cancellation of notes and interest
receivable from WJA at Company
carrying value $14,692,298
Accounts payable and other accrued
expenses assumed 3,078,647
Assumption of Wheeler-Phoenix note 500,000
Fair value of stock options issued 150,298
-----------
$18,421,243
===========
(9) GAMING VENTURE INVESTMENTS
During 1995, the Company entered into several arrangements with different
Native American Tribes to explore possible opportunities for gaming ventures.
The arrangements generally provide the Company the right to receive
compensation from the Tribe's share of the potential gaming profits for
supplying the management services and/or financing necessary for the
construction and operation of the gaming facilities. The Company's
commitment to provide construction financing and working capital is
contingent upon the Tribes' procurement of judicial or regulatory approval to
operate a gaming venture. At December 31, 1996, the Company's contingent
commitment to provide financing to potential gaming ventures totaled
$5,000,000. Management expects the funds necessary to meet this commitment
to be obtained through the issuance of additional debt or equity securities
should the gaming operations materialize. The Company expended $21,000 and
$729,347 during 1996 and 1995, respectively related to these gaming venture
arrangements of which $-0- and $406,347 are included in Other Expense in the
accompanying 1996 and 1995 Statements of Operations, respectively. Funds
expended in 1996 and 1995 in amounts of $21,000 and $323,000, respectively,
were made to one Tribe as working capital loans and are carried as an
Investment on the accompanying Balance Sheets based on the Company's
financing ("loan") agreement with the recipient Tribe. Recovery of these
funds under the "loan" agreement is contingent upon such agreement becoming
effective after the Tribe receives judicial approval to establish the
intended gaming operation. The Tribe has not been able to obtain the
necessary regulatory or judicial approval to operate the contemplated gaming
ventures. The financing agreement which is carried as an investment on the
accompanying balance sheet expired on June 30, 1997. Although discussions
continued the agreement was not extended. At December 31, 1996, management
had reserved $30,000 as a loss contingency . At September 30, 1997 management
has reserved $340,000, although it believes the company still has a valid
claim with the tribe for the repayment of funds advanced.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates four
jai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton,"
and collectively, the "Frontons") located in South and Central Florida. The
Company's business consists primarily of its operations at the Frontons,
which include, among other things, live jai-alai, inter-track pari-mutuel
wagering ("ITW") on jai-alai, thoroughbred racing, harness racing, and dog
racing, poker, dominoes, and the sale of food and alcoholic beverages.
The Company's Fort Pierce, Tampa and Ocala locations provide audio, video and
Inter-Track Wagering ("ITW") on live inter-track and interstate broadcasting
of horse racing, dog racing and jai-alai from around the State of Florida as
well as the rest of the country. The Miami location receives limited ITW
broadcasts, but broadcasts its jai-alai performances to other gaming
facilities in Florida, the rest of the United States, and Mexico. ITW
provides significant additional revenue as well as providing additional
entertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of
the public against each other, as used in this report includes wagering on
both live Jai-Alai performances and ITW.
Since its inception, and before the acquisition of the Fort Pierce, Fronton
in February 1994, the Company engaged in several other lines of business,
none of which are currently in operation. In March, 1993, the Company sold
699,480 shares of common stock to Freedom Financial Corporation ("Freedom")
and present management assumed operating control of the Company.
The Company's principal place of business and executive offices are located
at 3500 NW 37th Avenue, Miami, Florida 33142. The Company changed its name
from Lexicon Corporation to Florida Gaming Corporation on March 17, 1994.
The Company was incorporated in Delaware in 1976.
ACQUISITION OF FRONTONS/DEVELOPMENT OF CARD ROOMS
ACQUISITION OF THE FT. PIERCE FRONTON. The Company acquired the Ft. Pierce
Fronton from WJA Realty Limited Partnership ("WJA") pursuant to an agreement
with WJA dated October 6, 1993. On February 1, 1994, the Company received
approval from the Florida Department of Business and Professional Regulation,
Division of Pari-Mutuel Wagering (the "DPMW") to transfer the pari-mutuel
permit for the Ft. Pierce Fronton from WJA to the Company. The purchase
transaction with WJA was also closed on that date. Consideration for the
acquisition consisted of 200,000 shares of Company Common Stock and
$1,500,000 in cash at closing, plus $1,000,000 in the form of a ten-year 8%
mortgage.
ACQUISITION OF THE MIAMI, TAMPA AND OCALA FRONTONS. On September 12, 1996,
the Company acquired secured notes (the "WJA Notes") of WJA, with balances
aggregating $20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma.
The WJA Notes were secured by real estate and improvements consisting of
three jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida
(the "WJA Frontons") plus other collateral. Consideration for the WJA Notes
was a combination of $2,000,000 in cash, a $6,000,000 promissory note bearing
interest at the prime rate, 703,297 shares of the Company's Common Stock and
a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA and
Florida Gaming Centers, Inc., a wholly-owned subsidiary of the Company (the
"Subsidiary"), pursuant to which the Subsidiary agreed to acquire the WJA
assets. The acquisition was consummated as of January 1, 1997. The WJA
Frontons acquired were combined with the Fort Pierce Fronton into the
Subsidiary.
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The consideration for the acquisition included (i) the cancellation of WJA
Notes and related obligations acquired by the Company from the Bank of
Oklahoma, NA, (ii) the retention by WJA of 200,000 shares of the Company's
common stock owned by WJA, and (iii) a profit sharing arrangement described
in more detail below. The Company assumed all liabilities of WJA arising in
the ordinary course of the business, subject to certain limitations and
exceptions. The Company also assumed the principal amount outstanding under
a $500,000 promissory note owed to Wheeler-Phoenix, Inc., with the terms
amended to provide for repayment of principal over a ten year period
following the closing in equal annual installments of $50,000 and an annual
interest rate of 6%.
The profit sharing arrangement is based on the Subsidiary's net profits, as
defined, before income taxes. The Company will pay WJA 20% of the cumulative
net profits of the Subsidiary for each of the ten full calendar years 1997
through 2006, subject to a cumulative $1,000,000 per year cap described
below. The cumulative $1,000,000 cap is equal to the product of $1,000,000
multiplied by the number of years in the ten-year period completed, minus the
sum of all amounts previously paid under the 20% profit sharing arrangement.
In addition, if the Subsidiary has net profits in any calendar year during
the ten-year period in excess of $5,000,000, but does not receive a 20%
payment on the entire amount because of the cumulative $1,000,000 per year
cap, the Subsidiary shall pay WJA 5% of the portion of the net profits on
which the 20% payment is not made. No net profit payments will be due after
the ten year period. If during the ten year period, the Subsidiary disposes
of any of its significant assets or operations, then WJA would be entitled to
receive an amount equal to ten percent of the Subsidiary's gain, if any, on
the disposition.
Two principals of WJA, Roger M. Wheeler, Jr. and Richard P. Donovan, have
entered into consulting arrangements with the Subsidiary. Mr. Wheeler has
entered into a ten-year consulting agreement with the Subsidiary, with annual
compensation of $100,000 during the first five years of the agreement and
annual compensation of $50,000 during the second five years of the agreement.
Mr. Donovan has entered into a five-year consulting agreement with the
Subsidiary, with annual compensation of $240,000, plus certain benefits.
In 1980, WJA and three other pari-mutuel permit holders formed Summer
Jai-Alai Partners ("SJA"), a Florida general partnership, to conduct
pari-mutuel jai-alai operations at the Miami Fronton during the summer months
("Summer Operations"). As part of the acquisition of the WJA assets, the
Company acquired and currently owns a 21% interest in SJA. Under the terms
of the partnership agreement, certain of the Company's costs and expenses
will be allocated to Summer Operations based upon specific formulas set forth
in the agreement. In addition, pursuant to a lease agreement which expires
in the year 2004, SJA rents the Miami Fronton for the time in which the
summer jai-alai season is conducted. The rental is based upon 1% of handle,
plus applicable Florida sales tax. The Company's 21% interest in SJA is
accounted for under the equity method.
CARD ROOM DEVELOPMENT. Florida House Bill No. 337 (now known as section
849.086 of the Florida Statutes) became effective June 1, 1996. This
legislation authorized card rooms at licensed pari-mutuel facilities
beginning in January, 1997. The card rooms are administered and regulated
by the Florida Department of Pari-Mutuel Wagering ("DPMW"). Games are
limited to non-banked poker games and dominoes. Card room authorization is
also subject to approval by the county commission in which the pari-mutuel
facility is located. This same bill also authorized full-card simulcasting
of races from out of state tracks such as Belmont, Meadowlands, Philadelphia
Park, and Santa Anita. The Frontons in Fort Pierce, Tampa and Ocala are
currently carrying several of these signals. This legislation also reduced
the pari-mutuel tax on handle from 5% to 4.25% at the Tampa, Fort Pierce, and
Ocala frontons. The pari-mutuel tax at Miami was reduced from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough County,
Florida, passed legislation permitting card rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
opened card rooms in Miami (on June 19th with 40 tables initially) and Tampa
(on May 22nd with 30 tables initially) during the second quarter of 1997.
Pursuant to Florida Statute 849.086 the Miami and Tampa facilities conduct
low stakes ($10 per hand) poker and dominoes at these facilities two hours
prior to, during and two hours following live jai-alai performances. A rake
of $.25 per person is the pari-mutuel's revenue from each hand dealt. Domino
tables are rented at the rate of $1.50 per half hour per player. Florida
state taxes will be paid at 10% of this revenue and 4% of the revenues will
be paid to the Jai-Alai players.
The Jai-Alai industry generally has declined in the last several years due to
an industry-wide strike by jai-alai players and the passage of legislation
authorizing a state-wide lottery in 1987. Average state-wide on-track handle
per performance for the state of Florida fiscal years ended June 30, 1996 and
1995 was approximately $79,004 and $87,512, respectively. Aggregate
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handle for the fiscal year ended June 30, 1996 decreased approximately $10
million or 5%. There can be no assurance that the jai-alai industry will
improve significantly, if at all, in the future. Because the Company's
jai-alai business is tied directly to many if not all of the factors which
influence the jai-alai industry as a whole, another players strike or the
enactment of unfavorable legislation could have an adverse impact on the
Company's operations.
Inter-track wagering has grown significantly since its initiation in the
State of Florida in August, 1990. The State-wide ITW handle for the State of
Florida's fiscal year ended June 30, 1991 was approximately $109 million.
The state-wide ITW handle for the State of Florida's fiscal years ended June
30, 1995 and 1996 increased to approximately $443 million and $480 million,
respectively. ITW handle at the Company's Frontons (including the newly
acquired Miami, Tampa and Ocala facilities) have demonstrated similar growth
in recent years, increasing from $46.8 million in the year ended December 31,
1995 to approximately $50.3 million for the year ended December 31, 1996.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS 1997 COMPARED WITH THREE AND
NINE MONTHS 1996
During the quarter and nine months ended September 30, 1997, the Company's
operations reflects nine months' operation of live Jai-Alai performances at
the Miami and Tampa. The Ft. Pierce Fronton conducted live jai-alai
performances January through April. A full schedule of inter-track wagering
was also conducted at all facilities with the exception of Miami, which
offers limited ITW product due to blackouts imposed as a result of its close
proximity to other South Florida pari-mutuels. The Miami facility, however,
broadcasts its jai-alai performances to other gaming facilities in Florida,
the rest of the United States, and Mexico. The Ocala Fronton only operated
inter-track wagering during the first quarter and began its live season May
25th and concluded its live season September 1st.
HANDLE ANALYSIS Total Handle (amount of money wagered) for the quarter ended
September 30, 1997 was $19,783,557 of which $6,070,069 was from live and host
jai-alai wagering and $13,713,488 was from inter-track guest wagering. Total
handle for the nine months ended September 30, 1997 was $103,175,222, of
which $60,484,796 was from live and host jai-alai wagering and $42,690,426
was from guest inter-track wagering. These numbers do not include handle for
the Miami facility for the period from July 2, 1997 through September 30,
1997, since the facility is operated by the Summer Partnership during this
time.
Total handle for the quarter ended September 30, 1996 was $5,389,831 of which
$0 was from live jai-alai wagering and $5,389,831 was from inter-track
wagering. Total handle for the nine months ended September 30, 1996 was
$20,548,983, of which, $3,665,582 was from live jai-alai wagering and
$16,883,401 was from inter-track wagering.
HANDLE INCREASE Total handle for the quarter ended September 30, 1997 was
$19,783,557, an increase of $14,393,726 over the same period in 1996. The
increase consisted of an increase in live and host jai-alai handle of
$6,070,069 and an increase of $8,323,657 in ITW handle.
Total handle for the nine months ended September 30, 1997 was $103,175,222,
an increase over the same period in 1996 of $82,626,239. This increase was
attributable to an increase in live and host jai-alai wagering handle of
$56,819,214 and an increase in inter-track wagering handle of $25,807,025.
These increases were primarily the result of the pari-mutuel operations
acquired from World Jai-Alai as described above.
REVENUES Pari-mutuel revenues (net of state pari-mutuel taxes) for the
quarter ended September 30, 1997 were $2,431,532, compared to pari-mutuel
revenues of $490,704 for the same period in 1996. Pari-mutuel revenues for
the nine months ended September 30, 1997 were $14,049,652 compared to
pari-mutuel revenues of $2,439,110 for the same period in 1996. Revenues for
the quarter ended September 30, 1997 ($2,431,532), consisting of $1,211,417
from live jai-alai wagering and $1,220,115 from inter-track wagering.
Revenues for the quarter ended September 30, 1996 ($490,704) consisted of
$-0- from live jai-alai wagering and $490,704 from inter-track wagering.
Revenues for the nine months ended September 30, 1996 ($2,439,110) consisted
of $807,805 from live jai-alai and $1,631,305 from inter-track wagering.
These increases were primarily the result of the pari-mutuel operations
acquired from World Jai-Alai as described above.
18
<PAGE>
The Company opened two card room facilities, one at Tampa on May 22nd , and
Miami opened their card room on June 19th. Card room Revenue for the quarter
ended September 30, 1997 was $206,292, and the nine month period ended
September 30, 1997, was $305,941. Revenues from the card room operations
have not yet produced the results anticipated.
Admissions income, net of state taxes, for the three and nine months periods
ended September 30, 1997 were $86,800 and $412,399 respectively. This
compares to $26,779 and $104,113 for the three and nine month period ended
September 30, 1996. Food, beverage and other income for the quarter and nine
months ended September 30, 1997 were $826,130 and $3,113,007, respectively.
This compares to the three and nine month period ended September 30, 1996 of
$106,502, and $603,067, respectively. These increases were primarily the
result of the WJA asset acquisition. Attendance for live jai-alai
performances and ITW performances was approximately 169,858 and 836,174 for
the quarter and nine months ended September 30, 1997, respectively. This
compares to 227,819 and 866,956 for the same periods in 1996.
These numbers do not include revenues for the Miami facility for the period
from July 2, 1997 through September 30, 1997, since the facility is
operated by the Summer Partnership during this time. The Company recognizes
income and losses on its 21% ownership in the Summer Partnership on the
equity basis.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses were $1,852,863 and
$6,645,907 for the three months and nine months ended September 30, 1997,
respectively. This compares to $489,425 and $1,403,336 for the three months
and nine months ended September 30, 1996, respectively. The increase of
$1,363,438 for the quarter ended September 30, 1997, as compared to the same
period in 1996 resulted from taking on the cost of administration for three
additional Jai-Alai facilities in Miami, Tampa, and Ocala, Florida, net of
staff reductions and consolidations.
Significant categories of general and administrative expenses and their
comparison to the third quarter last year are as follows. Executive salaries
were $327,133 for the third quarter of 1997 compared $152,912 for the quarter
ended September 30, 1996. Advertising increased $106,841 to $137,138.
Professional fees were $131,257 compared to $48,516 for the same three month
period in 1996. Consulting fees increased from $6,500 to $86,200. Former
executives of World Jai-Alai were paid $86,200, pursuant to the purchase
agreement. Travel and entertainment expense totaled $101,946 for the third
quarter of 1997, compared to $23,341 for the third quarter of 1996. Another
significant cost included is approximately $256,993 in payroll taxes.
Employee benefits increased to $235,442. Property and other taxes increased
significantly to $161,559 as a result of the WJA purchase. Insurance also
increased significantly to $188,589 as a result of the company's expanded
operations. Public company costs including shareholder relations/information
and filing fees increased to $39,596 from $27,882. Interest expense totaled
$166,430 and $65,184 for the three month period ended June 30, 1997 and June
30, 1996, respectively. The $101,246 increase in interest expense was
primarily the result of the bank debt incurred which was related to the
purchase of the WJA facilities described earlier.
Significant categories of general and administrative expenses and their
comparison on a nine month period in 1997 versus 1996 are as follows.
Executive salaries were $869,832 for the nine months ended September 30,
1997, compared to $442,738 for 1996. Advertising increased $841,634 to
$997,860, with approximately $250,000 utilized in the promotion and
introduction of the new card room facilities. Professional fees were
$281,987 compared to $139,271 for the same period in 1996. Consulting fees
increased from $27,407 to $260,300. Former executives of World Jai-Alai were
paid $257,633, pursuant to the purchase agreement. Travel and entertainment
expense totaled $309,934 compared to $164,266 for the first nine months of
1996. Another significant cost included is approximately $934,456 in payroll
taxes. Employee benefits increased to $617,326. Public relations expense
increased to $233,912 as the result primarily of admission and other
discounts at the expanded group of facilities. Property and other taxes
increased significantly to $549,303 as a result of the company's expanded
operations. Insurance also increased significantly to $427,832 as a result of
the company's expanded operations. Public company costs including shareholder
relations/information and filing fees increased to $121,067 from $85,973.
Interest expense totaled $482,704 and $146,933 for the nine month period
ended September 30, 1997 and June 30, 1996, respectively. The $335,771
increase in interest expense was primarily the result of the bank debt
incurred which was related to the purchase of the WJA facilities described
earlier.
19
<PAGE>
OPERATING EXPENSES 3RD QUARTER
The Company's operating expenses for the three months ended September 30,
1997 and September 30, 1996 were $2,920,009 and $495,970, respectively.
Depreciation and amortization expense for the three months ended September
30, 1997 and September 30, 1996, was $191,269 and $48,600, respectively.
Player costs, which include salaries, benefits, and support staff, represent
a significant portion of operational expenses. Player costs for the quarter
ending September 30, 1997 and September 30, 1996, were $1,632,556 and $-0-,
respectively, reflecting the expanded operation of schedules in Miami, Tampa
and Ocala compared to ITW operations only during this period in 1996 at the
only fronton owned by the Company (at that time) at Ft. Pierce. Rental and
service costs for totalizator wagering equipment and satellite
receiving/television equipment also represent a significant portion of
operating expenses. These expenses totaled $270,643, for the three months
ended September 30, 1997, compared to $49,851 for three months ended
September 30, 1996. The components of the 1997 total ($270,643) were
$58,034 in ITW tote, interface, and telephone charges; $164,298 in
totalizator equipment rental; and $48,311 in satellite charges and
camera/television rental. Utilities expense totaled $330,872 and $24,257
respectively, for the three months periods ended September 30, 1997 and
September 30, 1996. Program costs totaling $114,318 and $24,800,
respectively, are also included in the total operating expenses for the three
month periods ended September 30, 1997 and 1996. Operating expenses,
including payroll costs for the bar, restaurant, souvenir and concessions
costs were $398,826 and $34,215 for the three month periods which ended
September 30, 1997 and September 30, 1996, respectively. Operating payrolls
and contract costs totaled $1,049,775 and $199,202 for the three month
periods ended September 30, 1997 and September 30, 1996, respectively,
excluding player costs and payroll costs included in the bar, restaurant,
souvenir and concessions areas. Of the $1,049,775, $262,343 was mutuels
payroll, $390,027 was maintenance and $302,982 was security. Maintenance and
cleaning supply expenses for the three months ended September, 1997, totaled
$121,236. These increases were primarily the result of the expanded
pari-mutuel operations due to acquisition of the assets of World Jai-Alai.
OPERATING EXPENSES NINE MONTHS
The Company's operating expenses for the nine months ended September 30, 1997
and September 30, 1996 were $12,863,964 and $2,635,327, respectively.
Depreciation and amortization expense for the nine month period ended
September 30, 1997 and September 30, 1996, was $482,991 and $145,800,
respectively. Player costs, which include salaries, benefits, and support
staff, which represents a significant portion of operational expenses.
Player costs for the nine months ended September 30, 1997 and September 30,
1996, were $4,943,119 and $670,838, respectively, reflecting the expanded
operation of schedules in Miami, Tampa and Ocala compared to only four
months of jai-alai operation at only the Ft. Pierce fronton during this same
period in 1996. Rental and service costs for totalizator wagering equipment
and satellite receiving/television equipment also represent a significant
portion of operating expenses. These expenses totaled $1,414,027, for the
nine months ended September 30, 1997, compared to $266,908 for nine months
ended September 30, 1996. The components of the 1997 total were $210,311 in
ITW tote, interface, and telephone charges; $615,929 in totalizator equipment
rental; $286,893 in satellite charges and $300,893 in camera/television
rental. Utilities expense totaled $853,876 and $91,139 respectively, for the
nine months periods ended September 30, 1997 and September 30, 1996. Program
costs totaling $470,314 and $92,974, respectively, are also included in the
total operating expenses for the nine month periods ended September 30, 1997
and 1996. Operating expenses, including payroll costs for the bar,
restaurant, souvenir and concessions costs were $1,875,315 and $279,638 for
the nine month periods which ended September 30, 1997 and September 30, 1996,
respectively. Operating payrolls and contract costs totaled $3,576,806 and
$775,108 for the nine month periods ended September 30, 1997 and September
30, 1996, respectively, excluding player costs and payroll costs included in
the bar, restaurant, souvenir and concessions areas. Of the $3,576,806,
$1,152,305 was mutuel payroll, $1,085,890 was maintenance/janitorial and
$923,605 was security. Maintenance and cleaning supply expenses for the nine
months ended September 30, 1997, totaled $428,265. These increases were
primarily the result of the expanded pari-mutuel operations due to
acquisition of the facilities of World Jai-Alai.
OTHER INCOME
The Company had net interest and other income of $55,517 and $267,078 for the
three and nine month period ended September 30, 1997, respectively, as
compared to $535,536 and $640,441 for the three and nine month periods ended
September 30, 1996. The decreases of $480,019 for the quarter and $373,363
for the nine months are due primarily to the cancellation of the WJA Note.
For these same periods in 1996 and Company recorded $470,882 in interest
income from this note. Approximately $58,000 in allocation income related to
the operation of the Summer Jai-Alai Partnership in Miami is included in the
nine moths results.
20
<PAGE>
TAX LOSS CARRYFORWARDS
At December 31, 1996, the Company had approximately $11,752,000 in net
operating loss carryforwards. However, because of IRC section 382 limitations
due to the change of control that occurred in March, 1993, the bulk of these
carryforwards are limited to approximately $95,000 per year. Operating losses
of approximately $1,381,000 attributed to the period after the change of
ownership are not subject to the Section 382 limitation.
SUMMARY OF OPERATIONS
The Company had a net loss of $1,711,975 or $0.32 per common share, for the
three months ended September 30, 1997, compared to a net income of $125,526
or $.04 per common share for the three month period ended September 30, 1996.
The Company had a net loss of $2,221,225 or $0.45 per common share, for the
nine months ended September 30, 1997, compared to a net loss of $397,732 or
$.12 per common share for the three month period ended September 30, 1996.
The increased loss for the quarter and nine ended September 30, 1997 was
primarily caused by the factors discussed above. The most dramatic being the
business expansion due to the acquisition of the World Jai-Alai properties
and costs associated with the card room introductions. The Company also
recorded a non-recurring loan reserve totaling $322,193 related to an expired
gaming contract with the Rincon Tribe of California.
The Company has expended approximately $2,628,000 for the period ended
September 30, 1997 in capital improvements related primarily to the
construction of Poker Room facilities at Miami and Tampa ($2.5 million).
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at September 30, 1997
was $803,025. At September 30, 1997 the Company had a decrease in working
capital of approximately $5,410,423 from December 31, 1996. The decrease was
primarily the result of the construction and pre-opening costs associated
with the card rooms in Tampa and Miami (approximately $2.5 million), growth
in accounts payable (approximately $2 million), and a $4,411,000 increase in
the current portion of long term debt maturing within one year ( primarily as
the result of the Bank of Oklahoma's ("BOK") September 1998 balloon
payment. The decrease in liquidity is also net of $4,130,000 in additional
funds received in connection with Regulation D and Regulation S Convertible
Preferred Stock and Bond offerings.
During the nine months ended September 30, 1997, net cash used by in the
Company's operating activities was $ 239,139. The Company's continuing
operating expenses consisted principally of office expenses, general and
administrative expenses, and costs associated with Fronton operations.
Principal revenues were from net pari-mutuel wagering commissions on live
jai-alai and ITW events. The Company expects that net cash flows from the
operation of current business activities will be adequate to meet operational
needs.
During the nine months ended September 30, 1997, cash flow used by investing
activities was $3,555,643. Of this $2,627,677 was the result of additions to
plant and equipment, the bulk of which was attributable to card room
construction. During the fourth quarter of 1995, the Company lent an
affiliated company (Freedom Financial) funds on a demand secured credit line,
which bears interest at the prime rate plus 2% (10.50%). Funds advanced
during the nine months ended June 30, 1997 under this agreement totaled
$927,966. As set forth on its Current Report on Form 8K dated September 24,
1997, and subsequent amendment filed October 10, 1997, Florida Gaming has
agreed to purchase from Interstate Capital Corporation (a wholly owned
subsidiary of Freedom Financial) certain unimproved properties and a
residential real estate development called Tara Club Estates (collectively,
the "Properties") situated in Loganville, Walton County, Georgia. As
consideration for the purchase, Florida Gaming will pay Interstate the sum
of $6,373,265 payable as follows (i) the issuance of 2,084 shares of
proposed Series F 8% Convertible Preferred Stock (the "Series F Preferred
Stock"), (ii) the assumption by Florida Gaming of $1,081,102 of first
mortgage promissory notes to certain lenders secured by the Properties, and
(iii) the cancellation of $3,208,163 including accrued interest owed by
Freedom Financial under the secured credit line. Florida Gaming has received
an opinion from an investment banker that the consideration for the
Properties is fair, from a financial point of view, to the public
stockholders of Florida Gaming. The Properties consist of a residential and
commercial development of over 100 fully developed, and 150 partially
developed single-family residential home sites, a swim and tennis club
facility and 23 acres of commercial property. The company anticipates hiring
a professional management company and that income generated from lot sales
should augment cash flow given the large inventory of lots ready for sale.
21
<PAGE>
During the nine months ended September 30, 1997, cash flow from financing
activities was $3,690,280. Cash flow from financing activities consisted of
approximately $2,930,646 in net funds generated from the sale of convertible
preferred stock; and including $531,250 generated when Freedom Financial
exercised options for 425,000 common shares. The company had a net reduction
of $440,366 in borrowings for the nine months ended September 30, 1997.
Subsequent to June 30, 1997, the Company raised another $1.2 million in funds
via the sale of convertible debenture as described in its Current Report on
Form 8K dated July 14, 1997.
The Company has terminated discussions the Rincon Luiseno Band of the Mission
Indians in San Diego County, California. Due to adverse decisions in other
Courts in related cases in California and the opinion issued by the U.S.
Supreme Court in the Seminole case and continuing delays in the opening of
the Rincon Casino with gaming machines, both Florida Gaming and the Rincon
tribe have requested arbitration relative to the Company's Loan Agreement.
The outstanding balance on the loan to the Rincon tribe and costs totaling
$322,193 was reserved for during the third quarter.
Additional capital will be required for the recently announced expansion
concerning the potential acquisition of a 200 room hotel and casino in Las
Vegas, Nevada, as described in Exhibit 99.1 in Part II of the June 30, 1997,
10QSB. Although the Company is in the process of due diligence and no
definitive agreement has been reached , the casino bank and purchase price
could require a much as $18 million in cash. Florida Gaming is in the process
of trying to obtain approval for a card room at its Ft. Pierce facility. The
company also has substantial mortgage debt repayments of $5.8 million due
over the next twelve months with $5.6 million of this due to the Bank of
Oklahoma as described in the opening paragraph of this section.
In light of items described in the preceding paragraph the Company is
currently evaluating sources of funding including long-term equity and debt
financing, including discussions with investment banking firms. These
include mortgage debt utilizing the values of the existing and recently
acquired real estate (see Note 8 to the Financial Statements - Acquisition of
WJA Assets), recently appraised at $25,000,000. On May 1, 1997 Freedom
exercised 300,000 of its options for $375,000, on August 1, 1997 Freedom
exercised options for an additional 25,000 shares ($31,250) and on August 21,
1997 Freedom exercised options for an additional 100,000 shares ($125,000).
Additional equity funding may not be sold pursuant to the Securities Act of
1933 or in the U.S. absent registration or applicable exemption. The company
anticipates using the proceeds of such funding to payoff the $1.2 million
debenture issued in July on this year, make additional improvements to
jai-alai and ITW facilities and to augment working capital. The company
believes that its current financial condition provides adequate capital
reserves and liquidity and that this will be enhanced by the upcoming
seasonal increases in handles and revenues at the Miami and Tampa frontons.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
(c) On July 1, 1997, the Company issued 3,631 shares of Common
Stock upon the conversion of 12 shares of Series D Preferred
Stock. On July 8, 1997, the Company issued 23,775 shares of
Common Stock upon the conversion of an aggregate of 50 shares
of Series C Preferred Stock and 25 shares Series D Preferred
Stock. On July 21, 1997, the Company issued 34,404 shares of
Common Stock upon the conversion of 100 shares of Series C
Preferred Stock. On July 22, 1997, the Company issued 26,258
shares of Common Stock upon the conversion of 75 shares of
Series D Preferred Stock. On July 25, 1997, the Company
issued 8,789 shares of Common Stock upon the conversion of 25
shares of Series D Preferred Stock. On August 12, 1997, the
Company issued 25,927 shares of Common Stock upon the
conversion of 75 shares of Series C Preferred Stock. On August
21, 1997, the Company issued 19,930 shares of Common Stock
upon the conversion of 50 shares of Series D Preferred Stock.
On September 12, 1997, the Company issued 10,369 shares of
Common Stock upon the conversion of 25 shares of Series D
Preferred Stock. On September 19, 1997, the Company issued
10,873 shares of Common Stock upon the conversion of 25 shares
of Series D Preferred Stock. On September 19, 1997, the
Company issued 9,650 shares of Common Stock upon the
conversion of 25 shares of Series D Preferred Stock. On
September 25, 1997, the Company issued 28,950 shares of Common
Stock upon the conversion of 75 shares of Series C Preferred
Stock. On October 2, 1997, the Company issued 9,846 shares of
Common Stock upon the conversion of 25 shares of Series D
Preferred Stock. On October 2, 1997, the Company issued
39,387 shares of Common Stock upon the conversion of 75 shares
of Series C Preferred Stock. No underwriters were used in any
of these conversions. The shares were issued in accordance
with Section 3(a)(9) of the Securities Act of 1933.
On August 1, 1997, the Company issued 25,000 shares of its
common stock to Freedom Financial Corporation ("Freedom") for
cash consideration of $31,250. On August 21, 1997, the Company
issued 100,000 shares of its common stock to Freedom Financial
Corporation ("Freedom") for consideration of $125,000. These
issuances were in connection with the exercise in part of the
options previously issued to Freedom pursuant to a Stock
Purchase Agreement dated March 31, 1993. Freedom retains an
option to purchase 905,000 shares of common stock at an
exercise price of $1.25 per share. No underwriters were used
in these transactions. The shares of Common Stock were issued
in transactions not involving a public offering in accordance
with Section 4(2) of the Securities Act of 1933, as amended.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
23
<PAGE>
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) LIST OF EXHIBITS FILED.
Exhibit 27 - Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
During the quarter ended September 30, 1997, the Company filed
(i) a Form 8-K Current Report dated July 10, 1997, concerning
Item 9, SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S,
(reporting the issuance of a $1,200,000 5% Cumulative
Convertible Debenture due December 31, 1998) and (ii) a Form
8-K Current Report dated September 24, 1997, as amended,
concerning Item 5, OTHER EVENTS (reporting the Company has
agreed to purchase from Interstate Capital Corporation, a
subsidiary of Freedom, certain unimproved properties and a
residential real estate development called Tara Club Estates,
all of which are situated in Loganville, Walton County,
Georgia). No financial statements were filed as a part of
these Form 8-K Current Reports.
24
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
(Registrant)
Date: NOVEMBER 14, 1997 By: W. B. COLLETT
---------------
W.B. Collett,
Chairman of the Board
and Executive Officer
(Principal Executive Officer)
Date: NOVEMBER 14, 1997 By: TIMOTHY L. HENSLEY
---------------------
Timothy L. Hensley
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATION FOUND ON PAGES 3,4 AND 5 OF THE COMPANY'S
FORM 10QSB FOR THE YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 803
<SECURITIES> 0
<RECEIVABLES> 3,429
<ALLOWANCES> 0
<INVENTORY> 93
<CURRENT-ASSETS> 4,797
<PP&E> 25,551
<DEPRECIATION> (975)
<TOTAL-ASSETS> 29,980
<CURRENT-LIABILITIES> 12,345
<BONDS> 1,200
4
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<COMMON> 554
<OTHER-SE> 13,633
<TOTAL-LIABILITY-AND-EQUITY> 29,980
<SALES> 0
<TOTAL-REVENUES> 18,148
<CGS> 0
<TOTAL-COSTS> 20,47
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (322)
<INTEREST-EXPENSE> 483
<INCOME-PRETAX> (2,221)
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</TABLE>
