<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission file number 0-9099
FLORIDA GAMING CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-1670533
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3500 NW 37TH AVENUE, MIAMI, FLORIDA 33142-0000
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
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Former name, former address and former fiscal year, if
changed since last report N/A
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
5,961,695 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, AUGUST 16, 1999.
---------------
Transitional Small Business Disclosure Format:
YES NO X
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<PAGE>
FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
<S><C>
Item 1. Financial Statements
Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 ................................ 3
Statements of Operations (unaudited) for Three Months and Six Months ended June 30, 1999 and 1998.... 5
Statements of Cash Flows (unaudited) for the Six Months ended June 30, 1999 and 1998.................. 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............................................................................................ 24
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2) ............................ $ 2,704,945 $ 1,086,285
Accounts receivable & current portion of notes receivable ..... 214,828 446,745
Inventory (Note 2) ............................................ 64,283 105,206
Prepaid and other expense ..................................... 174,554 49,905
-------------- --------------
Total current assets .................................. $ 3,158,610 $ 1,688,141
PROPERTY AND EQUIPMENT:
Land (Notes 2,7, and 11) ..................................... $ 4,183,425 $ 4,183,425
Buildings and Improvements ................................... 8,117,409 8,109,491
Furniture, fixtures and equipment ............................ 1,845,247 1,802,618
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$ 14,146,081 $ 14,095,534
Less accumulated depreciation ............................... (2,008,777) (1,711,622)
-------------- --------------
$ 12,137,304 $ 12,383,912
REAL ESTATE DEVELOPMENT ........................................... 4,068,187 4,376,638
COMMERCIAL PROPERTY HELD FOR SALE .................................. 3,755,335 6,301,138
OTHER ASSETS ...................................................... 1,117,308 883,193
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$ 24,236,744 $ 25,633,022
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</TABLE>
3
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 2) ........................................ $ 4,597,878 $ 6,056,500
Short-term borrowing and current portion of long-term debt ............................ 1,914,098 1,410,520
------------ ------------
Total current liabilities ........................................... $ 6,511,976 $ 7,467,020
LONG-TERM LIABILITIES
Long-term portion notes payable ....................................................... 4,335,504 6,703,347
STOCKHOLDERS' EQUITY (See Notes 2,4,5,6, and 7):
Class A convertible preferred stock, convertible to common stock; $10 par
value, 1,200,000 shares authorized; 34,435 shares issued and outstanding at
June 30,1999 and December 31, 1998 .................................................... 3,443 3,443
Class B convertible preferred stock; convertible to common stock, 5,000
shares authorized; 195 shares issued and outstanding at June 30, 1999 and
December 31, 1998 ................................................................... 20 20
Class C 8% cumulative convertible preferred stock, convertible to common
stock, 5,000 shares authorized; 0 shares issued and outstanding at June
30, 1999 and 100 shares issued and outstanding at December 31, 1998 ................ 0 10
Class E 8% cumulative convertible preferred stock, 2,000 shares authorized; 1,950
shares issued and outstanding at June 30, 1999 and December 31, 1998 ............ 195 195
Class F 8% cumulative convertible preferred stock, 2,500 shares authorized; 2,000
shares issued and outstanding at June 30, 1999 and December 31, 1998 ............... 200 200
Common stock, $10 par value, authorized 15,000,000 shares, 5,961,695
issued and outstanding at June 30, 1999, and 5,782,250 issued and
outstanding at December 31, 1998 .................................................... 596,169 578,225
Capital in excess of par value ............................................................. 39,583,054 39,600,988
Accumulated deficit ........................................................................ (26,793,817) (28,720,426)
------------ ------------
Total stockholders' equity ................................................... 13,389,264 11,462,655
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Total liabilities and stockholders' equity ................................... $ 24,236,744 $ 25,633,022
------------ ------------
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</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- -------------------------------
June 30, 1999 June 30, 1998* June 30, 1999 June 30,1998*
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
HANDLE:
Jai-Alai** $ 18,417,342 $ 17,997,592 $ 37,546,851 $ 37,693,601
Inter- Track Wagering (ITW) 12,881,990 11,666,383 27,041,655 24,564,730
------------- -------------- ------------- -------------
Total Pari-Mutuel Handle $ 31,299,332 $ 29,663,975 $ 64,588,506 $ 62,258,331
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
REVENUE:
On Site Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $ 1,171,836 $ 1,171,323 $ 4,704,608 $ 4,260,252
Summer Jai-Alai Revenues, Net 395,115 (36,178) 395,115 (36,178)
Inter-Track Mutuel Commissions 1,225,883 1,060,927 2,588,573 2,291,791
------------- -------------- ------------- -------------
Net Pari-Mutuel Revenue 2,792,834 2,196,072 7,688,296 6,515,865
Real Estate Division Income 348,500 133,581 814,500 315,500
Cardroom Income 45,280 41,196 159,964 158,559
Admissions Income 53,800 55,286 148,882 146,954
Programs, Food, Beverage and Other 541,799 558,503 1,236,258 1,301,173
------------- -------------- ------------- -------------
Total Operating Revenue $ 3,782,213 $ 2,984,638 $ 10,047,900 $ 8,438,051
EXPENSE:
Operating $ 1,895,883 $ 1,699,963 $ 5,354,256 $ 5,101,340
General and Administrative 1,460,907 1,846,501 3,606,242 3,999,827
Depreciation & Amortization 178,099 185,008 361,124 373,875
------------- -------------- ------------- -------------
Total Costs and Expenses 3,534,889 3,731,472 9,321,622 9,475,042
------------- -------------- ------------- -------------
Net Income (Loss) from
Operations $ 247,324 ($ 746,834) $ 726,278 ($ 1,036,991)
OTHER INCOME (EXPENSES)
Interest and Other Income 67,173 (238,771) 1,280,331 138,489
------------- -------------- ------------- -------------
Net Income (loss) $ 314,497 ($ 985,605) $ 2,006,609 ($ 898,502)
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
Basic Earnings (loss) per Common Share $ 0.05 $ (0.19) $ 0.34 $ (0.18)
Basic Earnings per Common Share (fully diluted) $ 0.04 N/A $ 0.28 N/A
Weighted Avg. Common Shares Outstanding 5,869,015 5,848,555 5,825,872 5,723,801
</TABLE>
* Adjusted to reflect the discontinued operation of Tampa Jai-Alai
**Includes Summer Jai-Alai Handle
5
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
---------------------------------
June 30, June 30,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities: Net Income (loss) .............................. $ 2,006,609 $ (898,502 )
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ................................................ 361,124 493,879
Gain on sale of assets ....................................................... (1,024,702) -0-
Equity in earnings of Summer Jai-Alai ........................................ (204,304) 36,178
Realized gain on sale of marketable securities ............................... -0- (351,258)
Change in Accounts receivable, net ........................................... (78,893) 186,314
Change in Prepaid expenses ................................................... (43,137) (53,761)
Change in Other assets ....................................................... (62,735) (27,292)
Change in Inventories ........................................................ 40,923 68,255
Change in Accounts payable and accrued expenses .............................. (1,518,608) 868,023
----------- -----------
Total adjustments ................................................... (2,530,332) 1,220,338
----------- -----------
Net cash provided by (used in) by operating activities .................. ($ 523,723) $ 321,836
Investing Activities:
Proceeds from sales of property .............................................. 3,514,707 -0-
Capital Expenditures ......................................................... (50,547) -0-
Investment in Summer Jai-Alai ................................................ 148,347 450,613
Decrease in capitalized development .......................................... 364,249 9,083
----------- -----------
Net proceeds provided by investing activities ........................... $ 3,976,756 $ 459,696
Financing activities:
Net proceeds from borrowing (Repayment of Borrowings) (Note 8) ........... ($1,754,373) ($ 622,498)
Stockholders Equity:
Redemption of Preferred and Common Stock ................................. (80,000) (165,166)
----------- -----------
Net cash used in financing activities ................................ ($1,834,373) ($ 787,664)
NET INCREASE (DECREASE) IN CASH ...................................................... $ 1,618,660 ($ 6,132)
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ............................................ $ 1,086,285 $ 244,963
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER .......................................... $ 2,704,945 $ 238,831
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information: Cash paid
during the period for:
Interest .................................................................. $ 434,575 $ 442,994
</TABLE>
The accompanying notes are an integral part of these financial
statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
June 30, 1999
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have been
prepared without audit for filing with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Therefore, it is suggested that the
accompanying financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's latest annual report on
Form 10-KSB.
Certain information and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the year,
reflects all adjustments of a normal recurring nature, which, in the opinion of
the Company, are necessary to a fair statement of the results for the periods
indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
DISCLOSURE: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live Jai
Alai games at frontons in Ft. Pierce, Miami, and Ocala, Florida. The Company
also conducts Inter Track wagering (ITW) on Jai Alai, horse racing and dog
racing from its Ft. Pierce and Ocala Jai Alai facilities. On November 26, 1997,
the Company acquired Tara Club Estates ("Tara"), a residential and commercial
real estate development near Atlanta in Walton County, Georgia. The Company
intends to complete the development and market the property.
Approximately 34% 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 investment company.
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.
COMMERCIAL PROPERTY HELD FOR SALE: The Company's investment in undeveloped land
held for resale near its existing Jai- Alai frontons ($1,834,516 at June 30,
1999 and December 30, 1998) is included in commercial property held for sale in
the accompanying balance sheets.
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
offsite Inter-Track Wagering ("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 net of the Company's commissions.
INCOME TAXES: The Company utilizes the asset and liability approach to
accounting for income taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled.
7
<PAGE>
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
LOSS PER COMMON SHARE: During 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, Earning Per Share,
("SFAS 128"), which requires the computation and disclosure of basic and diluted
income (loss) per common share. Basic income (loss) per common share is
determined by dividing income (loss) by the weighted average number of shares of
common stock outstanding. Diluted income (loss) per common share is determined
by dividing income (loss) by the weighted average number of shares of common
stock outstanding plus the weighted average number of shares that would be
issued upon exercise of dilutive stock options, assuming proceeds are used to
repurchase shares pursuant to the treasury stock method plus the weighted
average number of shares that would be issued if holders of the Company's
preferred stock converted those shares to common stock using the "if converted"
method. Diluted loss per common share is not presented when the resulting
calculation is antidilutive relative to basic loss per common share.
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 or greater than 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.
(3) INCOME TAXES
At December 31, 1998, the Company had tax net operating loss (NOL) carryforwards
of approximately $16,000,000 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 2014. However, $9,000,000 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 Company stock purchased by Freedom Financial Corporation 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 $7,000,000) are not subject to the
Section 382 limitation.
The Company has unused general business tax credits of approximately $137,000 to
offset any future tax liabilities of the Company. These credits expire at
various dates through the year 2001. Any deferred tax assets arising from
differences from taxable income and financial reporting income are deemed to be
offset by an allowance in an equal amount due to the uncertainty of future
taxable income.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida stipulating that jai alai permit holders incurring state taxes on handle
and admissions in an amount exceeding its operating earnings (before deduction
of certain expenses such as depreciation and interest) for the prior year are
entitled to credit such excess against pari-mutuel taxes due and payable. In
1997 Miami Jai Alai and Tampa Jai Alai incurred and had available 1998
pari-mutuel tax credits of $1,606,051 and $935,521, respectively. During 1998,
Miami utilized credits of $521,762 over two eligible months of operations. Tampa
Jai Alai, which discontinued live operations following its July 4th
performances, utilized pari-mutuel tax credits of $13,940. Miami will be
entitled to carry over the unused 1998 credits to 1999 and will have an
additional credit of $1,342,912 available for recovery, representing the full
amount of taxes incurred in 1998. Tax credits used to satisfy the Company's
obligation to pay taxes incurred on handle and admission are reported as a
reduction of their taxes in the accompanying Statements of Income. Tax credits
used, depreciation expense and interest expense are all excluded from the
statutory calculation of operating earnings or loss in the determination of
future tax credits.
(4) INCOME PER COMMON SHARE
The net income per common share was calculated based upon net income
attributable to common stock shareholders and the weighted average number of
outstanding common shares (5,869,015 and 5,848,555 for the three months ended
June 30, 1999, and 1998, respectively). Weighted average outstanding common
shares for the six months ended June 30, 1999, and 1998, were 5,825,872 and
5,723,801. Weighted average equivalent shares on a fully diluted basis for
the three months ended June 30, 1999 were 7,059,015 shares, consisting of
1,040,000 in options held by current and former directors, executive officers
and key employees under Qualified and Nonqualified Stock Option Plans,
150,000 in warrants issued to brokers as fees in preferred stock issuances
and the 5,869,015 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.
Weighted average equivalent shares on a fully diluted basis for the six
months ended June 30, 1999 were 7,015,872 shares, consisting of 1,040,000 in
options held by current and former directors, executive
officers and key employees under Qualified and Nonqualified Stock Option
Plans, 150,000 in warrants issued to brokers as fees in preferred
stock issuances and the 5,825,872 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.
Options and convertible securities were not included in the computations of
loss per shares for the three and six month periods in 1998 because their
inclusion would be anti-dilutive.
8
<PAGE>
(5) PREFERRED STOCK
CLASS A 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 $30,971 during 1997. These dividends were paid by the issuance
of 9,577 common shares and $20 cash in lieu of fractional shares. On September
21, 1998, the Company declared a dividend on shares of the Class A preferred
that were issued and outstanding at the close of business on September 21, 1998.
The Company intends to pay the dividend which was declared by September 30,
1999. 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, 1997 and 1996,
- -0- shares and 300 shares of Class A preferred stock were converted into -0-
shares and 67 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.
CLASS B PREFERRED 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 stock 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 the year ended December 31, 1996, the Company
issued 2,300 Series B preferred shares at $925 per share. During 1996, 2,707.5
Series B shares were converted to 473,588 shares of common stock. During 1997,
1547.5 Series B shares were converted to 295,951 shares of common stock. During
1998, 150 Series B shares were converted to 113,466 shares of common stock, and
100 shares were redeemed by the Company. No shares have been converted during
the first quarter of 1999.
CLASS C PREFFERED 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 in 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, 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 the 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 5,050 Series C shares at $1,000 per
share. In 1997, 400 Series C shares were converted to 144,518 shares of common
stock. During 1998, 50 Series C shares were redeemed by the Company. On May 18,
1999 the remaining 100 shares were converted to 179,445 shares of common stock.
9
<PAGE>
CLASS E PREFERRED STOCK
The Company is authorized to issue 2,000 shares of Series E 8% cumulative
convertible preferred stock, $.10 par value (the "Series E Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's stated value,
payable upon conversion of the Series E preferred stock into common stock. The
stated value per share equals $1,000 (as adjusted for any stock dividends,
combination or splits). Holders of Series E Preferred Stock may convert all or
any 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. If not
converted earlier by the holder, the Series E Preferred Stock shall be converted
automatically two years from the date of issuance. 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 and (ii) 80% of the average of the closing bid price of the common stock
on the five trading days before conversion. A holder of Series E Conversion
Shares may not sell more than 25% of such shares between 120 and 150 days of his
purchase of Series E Preferred Stock converted into each share, 50% of such
shares between 151 and 180 days of his purchase of Series E Preferred Stock
converted into such shares and 75% of such shares between 181 and 210 of his
purchase of Series E Preferred Stock converted into each share; a holder may
generally sell all of his Series E Conversion Shares 211 days after his
purchase. Upon liquidation, the holders of Series E Preferred Shares shall be
entitled to be paid $950 per share plus accrued dividends before any
distribution to holders of common stock. During 1997, the Company issued 2,000
Series E shares at $1,000 per share. During 1998, 50 Series E shares were
converted to 25,176 shares of common stock. No shares have been converted in the
first six months of 1999.
CLASS F PREFERRED STOCK
The Company is also authorized to issue up to 2,500 shares of Series F 8%
Cumulative Convertible Preferred Stock (the "Series F 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 F Preferred Stock. Holders of
Series F Preferred Stock may convert all or any of such shares to the Company's
common stock at any time. Each share of Series F Preferred Stock shall be
converted into 296.6689 shares of common stock (the "Conversion Stock"). The
number of shares of Conversion Stock into which each share of Series F Preferred
Stock shall be converted shall be proportionately adjusted for any increase or
decrease in the number of shares of common stock or Series F Preferred Stock.
Upon liquidation, the holders of Series F Preferred Shares shall be entitled to
be paid $1,000 per share plus accrued dividends before any distribution to
holders of common stock. During 1997, the Company issued 2,084 Series F shares
at $1,000 per share. On June 22, 1998 the Company repurchased 84 shares from
Freedom Financial Corporation as part of the cancellation of a receivable.
CLASS G PREFERRED STOCK
During 1997, the Company issued 3,000 Series G shares at $1000 per share or
$3,000,000 face amount. During the period from August 25, 1998 to November 4,
1998, the Company repurchased all $3,000,000 face amount of the Series G shares
in exchange for approximately $1,560,000 in cash and a two-year unsecured
promissory note for $2,000,000 bearing interest at twenty percent (20%) per
annum. There are no principal payments due on the note for twenty-four (24)
months unless certain properties are sold or re-financed by the Company.
Interest on the note is payable monthly Pursuant to the terms of the repurchase
agreements, the Company is no longer required to file a Registration Statement
for the Series G Preferred Stock.
The Class A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and
the Series F Preferred Stock are all equal in rank with respect to the payment
of dividends and with respect to the distribution of assets upon liquidation of
the Company.
(6) COMMITMENTS AND CONTINGENCIES
ISLE OF CAPRI CASINOS, INC.: On September 25, 1998, Casino America, Inc. changed
its name to "Isle of Capri Casinos, Inc." On October 4, 1994, the Company
entered into a letter of intent (the "Letter of Intent") with Isle of Capri
Casinos, Inc. ("Isle of Capri") to form a joint venture (the "Joint Venture") to
build and operate a casino at its Ft. Pierce Fronton ("the Fronton"). Isle of
Capri owns and operates riverboat and dockside casinos located in Mississippi
and Louisiana and a land based Casino in Colorado. If the Joint Venture to build
a flea market at the Fort Pierce facility is formed before passage of an
amendment to the Florida Constitution to permit casino gaming at the Fronton,
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. Isle of Capri
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. The Company contends that
Isle of Capri is in default of the Letter of Intent since Isle of Capri failed
to contribute the $2,500,000 as needed, to construct a flea market facility. If
casino gaming is not permitted in Florida by 2000, Isle of Capri has a
continuing option to convert the money contributed to the Joint Venture to a
promissory note
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from the Joint Venture payable in equal annual 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. Isle of Capri agreed to fund its capital account on an as
needed 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 Isle of Capri 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 Isle of Capri has the
exclusive right to enter into a Joint Venture with the Company for six years
and Isle of Capri 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 Isle of Capri, 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. The Company has taken
the position that Isle of Capri is in default on a continuing basis of the
Letter of Intent since Isle of Capri failed, when requested by the Company,
to contribute its share of capital ($2,500,000) to build a flea market at
Fort Pierce.
Freedom Financial Corporation has informed the Company that Isle of Capri has
purchased 22,500 shares of Freedom's 7% Series AA Mandatory Redeemable Preferred
Stock (the "Series AA Stock"). The Series AA 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 Series AA Stock is
convertible into a minimum of 150,000 shares and a maximum of 300,000 shares of
the Common Stock. Isle of Capri is the sole holder of Series AA 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 1997, Freedom purchased an additional 425,000 shares of common stock
pursuant to the same option. Freedom's remaining option to purchase 905,000
shares of the Company's Common Stock expired on March 31, 1998. Freedom now owns
directly 1,774,480 shares of the Company's 5,961,695 shares of issued and
outstanding Common Stock as of June 30, 1999.
REGISTRATION RIGHTS: The Company has committed upon certain terms and
conditions, to register for resale, certain shares held by other parties,
allowing those shares to be publicly traded. The Company intends to use
reasonable efforts to comply with these commitments.
LEASES: The Company rents totalizator (Autotote) and other equipment under
leases which expire at various dates through 2001. 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 years ended December 31,
1998 and 1997 was approximately $784,736 and $824,262, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1998, including those obligations assumed in connection with the Company's
acquisition of certain WJA assets are as follows:
<TABLE>
<CAPTION>
Minimum
Year Annual Rental
---- -------------
<S> <C>
1999 635,000
2000 410,000
2001 410,000
----------
$1,455,000
----------
</TABLE>
LITIGATION COSTS: In addition to legal fees incurred in the normal course of the
Company's business activities, during 1998 and 1997 the Company paid
approximately $250,000 and $83,000, respectively for settlement costs and legal
fees associated with various lawsuits. Such costs are included in Professional
Fees in the accompanying Statements of Operations.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with
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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 DEPOSITS: The Company maintains significant cash balances with
financial institutions in excess of the insurance provided by the Federal
Deposit Insurance Corporation (FDIC).
SUMMER JAI ALAI: The Company is a partner in "The Summer Jai Alai Partnership"
or "SJA" and operates live Jai Alai dates annually on behalf of the partnership.
The partnership was formed in 1980 and SJA simultaneously became a party to an
Operator's Agreement and Fronton Lease along with the Company. The 1996 summer
season resulted in an operating loss and the Company made demand upon its
partners for their respective shares of the losses and to fund a "money bank "
and "operations bank" for SJA's 1997 summer season. Neither request was honored
by the other partners, and as a result, the Company filed suit against the
partnership in July 1997 to collect on the 1996 losses. This lawsuit was amended
on February 20, 1998 seeking damages from the partners for breaching the Summer
Jai-Alai Operating Agreement and Fronton Lease. At December 31, 1997, the
Company was carrying a balance due from its SJA partners of $468,372.
On June 11, 1998, a settlement agreement covering operational issues was
executed by the Company and other members of SJA which, among other things,
1. Continues the existence of the partnership;
2. States that the Summer Jai-Alai season (May 1, 1998 to November
28,1998) will be operated by the Company at it's own risk and for its
own benefit. Provided, however, that if net profits for the 1998 Summer
Season exceed $250,000, then, in that event, the other members of SJA
will be paid a total of $50,000 for the 1998 Summer Season.
3. States that the Company will pay one of the SJA partners about $110,000
for monies owed by the Company for ITW payments previously held by the
Company as a potential off-set of claims made in the suit.
4. States that the Company will have the right, subject to State Approval,
to operate the 1999 Summer Season for its own benefit, provided that
the tax credits available for the 1998 Summer Season have not been
exhausted.
5. The parties agreed to meet on or before December 31, 1998 to determine
the operational dates or parameters for the 1999 Summer Season.
Effective July 1, 1998, legislation was passed by the state of Florida by which
Summer Jai-Alai Partnership was granted a tax credit of $922,000. SJA expects to
utilize the tax credits during the 1998 and 1999 SJA seasons. SJA credited the
Company's capital account for the amount due the Company at December 31, 1997.
The Company has reclassified its' receivable from SJA as an investment
consistent with SJA's treatment of the offsetting payable.
As a result of the December, 1998 meeting, the parties negotiated a new
agreement which continued the June 11, 1998 agreement with the following
modifications:
- The Company maintains the right to operate Summer Jai-Alai
from May 1, 1999 through November 30, 1999 and May and June of
2000 at its own risk and for its own benefit. The Company
agrees to hold the other partners in SJA harmless for any and
all losses or liabilities that may be incurred.
- For the aforementioned benefits, including the benefits
derived from the operation of the 1998 Summer Season, the
Company will pay each of the other SJA Partners (Hollywood,
Flagler and Biscayne) the sum of $65,000 in three installments
of $21,667, with the first payment due upon execution of the
agreement and subsequent payments of $21, 667 each on June 1,
1999 and July 20, 1999.
Management believes that the net income and cash flow from SJA operations will
offset these payments.
(7) 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.
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<PAGE>
On November 25, 1996, the Company entered into an agreement with WJA and Florida
Gaming Centers, Inc.("Centers") a wholly-owned subsidiary of the Company,
pursuant to which the Centers agreed to acquire the WJA Frontons for the
cancellation of the notes with balances aggregating about $20,000,000 and the
assumption of certain liabilities. (See details below) 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,
Centers.
The profit sharing arrangement is based on Centers net profits from Jai Alai
operations as defined, before income taxes. The Company will pay WJA 20% of the
defined cumulative net profits of Centers 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, Centers 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,
Centers 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, Centers disposes of any of its
significant assets or operations, then WJA would be entitled to receive an
amount equal to ten percent of Centers net gain, if any, on the disposition. No
net profit payments were due for 1997 or 1998.
Two principals of WJA, also entered into consulting arrangements with Centers.
One principal, Roger M. Wheeler, Jr. ("Wheeler"), entered into a ten-year
consulting agreement with Centers, 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, Richard P. Donovan
("Donovan"), entered into a five-year consulting agreement with Centers, 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. Subsequent to December 31, 1997 a lawsuit was filed against the
Company seeking collection of amounts due under these agreements.
During 1997, the Company discontinued the required payments under the above
consulting agreements because of the continuing lack of performance by the
individuals pursuant to their obligations under the consulting agreements.
On March 6, 1998, Donovan filed suit in the Circuit Court of the 11th Circuit in
Florida, Dade County, against Centers. Donovan claimed that Centers breached the
Donovan Contract and requested judgment against Centers for compensatory
damages, including $1,053,000 due for consulting services through the term of
the agreement and $56,000 due for life insurance premiums for the term of the
agreement, together with prejudgment interest, attorneys' fees, costs and such
other relief as the Court deemed just and proper. The suit was dismissed in
December, 1998 pursuant to the stipulation of the parties following the entry
into an Amendment to the Donovan Contract dated November 24, 1998, which
provided for Centers to pay Donovan (i) $84,000 for past due consulting fees,
(ii) $10,000 per month for ninety-six months commencing January 1, 1999, and
(iii) $14,000 past due life insurance premiums and $14,000 per year for life
insurance premiums for seven years commencing in 1999. The Amendment also
provided Centers with an option exercisable at any time to purchase the balance
of the Donovan Contract for 50% of the balance owed on the amended contract, and
provided that Donovan shall be entitled to a consent judgment against the
Centers for the balance due on his amended contract in the event the Company is
in default for a period of 90 consecutive days.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the
Circuit Court of the 11th Circuit in Florida, Dade County, against Centers
and the Company. Wheeler claimed that Centers breached the Wheeler Contract.
Wheeler asserted that the Company guaranteed the performance of Centers.
Wheeler requested judgment in the amount of $675,000 due for consulting
services through the term of the agreement, together with prejudgment
interest, attorneys' fees, costs and such other relief as the Court deems
just and proper. In addition, Wheeler-Phoenix, Inc. alleged that Centers
failed to make payments due under a promissory note in the principal amount
of $500,000. Wheeler-Phoenix requested judgment in the amount of $500,000,
together with prejudgment interest accrued up to the time of judgment,
attorneys' fees, costs and other relief as the court deems just and proper.
The suit was dismissed in December, 1998, following Centers payment of
$80,000 on the Wheeler-Phoenix note and pursuant to the stipulation of the
parties following the entry into an Amendment to the Wheeler Contract dated
November 24, 1998 which provided for Centers to pay Wheeler (i) $75,000 in
past due consulting fees, (ii) $6,000 per month for sixty months commencing
January 1999, and (iii) $4,050 per month for sixty months commencing January
2004. The Amendment also provided Centers with an option exercisable at any
time to purchase the balance of the Wheeler Contract for 50% of the balance
owed on the amended contract, and provided that Wheeler shall be entitled to
a consent judgment against the Company for the balance due on his amended
contract in the event the Company is in default for a period of 90
consecutive days.
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<PAGE>
(8) SALE OF TAMPA JAI-ALAI FACILITY
On September 8, 1998, the Company sold the Tampa Jai-Alai facility for
$8,300,000. The sale was pursuant to an agreement (as amended) dated January,
1998, between the Company and Monroe's Prestige Group, Inc. ("MPG"), a real
estate development company unaffiliated with the Company. The terms of the sale
were determined through arms-length negotiations with MPG. The sale did not
include the Company's Tampa gaming permit which is still owned by the Company,
and remains available for possible use at a different Hillsborough County,
Florida facility.
The Company's costs associated with the transaction totaled $1,237,779. These
costs consisted of commissions, property taxes, legal fees, and other expenses
related to the closing of operations. The Company was required by the Bank of
Oklahoma to apply $3,084,465 of the proceeds received from the sale of the Tampa
Jai-alai facility toward the Company's first mortgage obligations to the Bank of
Oklahoma.
The Company received an additional $125,000 for vacating the property by
November 1, 1998.
For further information regarding the sale, please refer to the Company's Form
8-K dated September 8, 1998.
(9) SALE OF EXCESS PROPERTY IN MIAMI
On February 18, 1999, the Company sold excess property, consisting of
approximately 13 acres, located near the Miami Jai-Alai facility in Miami, FL
for $3,668,000. The sale was pursuant to an agreement between the Company and
Adrian Industrial Properties, LTD, a Miami based developer. The Company's costs
associated with the sale were about $450,000. The Company was required by Bank
of Oklahoma to apply $1,500,000 of the proceeds from the sale of the excess
property toward its related first mortgage obligations to the Bank of Oklahoma.
The Company leased back from the purchaser approximately two (2) acres of the
property for overflow parking. The lease is for a term of four (4) years at a
rental of $5,508 per month.
(10) LITIGATION AGAINST OCALA BREEDERS SALES COMPANY
The Florida Legislature authorized Intertrack Wagering ("ITW") in 1990 allowing
race tracks and jai-alai frontons which conducted full schedules of live racing
or live games to obtain ITW permits and accept inter-track wagers. The 1990
legislation also authorized one (1) ITW permit to operate for a maximum of 21
days in connection with thoroughbred sales at a permanent location holding a
quarter horse permit and specific non-wagering race criteria. Such permit was
awarded to Ocala Breeders Sales Company ("OBS") in Ocala, Marion County,
Florida. Florida Gaming Centers, Inc. operates Ocala Jai-Alai in Marion County,
Florida. The legislation was amended in 1991 and subsequent years to allow an
increase in the number of days during which ITW wagering was allowed at OBS.
From 1990 to the present, the only applicant for this thoroughbred sales ITW
license has been and remains to be OBS.
In 1995, WJA Realty, prior to its' purchase by the Company, filed a lawsuit
alleging, among other things, that the ITW issue as to OBS is unconstitutional.
In December, 1997, the Circuit Court granted Florida Gaming Centers, Inc. a
Motion for Summary Judgment and found that the section of the Statute under
which OBS was granted an ITW permit was a special law enacted in the guise of a
general law and, consequently, is unconstitutional. The State of Florida, as one
of the Plaintiffs, sought and was automatically granted a stay of the Judgment
pending an Appeal. On March 3, 1999, the District Court of Appeals affirmed the
Circuit Court decision that the law under which OBS is operating is indeed
unconstitutional.
The Company does not know at this time what action OBS or the State of Florida
will take concerning this litigation. Upon advice of counsel, management
believes that it is not possible for the Legislature to craft language
permitting only OBS to conduct ITW wagering that would be constitutional.
(11) REAL ESTATE DEVELOPMENT
On November 26, 1997, Florida Gaming Corporation (the "Company") acquired
substantially all of the assets of Interstate Capital Corporation (ICC), a
wholly-owned subsidiary of Freedom Financial Corporation (Freedom). These assets
consisted of 23 acres of partially-improved commercial properties and a
residential real estate development containing about 250 single-family
residential lots, called Tara Club Estates (collectively, "Tara" or the
"Properties"), all of which are situated in Loganville, Walton County, Georgia.
14
<PAGE>
As consideration for the purchase, the Company paid ICC $6,473,265 as follows:
(i) the Company issued to ICC 2,084 shares of Series F 8% Convertible Preferred
Stock (the "Series F Preferred Stock") at a stated value of $1,000 per share
(convertible into the Company's common stock ("Common Stock") on the basis of
296.6689 shares of the Company's Common Stock for each $1,000 of stated value of
the Series F Preferred Stock), (ii) the Company assumed $1,181,102 of first
mortgage promissory notes to two commercial banks secured by the properties
purchased, and (iii) the Company canceled $3,208,163, consisting of $2,107,076
in principal balances and $1,101,087 of accrued interest owed by Freedom to the
Company.
The Company accounted for the acquisition of ICC's assets using the purchase
method of accounting. The total purchase price was $6,473,265 comprising of the
above described indebtedness cancellation, debt assumption, and the Series F
Preferred Stock. In accordance with generally accepted accounting principles,
the purchase price was allocated to the assets acquired based on their fair
market value at the date of acquisition. Management estimated fair market value
using independent appraisals or other cost information with respect to the
individual assets.
The Company's real estate development activities comprise a separate segment of
its operations. Because the development was acquired in late 1997, the Company
had virtually no income or expenses for 1997 attributable to this segment of its
business. The Company has engaged a professional real estate management and
marketing company to assist with the advertising and marketing program for the
sale of developed residential lots and the commercial property.
(12) RETIREMENT PLAN
The Company provides defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans, which cover employees included in its
current Collective Bargaining Agreement and certain non-union employees, provide
for the deferral of salary and employer matching.
(13) RELATED PARTY TRANSACTIONS
In addition to loans made to Freedom under the credit facility referred to in
Note 11 above, the Company provided working capital advances to Freedom and made
payments to third parties on Freedom's behalf throughout 1997. These third party
payments comprised transfers totaling approximately $582,000 to a joint
brokerage margin account of Freedom and the Company, which funds were used by
Freedom to cover "margin calls" made by the brokerage firm as the value of
Freedom's collateral in the margin account decreased in value. The collateral
consisted of Florida Gaming common stock of the Company acquired by Freedom
during 1997 pursuant to Freedom's exercise of options. The Company also advanced
approximately $118,000 directly to Freedom through this open account during the
year. Freedom made payments to the Company during 1997 totaling $259,500 as a
reimbursement of these advances and Freedom was given credit for expenses
incurred on behalf of the Company totaling approximately $207,500 which were
credited to Freedom's open account. Freedom Financial paid off the inter-company
account in full plus interest at 2% above prime on June 22, 1998.
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom Financial Corporation
("Freedom"), an affiliate, with the loan to be represented by a promissory note
(the "Company Note") bearing interest at the rate of 15% per annum and secured
by a first lien on the shares of the Company's wholly-owned subsidiaries,
Florida Gaming Centers, Inc. ("Centers") and Tara Club Estates, Inc. ("Tara")
and by a second lien on substantially all of the Company's other assets. The
Note will be guaranteed by Centers and Tara with their guaranties secured by a
second lien on substantially all of their respective assets. Freedom may
partially fund the Company Note out of the proceeds of a loan from a commercial
bank (the "Freedom Note"). The Freedom Note to the Commercial Bank will bear
interest at 13% per annum and must be personally guaranteed by W. Bennett
Collett, the Company's Chairman and Chief Executive Officer. The Freedom Note
will be secured by an assignment of the Company Note and the collateral securing
the Company Note. The Company Note and the Freedom Note will be due on demand or
one (1) year from date if no demand is made. Five points must be paid at the
closing of the Freedom Note and a like amount will be paid at the closing of the
Company Note to Freedom.
During 1996, the Board of Directors established the Chairman's annual salary at
$360,000, payable monthly. The Chairman had previously received no salary for a
period of three (3) years. During 1997, the Chairman received 8 monthly payments
of $30,000 consistent with the Board's directive. In September, 1997, the
Company discontinued the salary payments to the Chairman and began paying
$30,000 per month to Freedom as a management fee in lieu of salary. No written
employment or consulting agreement exists between the Company and Freedom.
Beginning November 1, 1997, the Company also discontinued salary payments of
$9,000 per month to the President and began paying $8,000 per month to Freedom
as a management fee in lieu of salary.
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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 three
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 also owns a
fourth gaming permit which was previously operated in Hillsborough County
(Tampa) Florida.
The Company's Fort Pierce 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,
certain other 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.
The Company's principal place of business and executive offices are located at
3500 NW 37th Avenue, Miami, Florida 33142. The Company was incorporated in
Delaware in 1976.
CARD ROOM DEVELOPMENT
Effective June 1, 1996, a new Florida pari-mutuel statute 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 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 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 facility conducts 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 are paid at 10% of this
revenue and 4% of the revenues are paid to the Jai-Alai players.
The jai-alai industry generally has declined in the last several years due to
increased gaming competition such as Indian Gaming, gambling cruise ships,
commercial bingo operations and the state-wide lottery. Also, competition in the
sports/entertainment area has increased significantly with more professional
sports teams in jai-alai's home markets. Average state-wide on-track handle per
performance for the state of Florida fiscal years ended June 30, 1998, and 1997
was approximately $59,469 and $67,922, respectively. Aggregate handle for the
State of Florida's fiscal year ended June 30, 1998 decreased approximately $15
million or 12%.
Inter-track wagering ("ITW") has grown significantly since its initiation in the
State of Florida in August, 1990. The State-wide ITW handle for all pari-mutuels
in 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, 1998 increased to approximately $675 million. ITW handle at the
Company's Frontons has also demonstrated strong growth in recent years,
increasing from $55.6 million in the year ended December 31, 1997, to
approximately $58.5 million for the year ended December 31, 1998, an increase of
$2.9 million or 5.2%.
REAL ESTATE DEVELOPMENT
In late 1997, the Company entered into a new line of business -- residential
real estate development. The following paragraphs outline
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the background and the Company's approach going forward plans as to
management and use of the real estate assets acquired. On November 26, 1997,
the Company acquired substantially all of the assets of Interstate Capital
Corporation ("Interstate"), a wholly-owned subsidiary of Freedom Financial
Corporation ("Freedom"). See Note 11 to the accompanying financial
statements. The assets consisted of 23 acres of partially improved commercial
property and a residential real estate development containing about 250
single-family residential lots, known as Tara Club Estates (collectively, the
"Properties"), all of which are situated in Loganville, Walton County (near
Atlanta), Georgia. As consideration for the purchase, the Company paid
Interstate $6,373,265 as follows: (i) the Company issued to Interstate 2,084
shares of Series F 8% Convertible Preferred Stock (the "Series F Preferred
Stock") at a stated value of $1,000 per share (convertible into the Company's
common stock ("Common Stock") on the basis of 296.6689 shares of the
Company's Common Stock for each $1,000 of stated value of the Series F
Preferred Stock), (ii) the Company assumed $1,081,102 of first mortgage
promissory notes to two lenders secured by the properties purchased, and
(iii) the Company canceled a line of credit having a principal balance of
$2,107,076 plus accrued interest of $1,101,087 for a total of $3,208,163 owed
by Freedom to the Company.
The Company's real estate development activities will comprise a separate
segment of its operations. Because the development was acquired in late 1997,
the Company had virtually no income or expenses attributable to this segment of
its business during 1997. The Company engaged the services of a professional
real estate management and marketing company in 1998 to assist with an
advertising and marketing program for the sale of the developed residential and
commercial lots.
These Properties consist of over 100 fully-developed, and 150
partially-developed, single-family residential home sites, a swim and tennis
club facility, and 23 acres of partially-developed commercial property. As of
June 30, 1999, over seventy (70) home sites had been sold to builders. The
residential sites are presently selling at an average in excess of $48,000 per
site. Before the acquisition of the Properties by the Company, thirty-nine
homes, having a market value of approximately $10,000,000 had been constructed
and sold at an average price of $250,000 each. The Properties are located on
Georgia Highway 81, approximately one (1) mile south of U.S. Highway 78, inside
the Loganville, Georgia city limits. Located in western Walton County, Georgia,
the Properties are approximately 2.5 miles east of the Gwinnett County/Walton
line. Gwinnett County is inside the fifteen-county region which makes up
Metropolitan Atlanta. The population of the Atlanta area is now over four
million residents. Gwinnett County is located in the Northeast section of
Metropolitan Atlanta, and is one of the fastest growing counties in the United
States. The population of Gwinnett County has doubled in the last
ten years.
JAI-ALAI TAX LEGISLATION
Major tax legislation which limits the amount of state handle and admission
taxes went into effect July 1, 1998.
The new law, (Section 2, Subsection (1b) of section 550.09511, Florida Statutes)
states, in part, that "Any jai-alai permit holder that incurred state taxes on
handle and admissions in an amount that exceeds its operating earnings in a
fiscal year that ends during or after the 1997-1998 state fiscal year, is
entitled to credit the excess amount of the taxes against state pari-mutuel
taxes due and payable after June 30, 1998, during its next ensuing meets."
The Company paid state taxes on handle and admissions in the amount of
$3,105,309 for the year ended December 31, 1997. Taxes paid to the state in
fiscal 1997 of approximately $1,724,881 ($.29 per share) are eligible for
recovery by the Company during the twelve-month period beginning July 1, 1998.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida stipulating that jai alai permit holders incurring state taxes on handle
and admissions in an amount exceeding its operating earnings for the prior year
are entitled to credit such excess against pari-mutuel taxes due and payable. In
1997, Miami Jai Alai and Tampa Jai Alai incurred and had available 1998
pari-mutuel tax credits of $1,606,051 and $935,521, respectively. During 1998,
Miami utilized credits of $521,762 over two eligible months of operations. Tampa
Jai Alai, which discontinued live operations following its July 4th
performances, utilized pari-mutuel tax credits of $13,940. Miami will be
entitled to carry over the unused 1998 credits to 1999 and will have an
additional credit of $1,342,912 available for recovery, representing the full
amount of taxes incurred in 1998. Tax credits used to satisfy the Company's
obligation to pay taxes incurred on handle and admission are reported as a
reduction of their taxes in the accompanying Statements of Income. Tax credits
used, depreciation expense and interest expense are all excluded from the
statutory calculation of operating earnings or loss in the determination of
future tax credits.
This legislation is expected to have a significant positive impact on the
Company's future earnings.
17
<PAGE>
YEAR 2000
The Company uses computers to maintain its financial records and in the conduct
of its pari-mutuel wagering operations. The software on which the Company's
financial records are maintained is Year 2000 compliant.
The software used in the Company's pari-mutuel wagering operations is furnished
by Autotote and is not Year 2000 compliant. By letter dated December 18, 1998,
Autotote advised the company that it expected that a Year 2000 compliant system
will be available for field deployment beginning March 1, 1999 and that all
sites using Autotote's computer software would be upgraded to be Year 2000
compliant by Fall 1999. The Company does not expect to incur any costs in
connection with the upgrade.
Based on Autotote's December 18, 1998 letter, the Company anticipates that its
Autotote software will be Year 2000 compliant prior to December 31, 1999.
However, the Company is dependent entirely on Autotote to achieve Year 2000
compliance and it has no contingency plans in the event Year 2000 compliance is
not achieved. If the Autotote software is not made year 2000 compliant by
December 31, 1999, the Company's pari-mutuel wagering operations could be
seriously disrupted, which could have a material adverse affect on the Company's
financial condition and its results of operations.
RESULTS OF OPERATIONS - THREE AND SIX MONTHS 1999 COMPARED WITH THREE AND SIX
MONTHS 1998
THE FOLLOWING ANALYSIS OF HANDLE, REVENUES, AND OPERATING EXPENSES IN THIS PART
OF THE REPORT COMPARES FIGURES FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998 FOR THE THREE PARI-MUTUEL FACILITIES PRESENTLY OPERATING---
MIAMI, FT. PIERCE, AND OCALA. THE TAMPA FACILITY WAS SOLD IN NOVEMBER, 1998, AND
ALL OPERATIONS CEASED AT THAT TIME. THE HANDLE AND REVENUE INCLUDES SUMMER
JAI-ALAI ("SJA"), SINCE THE COMPANY OPERATES THE SJA PERMIT FOR ITS OWN ACCOUNT.
During the quarter and six months ended June 30, 1999, the Company's operations
reflects six months' operation of live Jai-Alai performances at the Miami
facility. 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 June 4, 1999.
HANDLE ANALYSIS
Total Handle (amount of money wagered) for the quarter ended June 30, 1999 was
$31,299,332 of which $18,417,342 was from live and host jai-alai wagering and
$12,881,990 was from inter-track guest wagering. Total handle for the six months
ended June 30, 1999 was $64,588,506 of which $37,546,851 was from live and host
jai-alai wagering and $27,041,655 was from guest inter-track wagering.
Total handle for the quarter ended June 30, 1998 was $29,663,975 of which
$17,997,592 was from live jai-lai wagering and $11,666,383 was from inter-track
wagering. Total handle for the six months ended June 30, 1998 was $62,258,331,
of which, $37,693,601 was from live jai-alai wagering and $24,564,730 was from
inter-track wagering.
HANDLE INCREASE
Total handle for the quarter ended June 30, 1999 was $31,299,332, an increase of
$1,635,357 or 5% over the same period in 1998. The increase consists of an
increase in ITW handle of $1,215,607 and an increase of $419,750 in live and
host jai-alai handle.
Total handle for the six months ended June 30, 1999 was $64,588,506, an increase
over the same period in 1998 of $2,330,175 or 3%. This increase consists of a
decrease in live and host jai-alai wagering handle of $146,750 and an increase
in inter-track wagering handle of $2,476,925.
REVENUES
Pari-mutuel revenues (net of state pari-mutuel taxes) for the quarter ended June
30, 1999 were $2,792,834 compared to pari-mutuel revenues of $2,196,072, for the
same period in 1998, an increase of $596,762 or 27%. Pari-mutuel revenues for
the six months ended June 30, 1999 were $7,688,296 compared to pari-mutuel
revenues of $6,515,865, an increase of $1,172,431 or 18% for the same period in
1998. Revenues for the quarter ended June 30, 1999 ($2,792,834) consisted of
$1,171,836 from jai-alai wagering, $1,225,883 from inter-track wagering, and net
revenue of $395,115 from the operation of Summer Jai-Alai. Operating Revenues
for the quarter ended June 30, 1998 ($2,196,072) consisted of $1,171,323 from
live jai-alai wagering, $1,060,927 from inter-track wagering, and a net loss of
$36,178 from Summer Jai-Alai. Revenues for the six months ended June 30, 1999
($7,688,296) consisted of $4,704,608 from live jai-alai,
18
<PAGE>
$2,588,573 from inter-track wagering and net revenue of $395,115 from Summer
Jai-alai. Revenues for the six months ended June 30, 1998 ($6,515,865)
consisted of $4,260,252 from live jai-alai, $2,291,791 from inter-track
wagering, and a net loss of $36,178 from Summer Jai-Alai.
Card room Revenue for the six months ended June 30, 1999 was $159,964 compared
to $158,559 for the six months ended June 30, 1998.
Admissions income, net of state taxes, for the three and six months periods
ended June 30, 1999 were $53,800 and $148,881 respectively. This compares to
$55,286 and $146,954 for the three and six month period ended June 30, 1998.
Food, beverage and other income for the quarter and six months ended June 30,
199 were $541,799 and $1,236,258, respectively. This compares to the three and
six month period ended June 30, 1998 of $558,503 and $1,301,173, respectively.
These increases were primarily the result of an increases in attendance for live
jai-alai performances and ITW performances. Attendance for live jai-alai
performances and ITW performances were approximately 128,499 and 371,286 for the
quarter and six months ended June 30, 1999 compared to 125,885 and 360,918 for
the same period in 1998. Summer Jai-Alai attendance was 67,749 for 1999.
For the six months ending June 30, 1999, the Company had $814,500 in revenues
from lot sales from the Tara Club Estates residential development. Lot costs
attributable to this revenue totaled $396,764.
GENERAL AND ADMINISTRATIVE EXPENSES
THE FOLLOWING ANALYSIS OF GENERAL AND ADMINISTRATIVE EXPENSES IN THIS PART OF
THE REPORT COMPARES FIGURES FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND
JUNE 30, 1998 FOR THE THREE PARI-MUTUEL FACILITIES PRESENTLY OPERATING--- MIAMI,
FT. PIERCE, AND OCALA. THE TAMPA FACILITY WAS SOLD IN NOVEMBER, 1998, AND ALL
OPERATIONS CEASED AT THAT TIME.
The Company's general and administrative expenses were $1,460,907 and $3,606,242
for the three months and six months ended June 30, 1999, respectively. This
compares to $1,846,501 and $3,999,826 for the three months and six months ended
June 30, 1998, respectively. The decrease of $385,593 for the quarter ended June
30, 1999 is largely attributable to managements ongoing efforts to cut expenses
wherever possible.
GENERAL AND ADMINISTRATIVE FOR QUARTER ENDED JUNE 30, 1999 The Company's
general and administrative expenses and their comparison to the second
quarter last year are as follows. Executive salaries were $115,750 for the
second quarter of 1998 compared to $147,748 for the quarter ended June 30,
1998. Advertising decreased $48,252 to $144,155. Professional fees were
$164,188 compared to $168,505 for the same three month period in 1998.
Consulting fees decreased from $211,950 to $180,374. Consulting fees consist
of the slaries of the Chairman/CEO and the President of Florida Gaming being
replaced by management fees paid to Freedom Financial Corporation for their
services. Travel and entertainment expense totaled $78,148 for the second
quarter of 1999, compared to $69,794 for the second quarter of 1998. Another
significant cost included is approximately $171,913 in payroll taxes.
Employee benefits decreased to $155,638 from $217,246 for the same period in
1998. Property, licenses and other taxes decreased from $148,027 in 1998 to
$23,028 in 1999. The 84% decrease in property taxes is mainly due to the sale
of Tampa and the excess property in Miami. Insurance decreased slightly from
$128,400 in 1998 to $124,234 for the second quarter of 1999. Public company
costs including shareholder relations/information and filing fees decreased
to $12,075 from $33,735. Interest expense totaled $218,016 and $228,397 for
the three month period ended June 30, 1999 and June 30, 1998, respectively.
GENERAL AND ADMINISTRATIVE FOR SIX MONTHS ENDING JUNE 30, 1999 Significant
categories of general and administrative expenses and their comparison on a
six month period in 1999 versus 1998 are as follows. Executive salaries were
$263,750 for the six months ended June 30, 1999, compared to $308,679 for
1998. Advertising increased from $342,522 to $366,450. The increase of
$48,252 is largely attributable to the first quarter increased advertising
related to Jai-Alai tournaments in Miami. Professional fees were $277,311
compared to $305,104 for the same period in 1998. This decrease is primarily
the result of a settlement of Summer Jai Alai litigation. Consulting fees
decreased from $426,708 to $382,341. Travel and entertainment expense totaled
$151,970 compared to $137,030 for the first six months of 1998. Travel
expenses in 1999 were higher due to the travel associated with potential
acquisitions. Another significant cost included is approximately $410,905 in
payroll taxes for the six months ended June 30, 1999, compared to $500,405
for 1998. Employee benefits decreased from $433,457 in 1998 to $322,681.
Payroll taxes and Employee benefits had a significant decrease due to the
sale of the Tampa Jai-Alai. Public relations expense increased from $84,474
for six months ended June 30, 1998 to $103,265 for 1999. Property, Licenses
and other taxes decreased $124,998 from $321,397 in 1998 to $261,211 in 1999.
The decrease in property taxes is related to the sale of Tampa and the excess
property in Miami. Insurance expense has decreased to $242,300 for the six
months ended June 30, 1999 compared to $248,171 for 1998. Public company
costs including shareholder relations/information and filing fees decreased
to $27,308 from $101,524. In 1998, the expenses were
19
<PAGE>
considerably larger due to costs related to the Preferred Stock issues.
Interest expense totaled $453,572 and $442,994 for the six month period ended
June 30, 1999 and June 30, 1998, respectively.
0PERATING EXPENSES
THE FOLLOWING ANALYSIS OF OPERATING EXPENSES IN THIS PART OF THE REPORT COMPARES
FIGURES FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 FOR
THE THREE PARI-MUTUEL FACILITIES PRESENTLY OPERATING--- MIAMI, FT. PIERCE, AND
OCALA. THE TAMPA FACILITY WAS SOLD IN NOVEMBER, 1998, AND ALL OPERATIONS CEASED
AT THAT TIME.
The Company's operating expenses were $1,895,883 and $5,354,256 for the three
months and six months ended June 1999, respectively. This compares to $1,699,964
and $5,101,340 for the three months and six months ended June 30, 1998,
respectively.
OPERATING EXPENSES FOR QUARTER ENDED JUNE 30, 1999
The Company's operating expenses and their comparison to the second quarter last
year are as follows. Depreciation and amortization expense for the three months
ended June 30, 1999 and June 30, 1998, was $178,099 and $185,008 respectively.
Player costs, which include salaries, benefits, and support staff, represent a
significant portion of operational expenses. Player costs for the quarter ending
June 30, 1999 and June 30, 1998, were $1,033,891 and $817,638 respectively.
Rental and service costs for totalizator wagering equipment and satellite
receiving/television equipment also represent a significant portion of operating
expenses. These expenses totaled $196,768 for the three months ended June 30,
1999, compared to $239,768 for three months ended June 30, 1998. The components
of the 1999 total ($196,768) were $54,814 in ITW tote, interface, and telephone
charges; $71,652 in totalizator equipment rental; $15,170 in satellite charges
and $55,132 in camera/television rental. Utilities expense totaled $145,753 and
$182,680 respectively, for the three months periods ended June 30, 1999 and June
30, 1998. Program costs totaling $76,816 and $103,745, respectively, are also
included in the total operating expenses for the three month periods ended June
30, 1999 and 1998. Operating expenses, including payroll costs for the bar,
restaurant, souvenir and concessions costs were $536,975 and $514,396 for the
three months periods which ended June 30, 1999 and June 30, 1998, respectively.
Operating payrolls and contract costs totaled $662,330 and $710,751 for the
three month periods ended June 30, 1999 and June 30, 1998, respectively.
Operating payroll costs ($662,330) primarily consisted of $205,998 in mutuels
payroll, $210,623 in maintenance payroll and $183,868 in security payroll.
Maintenance expense for the three months ended June 30, 1999, totaled $89,075.
OPERATING EXPENSES FOR SIX MONTHS ENDING JUNE 30, 1999
The Company's operating expenses for the six months ended June 30, 1999 and June
30, 1998 were $5,354,256 and $5,101,340 respectively. Depreciation and
amortization expense for the six month period ended June 30, 1999 and June 30,
1998, was $361,124 and $373,875, respectively. Player costs, which include
salaries, benefits, and support staff, represent a significant portion of
operational expenses. Player costs for the six months ended June 30, 1999 and
June 30, 1998, were $2,142,469 and $1,759,695, respectively. Rental and service
costs for totalizator wagering equipment and satellite receiving/television
equipment also represent a significant portion of operating expenses. These
expenses totaled $541,229, for the six months ended June 30, 1999, compared to
$689,881 for six months ended June 30, 1998. The components of the rental and
service costs in 1999 ($541,229) total were $110,643 in ITW tote, interface, and
telephone charges; $192,915 in totalizator equipment rental; $67,838 in
satellite charges and $169,832 in camera/television rental. Utilities expense
totaled $319,150 and $351,471 respectively, for the six months periods ended
June 30, 1999 and June 30, 1998. Program costs were $165,247 and $212,173
respectively for the six month periods ended June 30, 1999 and 1998. Operating
expenses, including payroll costs for the bar, restaurant, souvenir and
concessions costs were $300,835 and $342,047 for the six month periods which
ended June 30, 1999 and June 30, 1998, respectively. Operating payrolls and
contract costs totaled $1,465,696 and $1,612,492 for the six month periods ended
June 30, 1999 and June 30, 1998, respectively. Operating payrolls and contract
costs totaling $1,465,696 primarily consisted of $508,395 in mutuels payroll,
$418,266 in maintenance payroll, and $371,228 in security payroll. Maintenance
expense for the six months ended June 30, 1999, totaled $216,409, compared to
$225,467 for the six months ended June 30, 1998. A significant portion of the
decrease in operating expenses can be attributed to the closing of the Miami
Restaurant and the consolidation of concessions stands.
OTHER INCOME
The Company had net interest and other income of $67,173 and $1,280,331 for the
three and six month period ended June 30, 1999, respectively, as compared to
other expense of $238,770 and other income of $138,489 for the three and six
month periods ended June 30, 1998. The bulk of this income for 1999 was
generated from the sale of the excess property in Miami.
OTHER INFORMATION
In August, 1998 the Nasdaq Stock Market, Inc. informed the Company that Florida
Gaming Corporation common stock no longer qualified for inclusion in the Nasdaq
Stock Market, and the common stock of the Company was delisted at the close of
business on August 21, 1998. The staff stated that its conclusion was based on
the review of the Company's public filings and the Company's
20
<PAGE>
responses to staff comment letters. The Nasdaq staff was critical of
transactions between FGC and its affiliates. On July 29, 1999 Florida Gaming
Corporation was informed that the Company started trading on the Nasdaq OTC
Bulletin Board under the symbol "BETS".
TAX LOSS CARRYFORWARDS
At December 31, 1998, the Company had approximately $16,000,000 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
$7,000,000 attributed to the period after the change of ownership are not
subject to the Section 382 limitation.
SUMMARY OF OPERATIONS
The Company had net income of $314,497 or .05 per common share, for the three
months ended June 30, 1999, compared to a net loss of $985,605 or $0.19 per
common share for the three month period ended June 30, 1998. The Company had net
income of $2,006,609 or .34 per common share, for the six months ended June 30,
1999, compared to a net loss of $898,502 or $0.18 per common share for the six
month period ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at June 30, 1999 was
$2,704,945. At June 30, 1999, the Company had an increase in working capital of
approximately $2,425,513 from December 31, 1998. The increase was primarily the
result of the sale of excess property in Miami.
During the six months ended June 30, 1999, net cash used in the Company's
operating activities was $523,723. The Company's continuing operating expenses
consisted principally of office expenses, general and administrative expenses,
and costs associated with Jai-Alai and ITW operations. Principal revenues were
from net pari-mutuel wagering commissions on live jai-alai and ITW events.
During the six months ended June 30, 1999, cash flow provided from investing
activities was $3,976,756.
During the six months ended June 30, 1999, cash flow used in financing
activities was $1,834,373.
As of March 31, 1998, the related-party receivable from Freedom Financial
Corporation had been reduced to $180,000 from $233,000 at year- end 1997. In
late April of 1998, this balance increased to approximately $400,000. On June
22, 1998, Freedom Financial paid off the account in full plus interest at 2%
over prime. Freedom paid $357,122.56 in cash and contributed back to the Company
$84,000 in face amount of the Series F Preferred Stock.
On September 8, 1998, the Company sold the Tampa Jai-Alai facility for $8.3
million. The sale was pursuant to an agreement dated January, 1998, between the
Company and Monroe's Prestige Group, Inc. ("MPG"), a real estate development
company unaffiliated with the Company. The terms of the sale were determined
through arms-length negotiations with MPG. The sale did not include the
Company's Tampa gaming permit which the Company retained and which remains
available for possible use at a different facility in Hillsborough County,
Florida.
The proceeds of the Tampa sale were used as follows:
<TABLE>
<S> <C> <C>
(a) Payment to Bank of Oklahoma ................. $3,084,466
(b) Brokerage Commissions ....................... 300,000
(c) Real Estate Taxes ........................... 1,037,529
(d) Other Sale-Related Costs .................... 55,883
(e) Repurchase of Series "G" Convertible
Preferred Stock ............................. 1,560,000
(f) Payment of Taxes ............................ 300,000
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C>
(g) Repurchase of Series "B" Convertible
Preferred Stock ............................. 128,000
(h) Payoff of Unsecured Notes ................... 160,000
(i) Pay-Off Mortgage on Ft. Pierce Property ..... 280,000
(j) Paid on various trade accounts payable ...... 1,394,122
----------
Total .......... $8,300,000
----------
----------
</TABLE>
The Company received an additional $125,000 for vacating the Tampa property by
November 1, 1998.
For further information regarding the sale, please refer to the Form 8-K dated
September 8, 1998.
On February 18, 1999, the Company sold excess real estate located near the Miami
Jai-Alai facility in Miami, FL for $3,668,000. The property consisted of 12.99
acres.
The proceeds of the Excess Real Estate Sale were used as follows:
<TABLE>
<S> <C> <C>
(a) Payment to Bank of Oklahoma. .................. 1,500,000
(b) Brokerage Commissions ......................... 91,700
(c) Real Estate Taxes ............................. 88,737
(d) Title Charges ................................. 23,042
(e) Recording and Transfer Fees ................... 38,551
(f) Misc. settlement charges ...................... 7,961
(g) Deposit-paid on various trade accounts payable. 200,000
----------
Total $1,949,991
----------
----------
</TABLE>
The balance of the cash received, $1,718,009 has been invested in short-term
cash equivalent funds.
For further information regarding the sale, please refer to the Form 8-K dated
February 18, 1999.
As a result of these transactions, the Company's cash flow is currently adequate
to meet its debts and other obligations as they come due. The Company's
operating results have improved dramatically.
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
Company believes that the forward-looking statements are based upon reasonable
assumptions, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from the
results anticipated in the forward-looking statements include, but are not
limited to: economic conditions (both generally and more specifically in the
markets in which the Company operates); competition for the company's customers
from other providers of entertainment and gaming opportunities; government
legislation and regulation (which changes from time to time and over which the
Company has no control); material unforeseen complications related to addressing
the Year 2000 Problem experienced by the Company or its service provider,
Autotote, Inc. its suppliers, and governmental agencies; and other risks
detailed in the Company's filings with the Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond the control
of the Company. The Company undertakes no obligation to republish
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events .
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is the plaintiff in a suit against Ocala Breeder Sales,
Inc. (See Note 10)
Orez, Ltd. has named the Company as a defendant in a suit
challenging the number of common stock shares issued in the
Preferred Stock Series C conversion (See Note 5). The Company has
answered the suit and Management is of the opinion that the outcome
will not have a material adverse impact on the Company's financial
position or its results of operations.
The Company is a defendant in several suits which are deemed to be
routine litigation (mostly slip-and-fall suits) in the ordinary course
of business. The Company believes that the ultimate resolution of the
suits will not have a material adverse impact on the Company's
financial position or its results of operations. The Company is not a
party to any other litigation at this time.
Item 2. CHANGES IN SECURITIES.
a) Not applicable.
b) Not applicable.
c) On May 18, 1999, the Company issued an additional 179,445
shares of Common Stock upon the conversion of 100 shares of
Series C Preferred Stock. No underwriters were used in any of
these conversions. The shares were issued with Section 3(a)(9)
of the Securities Act of 1933.
d) Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None at date of filing.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS
Exhibit 27 - Financial Data Schedule.
b) REPORTS ON FORM 8-K.
None.
23
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
--------------------------
(Registrant)
Date: August 16, 1999 By: /s/ W. B. Collett
--------------- ------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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596
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