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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
Commission file number 0-9099
FLORIDA GAMING CORPORATION
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(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
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Indicateby 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
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6,066,816 shares of the issuer's Common Stock were outstanding as of the latest
practicable date, November 15 , 1999 .
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Transitional Small Business Disclosure Format:
YES NO X
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FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998.................................... 3
Statements of Operations (unaudited) for Three Months and Nine Months ended September 30, 1999 and 1998...... 5
Statements of Cash Flows (unaudited) for the Nine Months ended September 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.............................................................. 17
PART II. OTHER INFORMATION................................................................................... 24
SIGNATURES .................................................................................................. 25
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
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CURRENT ASSETS:
Cash and cash equivalents (Note 2) ..................... $ 2,450,693 $ 1,086,285
Accounts receivable & current portion of notes receivable (71,482) 446,745
Inventory (Note 2) ...................................... 60,356 105,206
Prepaid expense and other ............................... 168,526 49,905
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Total current assets ............................ $ 2,608,093 $ 1,688,141
PROPERTY AND EQUIPMENT:
Land ................................................... $ 3,660,567 $ 4,183,425
Buildings and Improvements ............................. 8,670,544 8,109,491
Furniture, fixtures and equipment ...................... 1,819,722 1,802,618
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$ 14,150,833 $ 14,095,534
Less accumulated depreciation ......................... (2,158,947) (1,711,622)
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$ 11,991,886 $ 12,383,912
REAL ESTATE DEVELOPMENT ..................................... 4,102,577 4,376,638
COMMERCIAL PROPERTY HELD FOR SALE ............................ 3,755,335 6,301,138
OTHER ASSETS ................................................ 1,354,165 883,193
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$ 23,812,056 $ 25,633,022
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</TABLE>
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
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<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 2) .................................... $ 4,143,211 $ 6,056,500
Short-term borrowing and current portion of long-term debt ........................ 1,962,211 1,410,520
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Total current liabilities ....................................... $ 6,105,422 $ 7,467,020
LONG-TERM LIABILITIES
Long-term portion notes payable ................................................... 4,217,985 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 September 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 September 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
September 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 September 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 September 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 September 30, 1999, and 5,782,250 issued and
outstanding at December 31, 1998 ............................................... 596,169 578,225
Capital in excess of par value ......................................................... 38,103,395 39,600,988
Accumulated deficit .................................................................... (25,214,773) (28,720,426)
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Total stockholders' equity ............................................... 13,488,649 11,462,655
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Total liabilities and stockholders' equity ............................... $ 23,812,056 $ 25,633,022
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</TABLE>
The accompanying notes are an integral part of these financial statements.
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FLORIDA GAMING CORPORATION
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
HANDLE: 1999** 1998* 1999** 1998*
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<S> <C> <C> <C> <C>
Jai-Alai $ 16,949,464 $ 15,431,503 $ 53,556,537 $ 52,403,206
Inter- Track Wagering (ITW) 14,060,501 12,684,066 42,052,263 37,969,435
------------ ------------ ------------ ------------
Total Pari-Mutuel Handle** $ 31,009,965 $ 28,115,569 $ 95,608,800 $ 90,372,641
============ ============ ============ ============
REVENUE:
On Site Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $ 3,049,001 $ 475,428 $ 9,644,871 $ 4,699,502
Inter-Track Mutuel Commissions 1,303,722 1,012,965 4,036,407 3,304,756
------------ ------------ ------------ ------------
Net Pari-Mutuel Revenues 4,352,723 1,488,393 13,681,278 8,004,258
Real Estate Division Income 192,500 110,000 1,007,000 425,500
Cardroom Income 105,073 9,579 340,264 168,138
Admissions Income 87,036 48,482 266,004 195,435
Programs, Food, Beverage and Other 712,656 497,740 2,100,575 1,798,913
------------ ------------ ------------ ------------
Total Operating Revenues $ 5,449,988 $ 2,154,194 $ 17,395,121 $ 10,592,244
============ ============ ============ ============
COSTS AND EXPENSES:
Operating $ 3,263,134 $ 1,136,822 $ 10,035,045 $ 6,238,162
General and Administrative 1,698,143 1,438,405 5,782,783 5,438,231
Summer Jai-Alai 70,434 -0- 190,434 -0-
Depreciation & Amortization 185,280 185,360 546,405 559,235
------------ ------------ ------------ ------------
Total Costs and Expenses 5,216,991 2,760,587 16,554,667 12,235,628
------------ ------------ ------------ ------------
Net Net Income (Loss) from Operations $ 232,997 ($ 606,393) $ 840,454 ($ 1,643,384)
============ ============ ============ ============
OTHER INCOME (EXPENSES)
Interest and Other Income (93,613) 308,411 1,305,539 446,900
------------ ------------ ------------ ------------
Net Income (loss) $ 139,384 ($ 297,982) $ 2,145,993 ($ 1,196,484)
============ ============ ============ ============
Basic Earnings (loss) per Common Share $ 0.02 $ (0.05) $ 0.36 ($ 0.21)
Earnings per Common Share (fully diluted) $ 0.02 N/A $ 0.30 N/A
Weighted Avg. Common Shares Outstanding 5,961,695 5,782,250 5,916,174 5,743,498
</TABLE>
*Adjusted to reflect the discontinued operation of Tampa Jai-Alai
**Includes Summer Jai-Alai
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FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
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SEPTEMBER 30, SEPTEMBER 30,
1999 1998
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Cash flows from operating activities:
Net Income (loss) ............................................................. $ 2,145,993 $(1,196,484)
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ......................................... 546,405 720,605
Gain on sale of assets ................................................ (1,024,702) (993,076)
Equity in earnings of Summer Jai-Alai ................................. (1,292,517) (154,864)
Realized gain on sale of marketable securities ........................ -0- -0-
Change in Accounts receivable, net .................................... 518,227 176,750
Change in Prepaid expenses ............................................ (37,109) (103,832)
Change in Other assets ................................................ (62,735) (26,941)
Change in Inventories ................................................. 44,850 89,705
Change in Accounts payable and accrued expenses ....................... (1,973,274) (1,135,852)
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Total adjustments ............................................ (3,280,855) (1,427,505)
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Net cash provided by (used in) by operating activities ........... ($1,134,862) ($2,623,989)
Investing Activities:
Proceeds from sales of property ....................................... 3,514,707 8,377,600
Capital Expenditures .................................................. (55,299) 32,474
Investment in Summer Jai-Alai ......................................... 653,783 -0-
Decrease in capitalized development ................................... 329,859 -0-
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Net proceeds provided by investing activities .................... $ 4,443,050 $ 8,410,074
Financing activities:
Net proceeds from borrowing (Repayment of Borrowings) (Note 8) .... ($1,823,780) ($3,666,011)
Stockholders Equity:
Redemption of Preferred and Common Stock .......................... (120,000) (1,455,166)
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Net cash used in financing activities ......................... ($1,943,780) ($5,121,177)
NET INCREASE (DECREASE) IN CASH ............................................... $ 1,364,408 $ 664,908
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ..................................... $ 1,086,285 $ 244,963
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CASH AND CASH EQUIVALENTS AT SEPTEMBER 30TH ................................... $ 2,450,693 $ 909,871
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ................................................................ $ 604,468 $ 596,367
</TABLE>
The accompanying notes are an integral part of these financial statements
6
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NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
September 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 United States Securities and Exchange
Commission (the "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 includes land owned near its existing Jai- Alai frontons
($1,834,516 at September 30, 1999 and December 30, 1998) and approximately 25
acres of commercial property held for sale adjoining the Tara residential
property in the amount of $1,920,819 as of September 30, 1999.
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 commissions earned under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and off
site 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.
7
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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. 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.
INCOME OR 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 amounts 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 of $1,084,289 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 (5,961,695 and 5,782,250 for the three months ended
September 30, 1999, and 1998, respectively). Weighted average outstanding common
shares for the nine months ended September 30, 1999, and 1998, were 5,916,174
and 5,743,498.
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Weighted average equivalent shares on a fully diluted basis for the three months
ended September 30, 1999 were 7,201,695 shares, consisting of 1,090,000 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
5,961,695 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 nine months
ended September 30, 1999 were 7,156,174 shares, consisting of 1,090,000 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
5,916,174 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 nine month periods in 1998 because their inclusion
would be anti-dilutive.
(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 November 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. On October 18, 1999, 100 Series B
shares were converted to 105,121 shares of common stock.
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
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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.
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 nine 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.
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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 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 September 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
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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 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, the Company entered a settlement agreement with the other
members of SJA covering operational issues and, among other things,
1. Continues the existence of the partnership;
2. Stated that the Summer Jai-Alai season (May 1, 1998 to November 28,1998)
would 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 exceeded
$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. Stated that the Company would 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. Stated that the Company would 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 referred to above, the parties
negotiated a new agreement which continued the June 11, 1998 agreement with the
following modifications:
1. The Company maintains the right to operate Summer Jai-Alai from May
1, 1999 through November 30, 1999 and
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May and June of 2000 at its own risk and for its own benefit. The
Company agreed to hold the other partners in SJA harmless for any
and all losses or liabilities that may be incurred;
2. In exchange for the aforementioned benefits, including the benefits
derived from the operation of the 1998 Summer Season, the Company
agreed to pay each of the other SJA Partners (Hollywood, Flagler and
Biscayne) the sum of $65,000 in three installments of $21,667 each,
with the first payment due upon execution of the agreement and the
subsequent two 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.
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 payment 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
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<PAGE>
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.
(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.
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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.
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 $2,107,076 in principal balances plus
$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 issuance of 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. During 1997, Freedom repaid $259,500 of these advances to the Company, and
Freedom was given credit for expenses incurred by Freedom on behalf of the
Company totaling approximately $207,500. On June 22, 1998, Freedom Financial
paid off the balance of the inter-company account in full plus interest at 2%
above the prime rate.
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")
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<PAGE>
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, if incurred, 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 at the Tampa Jai-Alai Fronton
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,
and fourteen (14) facilities in Connecticut. 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.
JAI-ALAI INDUSTRY
The jai-alai industry generally has declined in the last several years due to
increased gaming competition such as Native American Indian gaming, gambling
cruise ships, commercial bingo operations and the Florida 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 live 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%. The company has recently experienced
a significant increase in live Jai-Alai handle. During the nine month period
ended September 30, 1999, live handle increase $5,236,159 (6%) to $95,608,800
compared to $90,372,641 for the same period in 1998. This is the first time that
a year-to-year increase in live handle has occurred at these facilities in
twelve years.
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
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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 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
September 30, 1999, approximately eighty (80) 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
18
<PAGE>
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.
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, Inc. On September 13, 1999 Autotote, Inc. notified the Company by
letter, that all Autotote totalizator systems in North and Central America are
Year 2000 compliant as of September 8, 1999.
RESULTS OF OPERATIONS - THREE AND NINE MONTHS 1999 COMPARED WITH THREE AND NINE
MONTHS 1998
THE FOLLOWING ANALYSIS OF HANDLE, REVENUES, AND OPERATING EXPENSES IN THIS PART
OF THE REPORT COMPARES FIGURES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 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. AS A RESULT OF
LITIGATION WITH THE SUMMER JAI-ALAI PARTNERS, SUMMER JAI-ALAI (SJA) IS BEING
OPERATED 100% BY THE COMPANY FOR THE YEAR 1999. HANDLE AND REVENUES FOR 1999
INCLUDE THOSE OF SJA.
During the quarter and nine months ended September 30, 1999, the Company's
operating figures reflect nine 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, Connecticut, Rhode
Island, Mexico and other Central American countries. The Ocala Fronton only
operated inter-track wagering during the first quarter and conducted its' live
season from June through September, 1999.
HANDLE ANALYSIS
Total Handle (amount of money wagered) for the quarter ended September 30, 1999
was $31,009,965 of which $16,949,464 was from live and host jai-alai wagering
and $14,060,501 was from inter-track guest wagering. Total handle for the nine
months ended September 30, 1999 was $95,608,800 of which $53,556,537 was from
live and host jai-alai wagering and $42,052,263 was from guest inter-track
wagering.
Total handle for the quarter ended September 30, 1998 was $28,115,569 of which
$15,431,503 was from live jai-alai wagering and $12,684,066 was from inter-track
wagering. Total handle for the nine months ended September 30, 1998 was
$90,372,641, of which $52,403,206 was from live jai-alai wagering and
$37,969,435 was from inter-track wagering.
HANDLE INCREASE
Total handle for the quarter ended September 30, 1999 was $31,009,965, an
increase of $2,894,396 or 10% over the same period in 1998. The increase
consists of an increase in ITW handle of $1,376,435 and an increase of
$1,517,961 in live and host jai-alai handle.
Total handle for the nine months ended September 30, 1999 was $95,608,800, an
increase over the same period in 1998 of $5,236,159 or 6%. This increase
consists of an increase in live and host jai-alai wagering handle of $1,153,331
and an increase in inter-track wagering handle of $4,082,828.
REVENUES
Pari-mutuel revenues (net of state pari-mutuel taxes) for the quarter ended
September 30, 1999 were $4,352,723 compared to pari-mutuel revenues of
$1,488,393, for the same period in 1998, an increase of $2,864,330 or 192%.
Pari-mutuel revenues for the nine months ended September 30, 1999 were
$13,681,278 compared to pari-mutuel revenues of $8,004,258, an increase of
$5,677,020 or 71% for the same period in 1998. Revenues for the quarter ended
September 30, 1999 ($4,352,723) consisted of $3,049,001 from jai-alai wagering,
and $1,303,722 from inter-track wagering. Revenues for the quarter ended
September 30, 1998 ($1,488,393)
19
<PAGE>
consisted of $475,428 from live jai-alai wagering, and $1,012,965 from
inter-track wagering. Net Pari-mutuel Revenues for the nine months ended
September 30, 1999 ($13,681,278) consisted of $9,644,871 from live jai-alai, and
$4,036,407 from inter-track wagering. Revenues for the nine months ended
September 30, 1998 ($8,004,258) consisted of $4,699,502 from live jai-alai, and
$3,304,756 from inter-track wagering. The Miami figures include operations
conducted under the SJA permit.
Card room Revenue for the nine months ended September 30, 1999 was $340,264
compared to $168,138 for the nine months ended September 30, 1998.
Admissions income, net of state taxes, for the three and nine months periods
ended September 30, 1999 were $80,200 and $254,879 respectively. This compares
to $48,482 and $195,435 for the three and nine month period ended September 30,
1998. Food, beverage and other income for the quarter and nine months ended
September 30, 1999 were $712,656 and $2,100,575, respectively. This compares to
the three and nine month period ended September 30, 1998 of $497,740 and
$1,798,913, respectively. Attendance for live jai-alai performances and ITW
performances were approximately 76,088 and 447,374 for the quarter and nine
months ended September 30, 1999 compared to 86,857 and 447,775 for the same
period in 1998. Summer Jai-Alai attendance for the nine months ended September
30, 1999 was 168,582.
For the nine months ending September 30, 1999, the Company had $1,007,000 in
revenues from lot sales from the Tara Club Estates residential development. Lot
costs attributable to this revenue totaled $481,917, leaving profits of
$525,083.
GENERAL AND ADMINISTRATIVE EXPENSES
THE FOLLOWING ANALYSIS OF GENERAL AND ADMINISTRATIVE EXPENSES IN THIS PART OF
THE REPORT COMPARES FIGURES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 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 1999 GENERAL AND
ADMINISTRATIVE EXPENSES INCLUDE SUMMER JAI-ALAI, SINCE THE COMPANY WAS OPERATING
THE SJA PERMIT FOR 100% OF THE BENEFITS.
The Company's general and administrative expenses were $1,698,143 and $5,782,783
for the three months and nine months ended September 30, 1999, respectively.
This compares to $1,438,405 and $5,438,231 for the three months and nine months
ended September 30, 1998, respectively. The increase of $259,738 for the quarter
ended September 30, 1999 is largely attributable to the operation of Summer
Jai-Alai.
GENERAL AND ADMINISTRATIVE FOR QUARTER ENDED SEPTEMBER 30, 1999
The Company's general and administrative expenses and their comparison to the
third quarter last year are as follows. Executive salaries were $116,167 for the
third quarter of 1999 compared to $120,417 for the quarter ended September 30,
1998. Advertising increased from $77,601 to $168,634. Professional fees were
$149,368 compared to $140,972 for the same three month period in 1998.
Consulting fees decreased from $207,633 to $183,133. Consulting fees consist of
the salaries 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 $66,963 for the third quarter
of 1999, compared to $65,232 for the third quarter of 1998. Another significant
cost included is approximately $189,592 in payroll taxes. Employee benefits
decreased to $166,269 from $215,326 for the same period in 1998. Property,
Licenses and other taxes decreased $224,568 from the third quarter in 1998 to
the third quarter in 1999. The significant decrease in property taxes is mainly
due to the sale of Tampa and the excess property in Miami. Insurance increased
slightly from $103,927 in 1998 to $127,190 for the third quarter of 1999. Public
company costs including shareholder relations/information and filing fees
increased to $17,643 from $11,802. Interest expense totaled $214,328 and
$153,373 for the three month period ended September 30, 1999 and September 30,
1998, respectively.
GENERAL AND ADMINISTRATIVE FOR NINE MONTHS ENDING SEPTEMBER 30, 1999
Significant categories of general and administrative expenses and their
comparison on a nine month period in 1999 versus 1998 are as follows. Executive
salaries were $379,917 for the nine months ended September 30, 1999, compared to
$429,096 for 1998. Advertising increased from $420,123 to $603,041. The increase
of $182,918 is largely attributable to the first quarter increased advertising
related to Jai-Alai tournaments in Miami and the operation of Summer Jai-Alai.
Professional fees were $435,970 compared to $446,075 for the same period in
1998. This decrease is primarily the result of a settlement of Summer Jai Alai
litigation. Consulting fees decreased from $634,342 to $565,474. Travel and
entertainment expense totaled $218,933 compared to $202,262 for the first nine
months of 1998. Travel expenses in 1999 were higher due to the travel associated
with potential acquisitions. Another significant cost included is approximately
$622,683 in payroll taxes for the nine months ended September 30, 1999, compared
to $661,155 for 1998. Employee benefits decreased from $648,783 in 1998 to
$488,951. Payroll taxes and
20
<PAGE>
Employee benefits had a significant decrease due to the decrease in the number
of employees as a result of closing the Tampa facility. Public relations expense
increased from $127,315 for nine months ended September 30, 1998 to $137,898 for
1999. Property, Licenses and other taxes decreased $161,152 from $548,958 in
1998 to $387,806 in 1999. The decrease in property taxes is related to the sale
of Tampa and the excess property in Miami. Insurance expense for the nine months
ended September 30, 1999 was $394,527 compared to $352,098 for 1998. Public
company costs including shareholder relations/information and filing fees
decreased to $44,951 from $113,326. In 1998, the expenses were considerably
higher due to costs related to the Preferred Stock issues. Interest expense
totaled $667,900 and $596,367 for the nine month period ended September 30, 1999
and September 30, 1998, respectively.
0PERATING EXPENSES
THE FOLLOWING ANALYSIS OF OPERATING EXPENSES IN THIS PART OF THE REPORT COMPARES
FIGURES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 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. OPERATING EXPENSES FOR 1999 INCLUDE SUMMER
JAI-ALAI SINCE THE COMPANY RECEIVES 100% OF THE BENEFITS OF OPERATING THE SJA
PERMIT.
The Company's operating expenses were $3,263,134 and $10,035,045 for the three
months and nine months ended September 30 1999, respectively. This compares to
$1,136,822 and $6,238,162 for the three months and nine months ended September
30, 1998, respectively. The increase of $2,126,312 for the quarter ended
September 30, 1999 is largely attributable to the operation of Summer Jai-Alai.
OPERATING EXPENSES FOR QUARTER ENDED SEPTEMBER 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 September 30, 1999 and September 30, 1998, was $185,280 and $185,360
respectively. Player costs, which include salaries, benefits, and support staff,
represent a significant portion of operational expenses. Player costs for the
quarter ending September 30, 1999 and September 30, 1998, were $957,791 and
$1,069,956 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 $335,214 for
the three months ended September 30, 1999, compared to $47,260 for three months
ended September 30, 1998. The components of the 1999 total ($335,214) were
$75,054 in ITW tote, interface, and telephone charges; $99,186 in totalizator
equipment rental; $47,200 in satellite charges and $113,774 in camera/television
rental. Utilities expense totaled $185,017 and $220,583 respectively, for the
three months periods ended September 30, 1999 and September 30, 1998. Program
costs totaling $86,319 and $78,233, respectively, are also included in the total
operating expenses for the three month periods ended September 30, 1999 and
1998. Operating expenses, including payroll costs for the bar, restaurant,
souvenir and concessions costs were $154,803 and $87,739 for the three month
periods which ended September 30, 1999 and September 30, 1998, respectively.
Operating payrolls and contract costs totaled $683,456 and $577,173 for the
three month periods ended September 30, 1999 and September 30, 1998,
respectively. Operating payroll costs ($683,456) primarily consisted of $301,750
in mutuels payroll, $197,691 in maintenance payroll and $184,015 in security
payroll. Maintenance expense for the three months ended September 30, 1999,
totaled $95,010.
OPERATING EXPENSES FOR NINE MONTHS ENDING SEPTEMBER 30, 1999
The Company's operating expenses for the nine months ended September 30, 1999
and September 30, 1998 were $10,035,045 and $6,238,162 respectively.
Depreciation and amortization expense for the nine month period ended September
30, 1999 and September 30, 1998, was $546,405 and $559,235, respectively. Player
costs, which include salaries, benefits, and support staff, represent a
significant portion of operational expenses. Player costs for the nine months
ended September 30, 1999 and September 30, 1998, were $3,111,543 and $2,829,651,
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 $997,747, for the nine months ended
September 30, 1999, compared to $737,142 for nine months ended September 30,
1998. The components of the rental and service costs in 1999 ($997,747) total
were $189,047 in ITW tote, interface, and telephone charges; $329,463 in
totalizator equipment rental; $145,838 in satellite charges and $333,399 in
camera/television rental. Utilities expense totaled $506,674 and $572,055
respectively, for the nine months periods ended September 30, 1999 and September
30, 1998. Program costs were $261,808 and $290,407 respectively for the nine
month periods ended September 30, 1999 and 1998. Operating expenses, including
payroll costs for the bar, restaurant, souvenir and concessions costs were
$507,418 and $429,785 for the nine month periods which ended September 30, 1999
and September 30, 1998, respectively. Operating payrolls and contract costs
totaled $2,074,898 and $2,013,578 for the nine month period ended September 30,
1999 and September 30, 1998, respectively. Operating payrolls and contract costs
totaling $2,074,898 primarily consisted of $903,696 in mutuels payroll, $615,958
in maintenance payroll,
21
<PAGE>
and $555,243 in security payroll. Maintenance expense for the nine months ended
September 30, 1999, totaled $311,419 compared to $338,778 for the nine months
ended September 30, 1998. A significant portion of the increase in operating
expenses can be attributed to Summer Jai-Alai.
OTHER INCOME
The Company had other expense of $93,613 and other income of $1,305,539 for the
three and nine month period ended September 30, 1999, respectively, as compared
to other income of $308,411 and other income of $446,900 for the three and nine
month period ended September 30, 1998. Other income includes profits of
$1,024,702 resulting 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 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 $139,384 or .02 per common share, for the three
months ended September 30, 1999, compared to a net loss of $297,982 or $0.05 per
common share for the three month period ended September 30, 1998. The Company
had net income of $2,145,993 or .36 per common share, for the nine months ended
September 30, 1999, compared to a net loss of $1,196,484 or $0.21 per common
share for the nine month period ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at September 30, 1999 was
$2,450,693. At September 30, 1999, the Company had an increase in working
capital of approximately $2,281,550 from December 31, 1998. The increase was
primarily the result of the sale of excess property in Miami.
During the nine months ended September 30, 1999, net cash used in the Company's
operating activities was $1,134,862. 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 nine months ended September 30, 1999, cash flow provided from
investing activities was $4,443,050.
During the nine months ended September 30, 1999, cash flow used in financing
activities was $1,943,780.
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.
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<PAGE>
The proceeds of the Tampa sale were used as follows:
<TABLE>
<S> <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
(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>
(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 was 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 .
23
<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.
On or about July 1, 1991, WJA Realty Limited Partnership ("WJA
Realty"), predecessor-in-interest to the Company, entered into a
contract with Telecom Broadcasting, Inc., predecessor-in-interest to
Spector Entertainment Group, Inc., to broadcast by satellite
television jai-alai performances from the Miami fronton. Subsequent
renewals of the contract were executed by WJA Realty with the last
renewal expiring December 31, 1998. The Company properly terminated
the contract with Spector Entertainment Group, Inc. regarding the
satellite service for Miami Jai-Alai as of December 31, 1998. On
September 28, 1999 Spector Entertainment Group, Inc., a California
corporation, filed suit in the United States District Court,
Southern District of California, against the Company. Spector
Entertainment Group, Inc. alleges Breach of Contract and Breach of
the Covenant of Good Faith and Fair Dealing. On November 4, 1999,
the Company filed an answer denying the allegations. The Company
believes the claims lack merit and intends to defend the suit
vigorously.
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.
Item 2. CHANGES IN SECURITIES.
a) Not applicable.
b) Not applicable.
c) On October 18, 1999, the Company issued an additional
105,121 shares of Common Stock upon the conversion of
100 shares of Series B 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.
24
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
(Registrant)
Date: November 15, 1999 By: /s/ W. B. Collett
---------------------- -------------------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,451
<SECURITIES> 0
<RECEIVABLES> (71)
<ALLOWANCES> 0
<INVENTORY> 60
<CURRENT-ASSETS> 2,608
<PP&E> 14,151
<DEPRECIATION> (2,159)
<TOTAL-ASSETS> 23,812
<CURRENT-LIABILITIES> 6,105
<BONDS> 0
4
0
<COMMON> 596
<OTHER-SE> 13,489
<TOTAL-LIABILITY-AND-EQUITY> 23,812
<SALES> 0
<TOTAL-REVENUES> 17,395
<CGS> 0
<TOTAL-COSTS> 16,555
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668
<INCOME-PRETAX> 2,146
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,146
<EPS-BASIC> 0.36
<EPS-DILUTED> .30
</TABLE>
