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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF
1934
For the Fiscal Year Ended OR December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____________ to _____________.
Commission File Number 0-9099
FLORIDA GAMING CORPORATION
(Name of Small Business Issuer in its Charter)
Delaware 59-1670533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 N.W. 37th Avenue
Miami, Florida 33142
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number
including area code: (305) 633-6400
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($.10 par value) and Class A Convertible Preferred Stock ($.10 par
value)
Check whether the Issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated herein by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
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The registrant's revenues for the most recent fiscal year:
$17,564,169.
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 26, 1999.
Common stock, par value of $.10 per share--$4,370,959
The number of shares of the registrant's common stock outstanding as
of March 26, 1999 - 5,782,250 shares.
Transactional Small Business Disclosure Format
Yes No X
----- ----
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Florida Gaming Corporation (the "Company") currently owns and
operates three jai-alai fronton and inter-track pari-mutuel wagering facilities
(each, a "Fronton", and collectively, the "Frontons") located in South and
Central Florida. The Company's business at this time consists primarily of its
operations at the Frontons, which include, among other things, live jai-alai
performances, inter-track pari-mutuel wagering ("ITW") on jai-alai, horse racing
(both thoroughbred and harness) and dog racing, and the sale of food and
alcoholic beverages. The Fort Pierce and Ocala locations provide audio, video
and wagering on inter-track and interstate simulcasting of horse racing and dog
racing from various tracks in the United States and jai-alai from within the
State of Florida. The Miami location offers limited ITW simulcasting, but
simulcasts its jai-alai performances to other gaming facilities in the United
States and Mexico.
The term "pari-mutuel wagering" refers to the betting by members of
the public against each other, and as used in this report, includes wagering on
both live performances and ITW.
In November 1997, the Company entered into the real estate
development business. See "Real Estate Development."
Since its inception and before the acquisition of the Fort Pierce
Jai-Alai Fronton in February 1994, the Company engaged in several other lines of
business, none of which are currently in operation. In 1993, the Company sold
699,480 shares of common stock to Freedom Financial Corporation ("Freedom") and
present management assumed control of the Company.
The Company's principal place of business and executive offices are
located at the Miami Jai-Alai facility, 3500 N.W. 37th Avenue, Miami, Florida
33142. The Company was incorporated in Delaware in 1976 as Lexicon Corporation.
The Company changed its name to Florida Gaming Corporation on March 17, 1994.
ACQUISITION OF FRONTONS/DEVELOPMENT OF CARDROOMS
ACQUISITION OF THE FT. PIERCE FRONTON. The Company acquired the Ft.
Pierce Fronton from WJA Realty Limited Partnership ("WJA") pursuant to an
agreement with WJA dated October 6, 1993. On February 1, 1994, the Company and
its' key executives and directors received regulatory approval from the Florida
Department of Business and Professional Regulation, Division of Pari-Mutuel
Wagering (the "DPMW") to transfer the pari-mutuel permit for the Ft. Pierce
Fronton from WJA to the Company. The Company closed
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the purchase of the Ft. Pierce facility on that date. Consideration for the
acquisition of the Fort Pierce Jai-Alai facility consisted of 200,000 shares of
Company Common Stock, $1,500,000 in cash and a ten-year 8% mortgage for
$1,000,000.
ACQUISITION OF THE MIAMI, TAMPA AND OCALA FRONTONS. On September 12,
1996, the Company acquired secured notes (the "WJA Notes") of WJA, with balances
aggregating about $20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma.
The WJA Notes were secured by real estate and improvements consisting of three
jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida (the "WJA
Frontons") and other collateral. Consideration for the WJA Notes was a
combination of $2,000,000 in cash, a $6,000,000 promissory note bearing interest
at the prime rate, 703,297 shares of the Company's Common Stock and a $1,000,000
non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA
and Florida Gaming Centers, Inc. ("Centers"), a wholly-owned subsidiary of the
Company, pursuant to which Centers agreed to acquire the WJA Frontons. The
acquisition was consummated as of January 1, 1997. The three Jai-Alai Frontons
acquired from WJA were combined with the Fort Pierce Fronton into Centers.
The consideration for the acquisition included (i) the cancellation
of WJA Notes and related obligations acquired by the Company from the Bank of
Oklahoma, NA, (ii) the retention by WJA of 200,000 shares of the Company's
common stock owned by WJA, and (iii) a profit sharing arrangement described
below. The Company assumed all liabilities of WJA arising in the ordinary
course of the business, subject to certain limitations and exceptions. The
Company also assumed the principal amount outstanding under a $500,000
promissory note owed to Wheeler-Phoenix, Inc., with the terms amended to provide
for repayment of principal over a ten year period following the closing in equal
annual installments and an annual interest rate of 6%. See "Item 3. Legal
Proceedings."
The profit sharing arrangement is based on Centers' net profits, as
defined, before income taxes. The Company will pay WJA 20% of the 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 completed
number of years in the ten-year period, minus the sum of all amounts previously
paid under the 20% profit sharing arrangement. In addition, if Centers has net
profits in any calendar year during the ten-year period in excess of $5,000,000,
but has not paid WJA a 20% payment on the entire amount because of the
cumulative $1,000,000 per year cap, Centers will 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
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of any of its significant assets or operations, then WJA would be entitled to
receive an amount equal to 10% of Centers gain, if any, on the disposition.
Two principals of WJA, Roger M. Wheeler, Jr. and Richard P. Donovan,
have entered into consulting arrangements with Centers. Mr. 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. Mr. Donovan entered into
a five-year consulting agreement with Centers, with annual compensation of
$240,000, plus certain benefits. Both of these consulting arrangements were
modified pursuant to amended agreements dated November 24, 1998. See "Item 3.
Legal Proceedings."
In 1980, WJA and three other pari-mutuel permit holders formed Summer
Jai-Alai Partners ("SJA"), a Florida general partnership, to own a pari-mutuel
permit and to conduct pari-mutuel jai-alai operations at the Miami Fronton
during the summer months ("Summer Operations"). As part of the acquisition of
the WJA assets, the Company acquired and currently owns a 21% interest in SJA.
Under the terms of the partnership agreement, certain of the Company's costs and
expenses will be allocated to Summer Operations based upon specific formulas set
forth in the agreement. In addition, pursuant to a lease agreement which expires
in the year 2004, SJA rents the Miami Fronton for the time in which the summer
jai-alai season is conducted. The rental is based upon 1% of handle, plus
applicable Florida sales tax. The Company's 21% interest in SJA is accounted for
under the equity method. See "Item 3. Legal Proceedings."
CARDROOM DEVELOPMENT. Section 849.086 of the Florida Statutes) became
effective July 1, 1996. This legislation authorized card rooms at licensed
parimutuel facilities starting January 1997. The card rooms are administered and
regulated by the DPMW. Games are limited to non-banked poker games. Card room
operation is also subject to approval by the county commission in which the
pari-mutuel facility is located. This same statute 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 race simulcast signals. This legislation
also temporarily reduced the pari-mutuel tax on handle from 5% to 4.25% at the
Fort Pierce and Ocala Frontons for the period July 1, 1996 through June 30,
1998. The pari-mutuel tax rate was temporarily reduced at Miami from 5% to 3.85%
for the period July 1, 1996 through June 30, 1998.
In late 1996, the county governments of Dade County and Hillsborough
County, Florida, passed legislation permitting poker rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
developed poker rooms in
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Miami (with 40 tables) and Tampa (with 30 tables) during the second quarter of
1997. The Miami facility conducts low stakes ($10 per hand) poker and dominoes
two hours prior to, during and two hours following live jai-alai performances. A
rake of $.25 per hand per person is the pari-mutuel's revenue from each hand
dealt. State taxes are paid at 10% of the rake and 4% of the rake must be paid
as commission payable to the jai-alai players. The Miami facility also offers
dominoes. The Tampa facility was sold in November 1998. See "Item 2. Description
of Property."
THE SPORT OF JAI-ALAI; FORM OF JAI-ALAI PLAYED AT THE FRONTONS
Jai-alai, a sport of French and Spanish Basque origins, was
introduced to Florida as a professional sport in 1926. In the United States,
jai-alai is played by either one or two man teams, in a round robin fashion,
with the winning team or player remaining on the court until defeated.
Originally a form of handball, jai-alai has developed over time into a game of
high speed and strategy. Players compete against each other in a three-walled
arena and score win points against each other by successfully positioning the
ball ("pelota") in play in such a way that the opposition is unable to keep the
ball in play. The pelota is propelled by means of a wicker sling ("cesta"). The
combination of the extremely hard pelota, which is slightly smaller than a
baseball, and the sling-shot action of the cesta, makes jai-alai the fastest
ball game sport in the world.
The Frontons employ a combined round robin and elimination system of
play. Games are played among eight teams of two or eight individuals, with the
loser of each point retiring to the end of the playing line. The winner of the
game is the one to first score a pre-determined number of points. The Company
believes this system of play makes it extremely difficult to predetermine the
winner or order of finish.
Games are supervised by the general manager of each of the Frontons.
The players' manager and judges are appointed by each of the Frontons. The State
of Florida DPMW annually licenses each player, the general manager of the
Fronton, the players' manager and the judges. The DPMW also assigns two of its
employees to act as officials in addition to the judges provided by the Fronton
and assigns an auditing official to supervise pari-mutuel operations. Player
compensation is based largely upon performance. Player contracts and/or rules of
the Florida DPMW prohibit wagering by the players or their families and contact
between players and spectators before and during play.
PARI-MUTUEL WAGERING AT THE FRONTONS
Under the laws of Florida, pari-mutuel wagering on jai-alai games is
prohibited unless played at a Fronton holding a permit under the applicable
state statute. Wagers may be placed at each
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of the Frontons on performances conducted by the Company at the Fronton (live
wagering) or Inter-Track Wagering ("ITW") on performances (including jai-alai,
thoroughbred racing, harness racing, and dog racing) conducted by other
pari-mutuel operators sending (simulcasting) performances from other
pari-mutuels to the Fronton. The Fronton acts as the broker for wagers by the
public and deducts a commission negotiated as guest (receiving) facility with
each host (sending) facility as authorized by law. Neither the Fronton nor the
State of Florida has any interest in which player or team wins a given game.
Customers may wager on jai-alai performances in a variety of ways.
For example, wagers may be for win, place, and show (first, second and third);
for teams or individuals to place first and second with the order not specified
(called "Quinella"); to place first and second with the order specified (called
"Perfecta"); or to place first, second and third with the order specified
(called "Trifecta").
Wagers are placed by purchasing tickets in the Fronton at wagering
areas equipped with ticket-issuing machines. The Fronton has totalizator
equipment furnished by Autotote Systems, Inc. which automatically registers any
type of bet, and in addition, verifies all winning tickets.
FRONTON'S SCHEDULE OF JAI-ALAI PERFORMANCES
Pursuant to the pari-mutual wagering permit granted to it by the
Florida Department of Pari-Mutuel Wagering ("DPMW"), each Fronton, in order to
conduct ITW, must offer a "full schedule" of jai-alai performances of at least
100 live evening and/or matinee performances per year. In addition, the Fronton
may offer ITW year-round so long as a pari-mutuel facility in Florida is
providing live pari-mutuel activities at the same time. Each Fronton has
received a license from the DPMW to conduct live jai-alai performances during
1999 and has applied for licenses to conduct live jai-alai performances during
2000. The Miami Fronton conducts live jai-alai year round. Fort Pierce and Ocala
Frontons operate four-month seasons. All of the Frontons, with the exception of
Miami, typically remain open for ITW when live jai-alai performances are not
being conducted.
In 1980, WJA and three other parimutuel permit holders formed Summer
Jai-Alai ("SJA"), a Florida general partnership, to conduct parimutuel jai-alai
operations at the Miami Fronton during the summer months ("Summer Operations").
Pursuant to the Agreement relative to the acquisition of the WJA Frontons, the
Company became a party to the partnership. Under the terms of the partnership
agreement, certain of the Company's costs and expenses are allocated to Summer
Operations based upon specific formulas set forth in the agreement. In addition,
pursuant to a lease agreement which expires in 2004, SJA rents the Miami Fronton
during the time when the summer jai-alai season is conducted. The
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rental is based upon 1% of handle, plus applicable Florida sales tax. The
Company owns a 21% interest in SJA which is accounted for under the equity
method. See "Item 3. Legal Proceedings."
The Company is permitted to operate a limited number of charitable
and scholarship nights in addition to its regular performances. The taxes
otherwise due to the State of Florida for such nights are allocated to various
charitable causes and scholarships as determined by the Company in accordance
with Florida law.
COMPETITION AND MARKETING
The gaming industry is highly competitive. Other gaming companies
have substantially greater financial resources and larger management staffs than
the Company. Because of the growing popularity and profitability of gaming
activities, competition is significantly increasing. The Company competes for
customers with other forms of legal wagering, including charitable gaming,
pari-mutuel wagering and state lotteries. The Company competes with other
entertainment providers for its customers. With the exception of the one fronton
operated full-time in Dania (described further below), the Company does not
consider itself to be in direct competition with any other fronton facility.
Florida's pari-mutuel legislation does not permit the construction of any
jai-alai facility within a geographic radius of 50 miles of other jai-alai
facility.
There are currently 41 permits issued by the State of Florida to
operate pari-mutuel facilities in the state; 33 of those permits are presently
active. Of the 33 active permit holders, only eight are held by jai-alai
operators; others engage in horse racing, harness racing and dog racing. Aside
from the Company's Frontons, the only other operating jai-alai frontons in the
State of Florida are in Dania and Orlando.
The Miami area offers a wide range of pari-mutuel and other
entertainment activities that compete with the Company for spectators'
leisure-time and wagering patronage. Within a 35-mile radius of the Company's
Miami Fronton, there is another jai-alai fronton which competes with the Miami
Fronton, three thoroughbred horse racing tracks that operate during part of the
Miami Fronton's season (although not at the same time and not at night), and two
dog racing tracks, one of which operates during substantial portions of the
Miami Fronton's season. The Summer jai-alai operation competes directly with two
dog racing tracks (owned and operated by two of the Company's partners in the
summer jai-alai operation) and Dania jai-alai fronton which operates during the
summer season. In addition to these pari-mutuel activities, the Company's Miami
Fronton competes with numerous other sporting and entertainment activities,
including professional sports teams, especially numerous Miami Beach night
clubs, Indian Gaming facilities, cruise and cruise/gaming ships, and gaming
activities in the Bahamas, which are readily accessible
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from the Miami area. The primary market for the Miami Fronton includes
approximately 3.5 million adults within 50 miles of the fronton.
The pari-mutuel operation closest to the Ocala Fronton is 75 miles
away. The Ocala Fronton does, however, compete with the Ocala Breeders Sales
Company ("OBS"), which offers limited ITW wagering. There are no substantial
competing evening entertainment activities in Ocala. The primary market for the
Ocala Fronton includes approximately 350,000 adults within 30 miles of the
facility. See "Item 3. Legal Proceedings."
The primary market area for the Fort Pierce Fronton includes
approximately 500,000 adults within 35 miles of the facility. The major
population centers in the vicinity of this fronton include Fort Pierce, Port St.
Lucie, and Vero Beach, Florida. The Company does not, however, consider itself
to be in direct competition with any other fronton or other pari-mutuel facility
permitted to operate in Florida in its market area at this time. The closest
pari-mutuel facilities are dog racing facilities in West Palm Beach,
approximately 50 miles south of the Fronton, and in Melbourne, approximately 53
miles north of the Fronton. The Fort Pierce Fronton competes to a certain extent
with the St. Lucie Civic Center which features sporting events and entertainment
activities and a day-cruise gaming vessel which operates out of Ft. Pierce.
POTENTIAL GAMING JOINT VENTURES
CASINO AMERICA. The Company entered into a letter of intent dated
October 4, 1994 (the "Letter of Intent") with Casino America, Inc. ("Casino
America") to form a joint venture (the "Joint Venture") to build and operate a
casino at the Ft. Pierce Fronton. A Joint Venture was to be formed to build a
flea market if the passage of an amendment to the Florida Constitution to permit
casino gaming at the Ft. Pierce Fronton failed. The Company agreed to contribute
its interest in the Ft. Pierce Fronton property to the Joint Venture with a
credit to its capital account of $5,000,000. Casino America agreed to contribute
up to $2,500,000, as needed, to construct a 100,000 square foot indoor facility
suitable for a flea market or a casino if and when casino gaming became legal.
If casino gaming is not permitted in Florida within six years from October 4,
1994, Casino America has a continuing option to convert the money contributed to
the Joint Venture to a promissory note from the Joint Venture payable in equal
payments over a ten year period with interest at 8% per annum. If casino gaming
is permitted at the Ft. Pierce Fronton before October 4, 2000, pursuant to the
Agreement the value of the assets contributed by the Company to the Joint
Venture is to be adjusted to increase the Company's portion of capital account
up to $22,500,000. Casino America agreed to fund its capital account on an as
needed basis up to $22,500,000. All profits and losses of the Joint Venture will
be allocated between the partners
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based upon capital accounts.
The Letter of Intent agreement provides that Casino America will be
the manager of the casino and all casino-related activities. The Company will
manage the operation of the Ft. Pierce jai-alai fronton, inter-track wagering
and all other non-casino related activities such as the flea market. Each
corporation will receive a management fee based on costs. The Letter of Intent
agreement provides that Casino America has the exclusive right to enter into a
Joint Venture with the Company for six years from October 4, 1994, and Casino
America has a right of first refusal to enter into other potential casino gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture.
The formation of the Joint Venture is subject to certain conditions,
including the satisfactory completion of due diligence by Casino America,
related to the casino operation, 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. If no definitive Joint Venture agreement is
executed by March 31, 1995, and the Letter of Intent is not extended by either
party no later than June 30, 1995, 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. By letter
dated March 21, 1995, Casino America extended the period of time to June 30,
1995. Although no definitive Joint Venture agreement has yet been executed and
the parties are not actively negotiating, neither party has formally terminated
the Agreement.
Freedom Financial Corporation ("Freedom") has informed the Company
that Casino America has purchased 22,500 shares of Freedom's 7% Series AA
Mandatorily Redeemable Preferred Stock (the "Freedom Preferred Stock") for an
aggregate purchase price of $2,250,000. Freedom has also issued 5,207 shares of
Freedom Preferred Stock to Casino America in payment of dividends. The Freedom
Preferred Stock is convertible into shares of the Company's Common Stock owned
by Freedom at prices ranging from $7.50 per share of Common Stock to $15.00 per
share of Common Stock, depending upon the timing of the conversion and passage
of an amendment to the Florida Constitution permitting casino gaming at the
Fronton. The Freedom Preferred Stock is convertible into a minimum of 184,713
shares of the Common Stock and a maximum of 369,427 shares of the Common Stock.
Casino America is the sole holder of Freedom Preferred Stock. Freedom has
granted certain piggyback registration rights to Casino America with respect to
and the underlying shares of the Company's Common Stock into which the Freedom
Preferred Stock is convertible.
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EMPLOYEES
The Company had 81 jai-alai players under contract as of December 31,
1998.
Players' compensation includes base salary, prizes for winning games
played (first, second, third places), and bonuses. The Company enters into
seasonal contracts with its players with no provision for vacation. Florida law
prohibits any fronton facility from requiring a jai-alai player to perform on
more than six consecutive calendar days.
The Company competes with all other frontons in the United States and
elsewhere for high quality jai-alai players. To the extent additional frontons
are opened in the future, the demand for high quality players may increase the
competition and costs associated with signing such individuals.
As of December 31, 1998, in addition to jai-alai players, the Company
employed approximately 222 part-time employees and 128 full-time employees, none
of which are unionized. The Company believes that its present employee relations
with its jai-alai players, some of whom belong to the International Jai-Alai
Players Association/U.A.W., and the Company's relations with other employees are
satisfactory.
SALE OF ALCOHOL; MINORS
Under Florida law, the operator of a jai-alai fronton may also obtain
a license for the sale of alcoholic beverages. These licenses may be revoked or
suspended for violation of applicable alcoholic beverage control regulations or
of any other laws or regulations.
Minors (persons under the age of 18) may attend events at the
Frontons so long as they are accompanied by an adult guest. Minors may not
engage in any pari-mutuel wagering. However, minors may be employed at the
Frontons so long as their employment does not cause them to be directly involved
with alcoholic beverages or wagering.
INDUSTRY OVERVIEW
The jai-alai industry live handle (money wagered) generally has
declined in the last several years due to increased gaming competition such
Indian Gaming, gambling cruise ships, and the state-wide lottery. Also,
competition in the sports/entertainment area has increased significantly with
more professional sports teams in the Company's market areas. Average state-wide
on-track handle per performance for the state of Florida fiscal years ended June
30, 1998, 1997 and 1996 was approximately $59,469, $67,922, and $79,004
respectively. Aggregate handle for the fiscal year ended June 30, 1998 decreased
approximately $15 million or 12%. There can be no assurance that the jai-alai
industry will improve significantly, if at all, in the future. Because the
Company's
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jai-alai business is tied directly to many if not all of the factors which
influence the jai-alai industry as a whole, another players strike or the
enactment of unfavorable legislation could have an adverse impact on the
Company's operations.
Inter-track wagering has grown significantly since its initiation in
the State of Florida in August 1990. The State-wide ITW handle for the State of
Florida's fiscal year ended June 30, 1991 was approximately $109 million. The
state-wide ITW handle for the State of Florida's fiscal years ended June 30,
1997 and 1998 increased to approximately $614 million and $675 million,
respectively. ITW handle at the Company's Frontons has also demonstrated strong
growth in recent years, increasing from $50.3 million in the year ended December
31, 1996, to approximately $55.7 million for the year ended December 31, 1997,
and to approximately $58.5 million for the year ended December 31, 1998.
All Florida permit-holders are authorized to engage in ITW
year-round, subject to certain restrictions, all of which are not discussed
herein. ITW is permitted on thoroughbred racing, harness racing, dog racing, and
jai-alai. ITW is permitted at a pari-mutuel facility so long as at least one
facility in Florida is providing live pari-mutuel performances on any such day
that ITW is offered.
Pursuant to the statute and subject to certain restrictions, Florida
jai-alai frontons and dog racing tracks may receive broadcasts of dog races or
jai-alai games conducted at tracks or frontons located outside of Florida
("out-of-state host facilities"). Among the restrictions applicable to such
broadcasts, however, are the following: (1) that the receipt of out-of-state
broadcasts by the Florida fronton or dog racing track (the "Florida guest
facility") only be permitted during the Florida guest facility's operational
meeting, (2) in order for the Florida guest facility to receive such broadcasts,
the out-of-state host facility must hold the same type of class of pari-mutuel
permit as the Florida guest facility, i.e., horse to horse, jai-alai to
jai-alai, etc., (3) the guest facilities may not accept wagers on out-of-state
races or games that exceed 20% of the total races or games on which wagers are
accepted live. All wagering placed on out-of-state ITW broadcasts is included in
the amount taxed pursuant to the Pari-Mutuel Law.
Each of the Frontons, as a guest facility when it participates in
ITW, is entitled by statute to a minimum of 7% of the total contributions to the
pari-mutuel pool when the ITW broadcast is by a host horse racing facility. Each
of the Frontons is eligible by statute to receive a minimum of 5% of the total
contributions to the pari-mutuel pool when the ITW broadcast is by facilities
other than horse racing facilities (greyhound and jai-alai). In addition, each
of the Frontons is authorized to receive admissions and program revenue when
conducting ITW.
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GOVERNMENT REGULATION
GENERAL.
Gaming ventures are regulated by federal and state laws and
regulations applicable to the gaming industry generally and to the distribution
of gaming equipment. The following description of the regulatory environment in
which the Company operates is intended to be a summary and is not intended to be
a complete recitation of all applicable law. Moreover, because the regulatory
environment is dynamic and evolving, it is impossible to predict how certain
provisions will be ultimately interpreted or how they may affect the Company.
Changes in such laws or regulations could have a material adverse impact on the
Company's ability to finance, develop and operate its operations.
The Company will need to secure regulatory approvals from state and
local authorities for each of its prospective gaming ventures from time to time.
No assurance can be given that any of these approvals will be secured in a
timely fashion or at all.
FLORIDA LAW AND REGULATION.
OVERVIEW. Pari-mutuel wagering must be conducted in compliance with
the applicable Florida statutes and regulations of the DPMW. In the 1992 Special
Session, the Florida Legislature enacted several new statutes governing
pari-mutuel activities in the State of Florida and repealed many laws enacted
before the 1992 Special Session regarding pari-mutuels in Florida. Certain
provisions of the new pari-mutuel statute, which governs all pari-mutuel
activities relating to horse racing, dog racing, and jai-alai, were amended in
the 1994 Regular Session, which ended on April 15, 1994. The amendments from the
1994 Regular Session became effective July 1, 1994. In 1996, the legislature
enacted statutes permitting interstate simulcasts and temporarily reduced the
tax on jai-alai performances as discussed below. The new pari-mutuel statute, as
amended, is referred to herein as the "Pari-Mutuel Law."
THE ROLE OF THE DPMW. The DPMW, in its administration of the
Pari-Mutuel Law, is authorized to "adopt reasonable rules for the control,
supervision, and direction of all applicants, permittees, and licensees and for
holding, conducting, and operating of all" pari-mutuel activities in Florida. In
addition to its taxation powers already described above, the DPMW's powers
include, but are not limited to (1) testing occupational license holders
officiating at or participating in any race or game at any pari-mutuel facility
for a controlled substance or alcohol, and (2) excluding "certain persons" from
any pari-mutuel facility in Florida, including but not limited to persons who
have engaged in conduct that violates certain Florida laws or regulations.
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Certain forms of conduct are expressly prohibited at pari-mutuels and include
but are not limited to, (1) conniving to prearrange the outcome of a game, (2)
use of alcohol or a controlled substance by an official or participant in a
jai-alai performance, and (3) bookmaking. Failure to comply with the
requirements of the Pari-Mutuel Law can result in a fine imposed by the DPMW of
up to $1,000 per offense, as well as a suspension or revocation of a pari-mutuel
permit, pari-mutuel license, or an occupational license.
PARI-MUTUEL PERMIT AND LICENSE REQUIREMENTS. Each Fronton must obtain
an initial pari-mutuel permit and an annually renewable pari-mutuel license
specifying the number of performances authorized at the Fronton during the year
with respect to which such license is issued. A permit for any new pari-mutuel
must either be enacted by the Legislature, or be ratified by the electorate of
the county in which it is to be located. Currently only two counties, Levy and
Polk, will allow, under state law, ratification of a pari-mutuel permit.
Pari-mutuel permits and licenses (see above) may be revoked or suspended by the
DPMW for, in the case of licenses, willful violations of laws, rules or
regulations or, as to permits, by a vote of the county electorate. Any amendment
or repeal of the Pari-Mutuel Laws or suspension or revocation of the Company's
permits or licenses, could be materially adverse to its business.
DISCOURAGEMENT OF SHARE ACCUMULATIONS. Florida law requires that
before any person or company obtains a 5% or greater equity interest in a
pari-mutuel operator and exercises control with respect to those shares, such
person or company must receive the approval of the DPMW. Such person or company
must submit to a background investigation equivalent to that required of
permit-holders to determine that such person or company has the requisite
qualifications for holding a permit (i.e., that such person or company has not
violated certain laws or engaged in certain conduct). Consistent with Florida
law, the Company cannot issue shares of Common Stock to a person or company who
would thereby have obtained a 5% or greater equity interest, whether in a single
transaction or series of integrated transactions, until the purchaser has
received the approval of the DPMW.
REQUIRED NUMBER OF LIVE JAI-ALAI PERFORMANCES. In order to qualify to
offer ITW, a fronton must offer a "full schedule" of live races per year. A
"full schedule" of jai-alai means the operation of at least 100 live evening or
matinee performances during a year. In this context, a live performance must
consist of no fewer than 8 games conducted live for each of a minimum of three
performances per week at the permit-holder's facility under a single admission
charge. The Company anticipates it will offer at least 100 live evening or
matinee performances on an annual basis at each of its Frontons.
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OCCUPATIONAL AND TOTALIZATOR LICENSE REQUIREMENTS. The DPMW requires
that persons "connected with" pari-mutuels have one of two forms of occupational
licenses.
One form of occupational license is the "unrestricted license" issued
to persons with access to restricted areas such as the backside, racing animals,
jai-alai player rooms, the mutuels, or money room, or to persons, who by virtue
of the position they hold, might be granted access to such areas. Any person
obtaining an unrestricted license must undergo a Federal Bureau of Investigation
and Florida Department of Law Enforcement criminal records check as well as
submit fingerprints with their application for a license. The category of
persons qualifying for unrestricted licenses includes, but is not limited to,
trainers, officials, doctors, jai-alai players, owners, members of management,
officers, directors, stockholders, and other professional employees.
Another form of occupational license is the "restricted license"
issued to persons who are denied access to restricted areas. Applicants for a
restricted license do not usually have to undergo a criminal background check
nor submit fingerprints with their application, although the DPMW may require
such if it deems necessary.
The DPMW also requires all totalizator operators, including the
Company's vendor, Autotote Systems, Inc., to possess an annual totalizator
license. Among the various requirements imposed by the DPMW, the totalizator
operator is required to agree in writing to pay the DPMW an amount equal to any
loss of state revenue from missed or canceled performances due to acts of the
totalizator owner, operator, agents, or employees, and for any failure of the
totalizator system, unless such acts are beyond the control of the above-listed
persons. Every licensed totalizator operator must file a performance bond issued
by a surety approved by the DPMW in the amount of $250,000 insuring the state
against such revenue loss. Licensed totalizator operators must also pay an
annual license fee not to exceed $100.
Businesses, such as vendors and contractual concessionaires, must
also obtain an occupational license from the DPMW. Minors may be employed by a
pari-mutuel facility as long as their employment is not directly involved with
alcoholic beverages or wagering.
DAILY LICENSE FEE. During the 1997-1998 live jai-alai season, a daily
license fee of $40 was assessed for each jai-alai game conducted at each of the
Company's Frontons. The Daily License Fee regulations amendments provide,
however, that should an amendment to the Florida Constitution be adopted that
would permit casino gambling at pari-mutuels such as the Frontons, the fee would
return to $80 per jai-alai game; no such amendment has been passed. Such fee is
paid to the DPMW to defray regulatory
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<PAGE>
costs.
TAXATION. The pari-mutuel tax structure applicable to frontons
operating in Florida provides for distribution of taxes, on a daily basis, based
on the Handle. As discussed below, the pari-mutuel tax structure changed
effective July 1, 1994, as a result of amendments adopted by the Florida
Legislature in the 1994 Regular Session. The various taxes applicable to the
Fronton are as follows:
1. Tax on Handle: Until July 1, 1994, wagering on live jai-alai was
subject to a tax of 7.1% on the handle; however, where the live handle
was less than $30,000 per performance during the State of Florida
1991-1992 fiscal year, as in the case of the Ft. Pierce Fronton, this
tax was paid only on the handle in excess of $30,000 per day.
Effective July 1, 1994, the tax rate was amended so that a tax of 5%,
rather than 7.1%, is paid on handle in excess of $30,000 per day where
the live handle for such jai-alai fronton has been less than $15
million during the preceding state fiscal year. Effective July 1,
1996, for the two-year period ending June 30, 1998, the pari-mutuel
tax rate is reduced from 5% to 4.25% at the Ft. Pierce and Ocala
Frontons and from 5% to 3.85% at the Miami Fronton. However, the
Pari-Mutuel Law also provides that, should casino gaming be conducted
at a jai-alai fronton (i.e., assuming an amendment to the Florida
Constitution is adopted), the tax rate will return to 7.1% as it was
under the pre-amended statute. When a fronton has paid a total of
admissions tax, daily license fee and tax on handle for live
performances in excess of the tax revenues from wagering on live
jai-alai performances paid by the fronton in fiscal year 1991-1992,
the tax on Handle for live jai-alai wagering drops to 3.3%, with no
exception.
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
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31, 1997. Taxes paid to the state in fiscal 1997 of approximately
$1,724,881 are eligible for recovery by the Company during in future
fiscal periods beginning July 1, 1998.
As a result of this new tax legislation, the Company received tax
credits of $535,702 for the period July 1, 1998 through December 31,
1998.
This legislation is expected to have a positive impact on the
Company's future earnings.
2. Breaks Tax -- Jai-alai permit-holders must pay a tax equal to the
"breaks." The "breaks" are that portion of each pari-mutuel pool,
computed by rounding down to the nearest multiple of $.10, which is
not re-distributed to the contributors or withheld by the
permit-holder as takeout (commission). Breaks tax may be retained,
however, by the jai-alai permit-holder for special prize awards.
3. Admission Tax: In addition to a sales tax of 6%, the Frontons must pay
an admission tax equal to 15% of the entrance fee or 10 cents,
whichever is greater, for any person attending a jai-alai game.
4. Daily License Fee: Effective July 1, 1994, the daily license fee of
$80 per game paid by jai-alai frontons was reduced to $40 per game.
The amendments adopted in the 1994 Regular Session provide, however,
that should an amendment to the Florida Constitution be adopted that
would permit casino gaming at pari-mutuels such as the Frontons, the
fee would return to $80 per jai-alai game; no such amendment has been
passed.
5. Jai-Alai Tournament of Champions: The amendments adopted in the 1994
Regular Session create a special jai-alai meet called the "Jai-Alai
Tournament of Champions" (the "Tournament"). The Tournament, which may
be held only once a year and for no longer than four performances over
four days, permits permit-holders selected to participate in the
Tournament to do so even though they would not otherwise be authorized
to conduct a meet at such time. In addition, the participants do not
have to pay any taxes on Handle for performances during the Tournament
and may apply any credit they receive, up to $150,000 aggregated
between all participants, to supplement awards for the performance
conducted during the Tournament as well as to taxes otherwise due and
payable by them to the State of Florida.
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REAL ESTATE DEVELOPMENT
In November 1997 the Company entered into a new business - -
residential real estate development described below. The following paragraphs
outline the background and the Company's approach going forward as to management
and use of the 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. The assets consisted of
certain improved and partially - improved properties and a residential real
estate development called Tara Club Estates (collectively, the "Properties"),
all of which are situated in Loganville, Walton County, 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 lenders secured by the
properties purchased, and (iii) the Company canceled $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 intends to engage the services
of a professional real estate management and marketing company in 1998 to assist
with the evaluation of the market potential, assess competitive factors in the
Atlanta/Walton County market, and to develop an advertising and marketing
program for the sale of the developed residential and commercial property.
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 commercial property. Seventy home sites have
already been sold to builders. The sites are presently selling at an average in
excess of $45,000 per site. Before the acquisition of the Properties by the
Company, thirty-nine homes, having an aggregate value of about $10,000,000, had
been constructed and sold at an average price of $250,000. The Properties are
located on the east side of 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 three 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 in the three million resident range and is continuing to increase.
Gwinnett County is located in the Northeast section of Metropolitan Atlanta, and
is noted as one of the fastest growing counties in the United States. It has
doubled its population in the last ten years, and now has more than
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350,000 residents.
CERTAIN CONSIDERATIONS
CERTAIN STATEMENTS AND INFORMATION IN THIS ITEM 1 AND ELSEWHERE IN
THIS FORM 10-KSB CONSTITUTE FORWARD-LOOKING STATEMENTS AS THAT TERM IS DEFINED
IN THE SECURITIES ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS OR PERFORMANCE OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS OR PERFORMANCE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED BELOW AND ELSEWHERE IN THIS
FORM 10-KSB. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS.
GAMING COMPETITION. The gaming industry is highly competitive. Other
gaming companies have substantially greater financial resources and larger
management staffs than the Company. Because of the growing popularity and
profitability of gaming activities, competition is significantly increasing. The
Company competes for customers with other forms of legal wagering, including
video poker gaming in non-casino facilities, charitable gaming, pari-mutuel
wagering and state lotteries.
Further expansion of gaming opportunities could also significantly
and adversely affect the Company's business. In particular, the expansion of
casino gaming in or near the geographic areas from which the Company attracts or
expects to attract a significant number of its customers could have a material
adverse effect on the Company's business. The Company expects that it will
experience significant competition as the emerging casino industry matures.
POTENTIAL DILUTION AND MARKET IMPACT FROM OUTSTANDING CAPITAL STOCK
AND OPTIONS. As of March 26, 1999, the Company had 5,782,250 shares of Common
Stock issued and outstanding. In addition, as of that date, 1,040,000 shares of
Common Stock were issuable upon the exercise of outstanding options, 7,748
shares of Common Stock were issuable upon the conversion of outstanding shares
of Class A preferred stock, and additional shares of Common Stock were issuable
upon the conversion of outstanding shares of Series B, Series C, Series E, and
Series F preferred stock at a conversion price based on the market price of the
Common Stock. The voting power of each holder of Common Stock would be diluted
by the issuance of additional shares of Common Stock. Moreover, the prevailing
market price for the Common Stock may be materially and adversely affected by
the addition of a substantial number of shares of Common Stock into the market
or by the registration under the Securities Act for the sale of the shares
offered thereby. Moreover, if the prevailing market price is materially
adversely affected by the addition of shares of Common Stock into the market,
the number of shares of Common Stock issuable upon the
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<PAGE>
conversion of shares of preferred stock will increase; as the number of shares
increases upon conversion, the prevailing market price would become further
depressed as the shares of Common Stock are added to the market.
Of the approximately 5,782,250 shares of Common Stock issued and
outstanding as of March 26, 1999, persons who may be deemed "affiliates" (as
that term is defined under the Securities Act) of the Company or who acquired
the shares in a transaction exempt from registration under the Securities Act
since March 25, 1995, hold approximately 2,868,277 shares ("Restricted Shares"),
which may only be sold in the public market if such shares are registered under
the Securities Act or sold in accordance with Rule 144 promulgated under the
Securities Act. For additional information with respect to the Restricted
Shares, see "Item 5. Market for Common Equity and Related Stockholder Matters."
POTENTIALLY VOLATILE STOCK PRICE. The price of the Common Stock on
the NASDAQ SmallCap Market in the past years has shown significant volatility.
During 1996 the price of the Common Stock ranged between $2.50 and $10.00;
during 1997 the price of the Common Stock ranged between $2.37 and $7.125; and
during 1998 the price of the Common Stock ranged between $.53 and $3.00 Factors
such as the Company's operating results or other announcements by the Company or
its competitors may have a significant impact on the market price of the
Company's securities. The price of the Common Stock may be highly volatile and
may decline at an equal or greater rate than the rate at which it has risen over
the last three years. On August 21, 1998, the Company's common stock was
de-listed from the Nasdaq Small-Cap Market and is now traded In the
Over-the-Counter -- Small Cap Market.
UNCERTAINTIES IN INTEGRATING OPERATIONS AND ACHIEVING COST SAVINGS.
The Company recently purchased the Tara Club Estates real estate development.
The success of any business combination, including the acquisition of the Tara
Club Estates, is in part dependent on the ability following such transactions to
consolidate operations, integrate departments, systems and procedures and
thereby obtain business efficiencies, economies of scale and related cost
savings. The consolidation of operations, the integration of departments,
systems and procedures and the relocation of staff present significant
management challenges. There can be no assurance that future consolidated
results will improve as a result of the acquisition of the Tara Club Estates, or
as to the timing or extent to which cost savings and efficiencies will be
achieved.
RISKS ASSOCIATED WITH ACQUISITIONS. There may be liabilities which
the Company fails or is unable to discover in the course of performing due
diligence investigations on any company or business it seeks to acquire or has
acquired, including liabilities arising from non-compliance with certain
federal, state or local laws by prior owners, and for which the Company, as a
successor owner, may
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be responsible. The Company has sought to minimize its exposure to such
liabilities by obtaining indemnification from former owners, which may be
supported by deferring payment of a portion of the purchase price. However,
there is no assurance that such indemnification's, even if obtainable,
enforceable and collectible (as to which there also is no assurance), will be
sufficient in amount, scope or duration to fully offset the possible liabilities
arising from the acquisitions. The success of the Company in the gaming industry
is dependent on a number of factors including, but not limited to, economic
conditions, competitive environment, adequate capital, accurate site selection,
construction schedules, and supply of trained personnel. There can be no
assurance that the Company will be successful in the fronton and gaming industry
or in any related industries which it enters.
MANAGEMENT OF GROWTH. Since the change in management of the Company
in March 1993, the Company has expanded its operations rapidly. In 1996, the
Company acquired three new jai-alai facilities and in 1997 the Company acquired
a real estate development near Atlanta, Georgia. Unfortunately, these
acquisitions will require a period of time to yield significant positive cash
flow. For most of 1998 the Company's working capital position was negatively
impacted. The Company has completed part of its strategic plan to improve its'
working capital and achieve profitability. During 1998, and early 1999, the
Company completed the sale of the Tampa facility and sold other excess property
not needed in its day-to-day operations for an aggregate cash of $12,455,000.
These real estate sales reduced the Company's over-all debt level, thereby
reducing interest expense and reduced other operating expenses. The Tampa
facility --- which was the only facility out of the four which was losing money
at the operating level was also closed.
These actions along with substantial operational cost reductions and the new
Jai-alai Tax relief bill have significantly improved the Company's chances of
continuing as a viable entity.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent,
in part, on its key management personnel. In particular, the Company is highly
dependent upon W. Bennett Collett, and W. Bennett Collett, Jr. The loss of their
services could have a material adverse effect on the Company. There is no
assurance that the Company will be able to hire qualified individuals to replace
either of these persons if necessary. The Company does not have any employment
contracts with its' executives, nor does the Company have any key man life
insurance policies on their lives.
CONTROL OF THE COMPANY. As of March 26, 1999, W. Bennett Collett,
Chairman and chief executive officer of the Company, beneficially owned or
controlled an aggregate of 2,071,149 shares of the Company's Common Stock
(including shares beneficially owned by Freedom, with respect to which Mr.
Collett disclaims beneficial
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ownership), or an aggregate of approximately 34% of the issued and outstanding
shares of the Company's Common Stock. Mr. Collett is and will be able to exert
considerable influence over the election of the Company's directors and the
outcome of corporate actions requiring stockholder approval.
ABSENCE OF DIVIDENDS ON COMMON STOCK. The Company has not paid any
dividends on its Common Stock in the past and does not anticipate paying
dividends on its Common Stock in the foreseeable future. In the event the
Company is not contractually prohibited from paying dividends, the holders of
Common Stock would be entitled to receive dividends only when and as declared by
the Board of Directors of the Company, subject to the prior rights and
preferences, if any, of holders of preferred stock.
ANTITAKEOVER EFFECTS OF CERTAIN INSTRUMENTS, AGREEMENTS OF THE
COMPANY, AND LAWS. The Company's certificate of incorporation and bylaws,
certain contracts to which the Company is a party, the Delaware General
Corporation Law and Florida gaming laws contain provisions that could delay or
prevent a transaction that results in a change of control of the Company or
discourage a tender offer or other plan to restructure the Company favored by a
significant portion of the Company's stockholders. For example, the Florida laws
require that before any person or entity can legally acquire a 5% or greater
equity interest in the Company, such person or entity must receive the approval
of the State of Florida DPMW.
POTENTIAL CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS.
Certain relationships among the Company, its management and affiliates create
various potential and actual conflicts of interest. See "Item 12. Certain
Relationships and Related Transactions." It is the Company's policy that all
material affiliated transactions and loans will be made or entered into on terms
that are no less favorable to the Company than those that can be obtained from
unaffiliated third parties. All future material affiliated transactions and
loans must be approved by a majority of the independent directors who do not
have an interest in the transactions.
GOVERNMENTAL REGULATION. The Company must secure regulatory approvals
from state and local authorities for each of its gaming ventures. No assurance
can be given that any of these approvals will be secured in a timely fashion or
at all.
In addition to a variety of generally applicable state and federal
laws governing business operations, the Company's gaming ventures are regulated
by federal and state laws and regulations applicable to the gaming industry
generally and to the distribution of gaming equipment. Because the regulatory
environment is dynamic and evolving, it is impossible to predict how certain
provisions will be ultimately interpreted or how they may affect the Company.
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CONSTRUCTION RISKS. The Company anticipates that its prospective
gaming ventures may often include the construction of additional facilities. The
Company's cost estimates and projected completion dates for construction of
facilities may change significantly as the projects progress. In addition, the
Company's development projects will entail significant construction risks,
including shortages of materials or skilled labor, unforeseen environmental or
engineering problems, work stoppages, weather interferences and unanticipated
cost increases, any of which could have a material adverse effect on the
projects and could delay their scheduled openings.
ITEM 2. DESCRIPTION OF PROPERTY.
Set forth below is a brief description of the Frontons:
<TABLE>
<CAPTION>
Location Number Size of Number
of Acres* Building of Gaming
Sq. Ft Seats*
-------- -------- -------- ---------
<S> <C> <C> <C>
Ft Pierce 137.00 80,000 2,150
Miami 25.50** 165,000 4,389
Ocala 47.98 63,000 1,774
------ ------- -------
Totals 210.48 308,000 8,313
------ ------- -----
------ ------- -----
</TABLE>
* At December 31, 1998.
** On February 18, 1999, the Company sold to an unaffiliated
purchaser 12.99 acres of property located near its Miami, Florida Fronton for
$3,576,000 cash net of related expenses. Approximately 80% of the property sold
was used for parking automobiles when the fronton first opened. However, all but
two acres of the parking space was no longer needed. There were no structures on
the remaining acreage sold. The Company leased back from the purchaser
approximately two acres of the property for over-flow parking for a term of four
years at a rental of $5,508 per month. The Company expects to record a profit of
approximately $1,000,000 on the sale. (See Note J of financial Statements)
The Company's Miami fronton, near Miami International Airport, was
built in 1926 and most recently remodeled in 1982. In addition to its jai-alai
auditorium, the fronton has a restaurant overlooking the jai-alai court, a
banquet room, four television lounges and a 12,000 square foot low-stakes card
room that can accommodate 80 poker tables. Parking facilities at the Miami
fronton (including on-street parking) accommodate 2,000 cars.
The Company's Ocala fronton, completed in 1973, is situated on a 48
acre site midway between Ocala and Gainesville in north-central Florida. It has
seating for 1,774 people and a total capacity for spectators of approximately
3,800. Parking facilities at the Ocala fronton accommodate approximately 1,100
cars.
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Fort Pierce is a coastal community in St. Lucie County, approximately
110 miles north of Miami. The Fort Pierce fronton, completed in 1974, is located
approximately one mile from an exit on the Florida Turnpike, two miles from an
exit on Interstate Highway 95 and five miles west of U.S. Highway 1. The Florida
Turnpike is the primary route between South Florida and Orlando. The Fort Pierce
fronton is situated on a thirty five acre site and its parking facilities
accommodate approximately 2,000 cars.
All of the Company's frontons have pari-mutuel windows, liquor bars
and concession stands.
Substantially all of the Company's real estate associated with the
frontons (excluding 102 acres contiguous to the Fort Pierce fronton discussed
below) provides collateral for the $1,311,000 balance remaining on the original
$7,000,000 secured promissory note issued by the Company in connection with
purchase of the frontons on September 12, 1996
In January 1995, the Company acquired five parcels of land
encompassing approximately 102 acres contiguous to the Fort Pierce fronton. For
a description of the long-term debt secured by this property, see Note I to the
Company's financial statements included in this Form 10-KSB. The Company plans
to sell or develop (with a joint venture partner) these properties in the near
future.
Pursuant to an Asset Purchase Agreement dated as of September 24,
1997, the Company purchased from Interstate Capital Corporation ("Interstate")
certain partially improved commercial properties and a fully-developed
residential real estate development called Tara Club Estates (collectively the
"Properties"), all of which are situated in Loganville, Walton County, Georgia.
The properties consisted of over 100 fully developed, and 150 partially
developed single-family residential home sites, a swim and tennis club facility
and 23 acres of commercial property. As of December 31, 1998, seventy (70) homes
sites had been sold to builders. The home sites are currently selling for an
average price in excess of $45,000. Before the purchase of the Properties by the
Company, thirty-nine (39) homes had been constructed and sold at an average
price of $250,000, for an aggregate of approximately $10,000,000. As of December
31, 1998, sixty-eight (68) homes had been built or are presently under
construction. The Properties are located on the east side of Georgia Highway 81,
approximately one mile south of U.S. Highway 78, inside the Loganville, Georgia
city limits.
ITEM 3. LEGAL PROCEEDINGS.
On December 31, 1996, Florida Gaming Centers, Inc. ("Centers"), a
wholly-owned subsidiary of the Company, entered into a Consulting and
Noncompetition Agreement with Richard P. Donovan, (the "Donovan Contract") a
copy of which was filed as
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Exhibit 10.2 to the Company's Current Report on Form 8-K dated as of December
31, 1996 and is incorporated herein by reference as Exhibit 10.17 hereto. The
Donovan Contract required Centers to pay Donovan $20,000 per month for sixty
months, to pay Donovan's life insurance premiums of $14,000 per year for five
years, and to grant Donovan a five option to purchase 50,000 shares of the
Company's common stock at a price equal to the market value of the shares on
December 31, 1996.
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 life insurance
premiums for seven years commencing in 1999. The Amendment also provided Centers
with an option exercisable at any time to purchase the balance of the Donovan
Contract for 50% of the balance owed on the amended contract, and provided that
Donovan shall be entitled to a consent judgment against the Centers for the
balance due on his amended contract in the event the Company is in default for a
period of 90 consecutive days. A copy of the Amendment to the Donovan Contract
is attached hereto as Exhibit 10.42 and is incorporated herein.
On December 31, 1996, Centers entered into a Consulting and
Noncompetition Agreement with Roger M. Wheeler, Jr., (the "Wheeler Contract") a
copy of which was filed as Exhibit 10.3 to the Company's Current Report on Form
8-K dated as of December 31, 1996 and is incorporated herein by reference as
Exhibit 10.18 hereto. The Wheeler Contract required Centers to pay Wheeler
$8,333 per month for sixty months commencing January 1997, to pay Wheeler $4,167
per month for sixty months commencing January 2002, to grant Wheeler a five
option to purchase 25,000 shares of the Company's common stock at a price equal
to the market value of the shares on December 31, 1996 and to elect Wheeler and
one person designated by him to the Company's board of directors for ten years.
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
25
<PAGE>
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. A copy of the Amendment to the Wheeler Contract
is attached hereto as Exhibit 10.43 and is incorporated herein.
The Company is a defendant in certain other suits which are deemed to
be routine litigation in the ordinary course of business. The Company believe
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.
SUMMER JAI-ALAI PARTNERSHIP
As part of the purchase of the assets of World Jai-Alai ("WJA"), in January,
1997, Florida Gaming Centers, Inc. ("Centers") acquired a 21% interest in the
Summer Jai-Alai ("SJA") partnership. One of the purposes of the partnership was
to operate a summer jai-alai season at the Miami Jai-Alai facility. Disputes
arose between Centers and the other SJA Partners as to the rights and
obligations under the various agreements governing summer jai-alai and its day
to day operations by Centers. The disputes were based on the other summer
partners' failure to pay certain accrued expenses and losses, and Center's
method(s) of operation (see Footnote H to the Financial Statements). As a result
of the inability to reach an amicable settlement of these issues, Centers filed
suit against the SJA Partners in the Circuit Court of the 11th Judicial Circuit
in and for Dade County, Florida in Case No. 97-16271-CA30.
On June 11, 1998, Centers, entered into a into a settlement Agreement with the
other SJA Partners (Hollywood Greyhound, Flagler Greyhound and Biscayne Kennel
Club or their successors). The Agreement contains the following provisions:
o Centers maintained the right to operate Summer Jai-Alai
26
<PAGE>
from May 1, 1998 through November 28, 1998 and the option to run
during May and June of 1999 at its own risk and for its own benefit.
Centers agreed to hold the SJA harmless for any and all losses or
liabilities that may be incurred;
o If net profits from operating the 1998 Summer Season exceeded
$250,000, Centers agreed to pay a total of $50,000 to the other SJA
Partners;
o All amounts owed to the State of Florida by SJA were to be paid by
Centers;
o All ITW amounts due to Flagler Greyhound were to be paid by Centers
before September 30, 1998;
o All claims and counterclaims of Centers and SJA contained in the
lawsuit were dismissed with the exception of the broadcast and
reception of the respective ITW signals. These issues are to be
resolved or litigated at a later date;
o The parties agreed to meet on or before December 31, 1998 to determine
the operational dates or parameters for the 1999 Summer Season.
As a result of the December, 1998 meeting, the parties agreed to a continuation
of the June 11, 1998 agreement with the following modifications:
o Centers maintains the right to operate Summer Jai-Alai from May 1,
1999 through November 30, 1999 and May and June of 2000 at its own
risk and for its own benefit. Centers agrees to hold the other
partners in SJA harmless for any and all losses or liabilities that
may be incurred.
o For the aforementioned benefits, including the benefits derived from
the operation of the 1998 Summer Season, Centers will pay each of the
other SJA Partners (Hollywood, Flagler and Biscayne) the sum of
$65,000 in three installments of $21,667, with the first payment due
upon execution of the agreement and subsequent payments on June 1,
1999 and July 20, 1999.
Management believes that the net income and cash flow from SJA operations will
offset these payments.
OCALA BREEDERS SALES COMPANY
The Florida Legislature authorized Intertrack Wagering ("ITW") in
1990 allowing 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
27
<PAGE>
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. The legislation was amended in 1991 and subsequent
years to allow an increase in the number of days during which ITW wagering was
allowed at OBS. From 1990 to the present, the only applicant for this
thoroughbred sales ITW license has been and remains to be OBS.
In 1995, WJA Realty, which was purchased by the Company, filed a
lawsuit in State County 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 unconstitutional.
The Company does not know at this time what action OBS or the State
of Florida will take concerning this litigation. Management believes that it is
not possible for the Legislature to craft language permitting only OBS to
conduct ITW wagering that would be constitutional.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's 1998 Annual Meeting of Shareholders held on December
30, 1998, the following actions were taken:
The following directors were elected for terms of office expiring in
1999:
<TABLE>
<CAPTION>
Votes For Votes Absten- Broker
Withheld tions Non-
Votes*
--------- --------- ------- -------
<S> <C> <C> <C> <C>
W. Bennett Collett 3,163,818 5,636 N/A N/A
Robert L. Hurd 3,174,488 4,966 N/A N/A
W. B. Collett, Jr. 3,171,423 8,031 N/A N/A
George Galloway, Jr. 3,174,908 3,546 N/A N/A
Roland M. Howell 3,178,541 0,913 N/A N/A
Timothy L. Hensley 3,180,608 8,846 N/A N/A
</TABLE>
28
<PAGE>
*Pursuant to the terms of the Proxy Statement, proxies received were
voted, unless authority was withheld, in favor of the election of the six
nominees named.
The following summarizes the voting to ratify the appointment of King
& Company PSC as the Company's auditors for the year ended December 31, 1998:
<TABLE>
<CAPTION>
Votes For Votes Absten- Broker
Withheld tions Non-
Votes
---------- -------- ------- -------
<S> <C> <C> <C> <C>
King & Company PSC 3,192,148 27,373 29,933 None
</TABLE>
Following the Annual Meeting of Shareholders held on December 30,
1998, the Board of Directors of the Company amended Section 2.6(a) of the
Company's Bylaws to read as follows:
"Except as otherwise required by law, by the Corporation's
Certificate of Incorporation, or by these bylaws, the holders of one
third of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote at any given meeting present in
person or by proxy shall be necessary to, and shall constitute a
quorum for, the transaction of business at all meetings of
stockholders."
29
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock traded on the NASDAQ SmallCap Market under the
trading symbol "BETS" until August 21, 1998, at which time it was delisted.
Since August 21, 1998 the Common Stock has traded in the Over-the-Counter market
and is quoted in the Pink Sheets.
The following table shows the high and low bid prices for the Common
Stock for the period January 1 to August 21, 1998 and the year ended December
31, 1997. Bid prices were not available after August 21, 1998. The bid prices
reflect interdealer prices, without retail mark-up, markdown or commissions and
may not represent actual transactions. Actual sales prices are shown for the
periods subsequent to August 21, 1998:
<TABLE>
<CAPTION>
1997: HIGH LOW
- ----- ---- ---
<S> <C> <C>
For the Quarter Ended:
March 31 $7 1/8 $5 1/4
June 30 5 5/8 3 3/8
September 30 5 1/4 2 5/8
December 31 5 9/16 2 5/8
1998: HIGH LOW
- ----- ---- ---
For the Quarter Ended:
March 31, 1998 3 1 13/16
June 30, 1998 2 1 5/16
For the Period:
July 1 to August 21 1 3/8 17/32
August 22 to Sept 30 1* 7/16*
For the Quarter Ended:
December 31 1 3/8* 3/32*
</TABLE>
* Represents actual sales prices.
As of March 26, 1999, the Company had approximately 3,500 holders of
record of its Common Stock.
Of the 5,782,250 shares of Common Stock outstanding as of March 26,
1999, persons who may be deemed "affiliates" of the Company or who acquired the
shares in a transaction exempt from registration under the Securities Act hold
approximately 2,868,277 shares ("Restricted Shares"), which may only be sold in
the public market if such shares are registered under the Securities Act or sold
in accordance with Rule 144 promulgated under the Securities Act. Of these
Restricted Shares, 703,297 shares of Common Stock have been held by the holder
for over one year and are thus available for sale in the public market subject
to the volume and other limitations of Rule 144. Freedom, the
30
<PAGE>
holder of 1,774,480 Restricted Shares, has demand registration rights for its
shares. Freedom has pledged a total of 1,650,000 Shares of Common Stock to
secure loans to Freedom, including the pledge of 1,400,000 shares to one bank,
200,000 shares to another bank, and the pledge of 50,000 shares to a director of
the Company. The Company has registered a total of 1,029,480 shares of Common
Stock for resale by and for the account of any bona fide pledge of the Common
Stock by Freedom. The Restricted Shares held by Freedom have been held by
Freedom totaling 1,774,480 for over one year and are thus available for sale in
the public market, subject to the volume and other limitations of Rule 144.
In general, under Rule 144 a person (or person whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1% of the then-outstanding shares of Common Stock
(approximately 57,823 shares) or the average weekly trading volume of the Common
Stock on the Over-the-Counter Market during the four calendar weeks preceding
such sale. Sales under Rule 144 are subject to certain restrictions relating to
manner of sale, notice and the availability of current public information about
the Company. A person who has not been an affiliate of the Company at any time
during the 90 days preceding a sale and who has beneficially owned shares for at
least two years would be entitled to sell such shares without regard to the
volume limitations, manner of sale provisions and other requirements of Rule
144.
The Company has issued stock options to current or former directors
and officers and certain key employees for a total of 1,040,000 shares of common
stock. These option shares have not been registered by the Company for sale in
the public market.
THE COMPANY HAS VARIOUS ISSUES OF CONVERTIBLE PREFERRED STOCK
OUTSTANDING AS OF DECEMBER 31, 1998. A COMPLETE DESCRIPTION AND SUMMARY OF THESE
ISSUE OF CONVERTIBLE PREFERRED STOCK IS SET FORTH IN "ITEM 7. FINANCIAL
STATEMENTS - NOTE B.
Sales of substantial amounts of shares of Common Stock, including
following conversion of shares of the Company's preferred stock or pursuant to
Rule 144 or a registered offering, could adversely affect the market price of
the Common Stock, increase significantly the number of shares of Common Stock
issuable upon the conversion of the Company's preferred stock, the conversion
rates of which are related to the prevailing market price, and make it more
difficult for the Company to sell equity securities in the future at a time and
price that it deems appropriate.
31
<PAGE>
The Company has never paid any cash dividends on its Common Stock and
currently anticipates that any earnings will be retained for use in its
operations. The Company is not contractually restricted from paying dividends on
its Common Stock; however, it does not intend to pay any cash dividends on its
Common Stock in the foreseeable future. Any future determination as to cash
dividends will depend on the then earnings and financial position of the
Company, as well as any legal restrictions and such other factors as the Board
of Directors many deem appropriate.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company currently owns and operates three jai-alai and
inter-track pari-mutuel wagering ("ITW") facilities located in South and Central
Florida. The Company's business consists primarily of its gaming operations at
the Frontons, which include, among other things, live jai-alai games, ITW for
thoroughbred racing, harness racing, and dog racing and jai-alai. The Company
also conducts poker and dominoes at the Miami facility. The Company sells food
and alcoholic beverages at all locations. The Company also owns and operates a
residential real estate development acquired in late 1997 in Loganville (near
Atlanta) Georgia.
RESULTS OF OPERATIONS
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
During the twelve months ended December 31, 1998, the Company's
operations reflects twelve months operation of live jai-alai performances at the
Miami facility. The Ft. Pierce Fronton conducted live jai-alai performances
January through April, 1998 and the Ocala facility conducted live performances
from May 22, 1998 to October 31, 1998. A year-round schedule of ITW was also
conducted at the Ft. Pierce and Ocala facilities. The Miami location offers
limited ITW product due to blackouts imposed as a result of its close proximity
to other South Florida pari-mutuels. The Miami facility, simulcasts its live
jai-alai performances to other gaming facilities in Florida, the rest of the
United States, and Mexico. The Miami fronton also operates six months of each
year under the Summer Jai-Alai Partnership Agreement ("SJA"). See "Item 1.
Description of Business"
COMPARISON DEFINITION
THE FOLLOWING ANALYSIS OF HANDLE, REVENUES, AND OPERATING EXPENSES IN THIS PART
OF THE REPORT COMPARES FIGURES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1998 FOR
32
<PAGE>
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.
HANDLE ANALYSIS
Total Handle (amount of money wagered) for the twelve months ended December 31,
1998 was $86,627,522 of which $23,626,220 was wagered on live jai-alai games and
$14,461,358 was wagered on the Miami jai-alai signal as a host site via
inter-track simulcasting. The aggregate amount wagered on inter-track guest
signals carried at the Company's frontons was $48,539,944. These handle figures
do not include the handle for the Miami facility for the period from May 1, 1998
through November 28, 1998, since this was the SJA permit period. The Miami
facility was operated by the Company pursuant to a special agreement for the
Company's benefit during the SJA permit period. See "Item 3. Legal Proceedings."
Total Handle for the twelve months ended December 31, 1997 was
$91,198,678 of which $31,160,696 was wagered on live jai-alai, $17,385,401 was
wagered on the Miami jai-alai signal as a host site via inter-track simulcasting
and $42,652,581 was wagered on inter-track guest signals carried at the
Company's three frontons. These numbers do not the include handle for the Miami
facility for the period from July 2, 1997 through November 30, 1997, since this
was the SJA permit period. During this SJA permit period the facility was
operated by the Company for benefit of the SJA partnership. The SJA Partnership
income (loss) was accounted for by the Company on the equity (21%) method during
1997.
HANDLE INCREASES AND DECREASES
Total net handle for the twelve months ended December 31, 1998 was
$86,627,522. This figure represents a net decrease for the same period in 1997
of $4,571,156 (5%). This net decrease is explained as follows:
1. Live handle decreased from $48,546,097 in 1997 to $38,087,578 for the
same period in 1998, a decrease of $10,458,519 (21.5%).
2. ITW handle increased from $42,652,581 in 1997 to $48,539,944 for the
same period in 1998, an increase of $5,887,363 (13.8%).
The over-all net decrease is attributable to the general decline of live
jai-alai attendance and handle and increased competition from other gaming
venues and from recreational activities in the Company's market area.
33
<PAGE>
PARI-MUTUEL REVENUES
Pari-mutuel revenues for the year ended December 31, 1998 were
$10,751,554 compared to pari-mutuel revenues of $11,435,526 for the same period
in 1997, a decrease of $683,972 or 5.9%. Revenues for the twelve months ended
December 31, 1998, consisted of $6,371,721 from live and simulcast jai-alai
wagering and $4,379,832 from inter-track guest commissions. These numbers do not
include revenues for the Miami facility for the SJA season from May 1, 1998
through November 28, 1998. During the 1998 SJA season the Company operated the
fronton under the SJA permit from pursuant to an operating agreement with SJA
dated June 11, 1998 which allowed the Company to operate the SJA permit for its
own account.
Pari-mutuel revenues for the year ended December 31, 1997 were
$11,435,526. Revenues for the year ended December 31, 1997, consisted of
$7,551,457 from live and simulcast jai-alai wagering and $3,884,068 from
inter-track guest commissions. These numbers do not include revenues for the
Miami facility for the period from July 2, 1997 through November 30, 1997. The
Miami facility was operated by the Company under a permit owned by the SJA
partnership during this period. The Company recognized income and losses on its
21% ownership in the SJA partnership on the equity basis for the twelve months
ended December 31, 1997.
The Company opened two card rooms during 1997 - - - one at Tampa on
May 22, 1997, and one at Miami on June 19, 1997. The only card room presently
operating is at Miami. Card room revenue for the Miami Card Room for the twelve
months ended December 31, 1998 was $238,773 compared to Miami Card Room revenues
of $80,105 for the same period in 1997.
Admissions income for the year ended December 31, 1998, was $257,346,
net of state taxes, compared to $321,488 for the year ended December 31, 1997.
Program revenue for the year ended December 31, 1998, decreased $19,224 to
$400,914, from $420,138 for the year ended December 31, 1997. These decreases
were primarily the result of fewer customers evidencing a general decline in
live jai-alai attendance and increased competition from other gaming venues in
the Company's market area.
Attendance for live jai-alai performances and ITW performances was
approximately 574,170 for the year ended December 31, 1998. This compares to
640,081 for the same period in 1997.
Food and beverage income decreased $158,088 to $1,060,011 for the
year ended December 31, 1998, compared to $1,218,099 for the year ended December
31, 1997.
34
<PAGE>
Other income for the year ended December 31, 1998, was $1,131,345
compared to a loss of $231,246 for the same period in 1997.
OPERATING EXPENSES
The Company's operating expenses for the year ended December 31,
1998 were $11,285,477 down $666,873 from $11,952,350 in 1997. The components of
these expenses which resulted in the net decrease are made up of the following
items: Advertising and promotion expense decreased from $738,358 in 1997 to
$670,578 in 1998 --- a total decrease of $67,780.
Operating payrolls and related costs totaled $2,963,009 and
$3,284,835, respectively, for the years ended December 31, 1998 and 1997. This
figure excludes player payroll costs, bar restaurant, and concession payroll
costs. The $2,963,009 consisted of $916,408 in mutuels payroll, $1,009,737 in
maintenance/janitorial payroll, $731,053 in security payroll, $234,122 in office
payroll, and $71,689 in admissions payroll. Player costs, which include
salaries, benefits, and support staff, represent a significant portion of
operational expenses. Player costs for the year ended December 31, 1998, for all
facilities totaled $3,704,545 compared to $3,466,346 for the same period in
1997.
Repairs and Maintenance expenses for the twelve months ended December
31, 1997, totaled $276,174 compared to $366,518 for the same period in 1998.
Rental and service costs for totalizator wagering equipment also
represent a significant portion of operating expenses. These expenses totaled
$498,012 for the year ended December 31, 1998, compared to $458,679 for the year
ended December 31, 1997, --- an increase of $39,333.
Programs expense totaled $364,853 for the year ended December 31,
1998, compared to $425,736 for the same period in 1997.
Card Room payroll costs totaled $101,657 and other card room
operating costs totaled $64,577 for the twelve months ended December 31, 1998.
Card room payroll costs totaled $129,311 and other card room costs were $31,918
for the same period in 1997.
Depreciation and amortization expense for the twelve month period
ended December 31, 1998 was $761,033, compared to $583,070 for the same period
in 1997.
35
<PAGE>
Utilities expense totaled $703,920 for the year ended December 31,
1998 compared to $721,056, for the year ended December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses were $5,526,604
for the twelve-months ended December 31, 1998 compared to $6,421,955 for the
twelve months ended December 31, 1997. The decrease of $895,351 resulted from
management's re-alignment of various departments along with a continuing
austerity program to reduce expenses wherever possible.
Comparison of significant categories of general and administrative
expense for 1998 versus 1997 are as follows: Executive payroll and related costs
were $526,596 in 1998, compared to $1,106,591 in 1997. Professional fees were
$529,073 in 1998 compared to $533,978 in 1997. Consulting fees increased from
$466,500 in 1997 to $524,400 in 1998. Travel and entertainment expense in 1998
totaled $147,855 compared to $280,288 in 1997. Telephone and other data line
charges decreased approximately $8,437 to $211,697. Property and other taxes
increased significantly to $688,542 in 1998 from $587,479 in 1997.
Other general and administrative expenses incurred for fiscal 1998
were $1,924,095 compared to $2,138,781 for the same period in 1997. Other
general and administrative expenses included a decrease in insurance expense of
$89,786 to $527,642 down from $617,428 during 1997. Public company costs
including shareholder relations/information and filing fees increased from
$140,892 in 1997 to $154,099 in 1998. Employee benefits decreased $60,118 to
$841,170 in 1998, down from $901,288 in 1997. Employee benefits are mainly
health insurance and self insurance cost associated with player personnel.
Interest expense totaled $780,952 in 1998 compared to $849,150 in
1997. The $68,198 decrease in interest expense was primarily the result of using
the real estate sales proceeds to pay down interest-bearing obligations.
OTHER INCOME AND EXPENSE
Other income for the year ended December 31, 1998 totaled $1,131,345 compared to
a loss of $231,246 for the same period in 1997.
A major portion of other income ($1,055,912) came from the sale of the Tampa
Jai-Alai facility and the sale of excess real estate located at North Miami
Beach.
Residential lot sales at Tara Club Estates totaled $557,900, an
36
<PAGE>
average sales price of $40,000 per lot for a total of 14 lots sold. These lots
sales produced a net income of $263,481, which is included in other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $1,136,190 at December 31, 1998.
The Company had an increase in working capital of approximately $7,500,000
during the year ended December 31, 1998. The increase in working capital
resulted from the sale of the Tampa facility for $8,300,000 and the excess real
estate in North Miami Beach for $487,000. The proceeds from these real estate
sales enabled the Company to reduce accounts payable and accrued expenses by
about $6,100,000 and reduced the mortgage indebtedness to the Bank of Oklahoma
from $7,000,000 to $2,813,000 as of December 31, 1998. The remainder of the real
estate sales proceeds ($1,565,000) was used as partial payment on the redemption
of the Series G Convertible Preferred Stock in the amount of $3,000,000.
Net cash used in the Company's operations was $3,950,128 for the year ended
December 31, 1998. Net cash provided by investing was $8,909,048 - - - of that
amount $8,856,000 is attributable to the sale of real estate.
Net cash used in financing activities was $4,864,840. The Company redeemed
$3,583,588 of Convertible Preferred Stock and prepaid $1,281,252 of long-term
debt.
During the year ended December 31, 1997, cash flow used in investing activities
totaled $5,258,570. Additions to plant and equipment consisted of about
$2,500,000 used to construct and equip two card rooms. Miscellaneous accounts
receivable increased $468,372. The balance of the funds were used for the
acquisition of the Tara Club Estates, Inc. real estate development. Funds
advanced to an affiliated company, Freedom Financial Corporation ("Freedom")
during the year ended December 31, 1997, pursuant to a previously approved
secured credit line which bore interest at 2% over prime rate totaled
$1,524,989. These advances were repaid in full when the Company purchased from
Freedom partially improved and fully-improved properties as set forth on Form
8-K dated September 24, 1997 and amended on October 10, 1997 and February 9,
1998. The Company purchased properties consisting of a single-family residential
development containing over 100 fully-developed home sites, 150
partially-developed home sites, a swim and tennis club facility and 23 acres of
partially-improved commercial property.
During the year ended December 31, 1997, net cash provided by financing
activities was $4,715,486. Funds generated from the sale of convertible
preferred and common stock totaled $5,650,153. The Company repaid $934,667 of
its long-term debt during the same period.
37
<PAGE>
Subsequent to year-end, on February 19, 1999 the Company sold excess real estate
near the Miami Jai-Alai Fronton for $3,568,000. The Company paid $1,500,000 of
the proceeds received from the sale to the Bank of Oklahoma. As of the date of
this report, the Company owes the Bank of Oklahoma, $1,283,950 - - - down from
over $7,000,000 at the beginning of 1998. The balance of the cash received (less
sales related costs) has been invested in short-term cash-equivalent funds.
The Company's cash flow is currently adequate to meet its' debts and other
obligations as they come due.
During the twelve month period from February 20, 1998 to February 20, 1999, the
Company sold the Tampa facility (which was losing money) and other excess real
estate for an aggregate of over $12,500,000.
As a result of these transactions the Company's operating results improved
dramatically.
The Company received an unqualified opinion from its public accounting firm on
its financial statements for the year ended December 31, 1998.
ITEM 7. FINANCIAL STATEMENTS
LIST OF FINANCIAL STATEMENTS FILED. See accompanying Financial Statements:
Balance Sheets as of December 31, 1998 and 1997.
Statements of Operations for the years ended December 31, 1998 and
1997.
Statement of Changes in Stockholders' Equity for the two years ended
December 31, 1998.
Statements of Cash Flows for the years ended December 31, 1998 and
1997.
Notes to Financial Statements.
38
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report .....................................1
Consolidated Financial Statements
Balance Sheets..................................................2
Statements of Operations........................................4
Statement of Changes in Stockholders' Equity....................5
Statements of Cash Flows........................................6
Notes to Financial Statements...................................7
</TABLE>
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholders
Florida Gaming Corporation and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Florida Gaming
Corporation and Subsidiaries (a Delaware Corporation) as of December 31, 1998
and 1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florida Gaming
Corporation and Subsidiaries as of
/s/ King & Company, PSC
40
<PAGE>
December 31, 1998 and 1997, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Louisville, Kentucky
March 12, 1999
41
<PAGE>
CONSOLIDATED BALANCE SHEETS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,136,190 $ 1,042,110
Accounts receivable, including ITW 446,745 473,431
Inventory 105,206 142,257
------------ ------------
1,688,141 1,657,798
PROPERTY, PLANT AND EQUIPMENT--Notes C and J
Land 4,183,425 8,006,721
Buildings and improvements 8,109,491 11,313,654
Furniture, fixtures and equipment 1,802,618 2,136,270
------------ ------------
14,095,534 21,456,645
Less accumulated depreciation (1,711,622) (1,188,054)
------------ ------------
12,383,912 20,268,591
ADVANCES TO RELATED PARTY--Note G -0- 233,034
REAL ESTATE DEVELOPMENT--Note M 4,376,638 4,594,974
COMMERCIAL PROPERTY HELD FOR SALE--Note J 6,301,138 6,301,138
OTHER ASSETS--Notes C and H 883,193 957,835
------------ ------------
$ 25,633,022 $ 34,013,370
------------ ------------
------------ ------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Unclaimed winnings $ 363,445 $ 733,188
Deposits on real estate sales 214,000 -0-
ITW payables 153,334 256,737
Accrued payroll and related expenses 562,750 439,151
Accounts payable and accrued expenses--Note C 4,862,971 6,645,330
Current portion of long-term debt--Note I 1,310,520 6,845,381
------------ ------------
7,467,020 14,919,787
LONG-TERM DEBT (LESS CURRENT PORTION)--Note I 6,703,347 1,779,915
STOCKHOLDERS' EQUITY--Notes B, D and H
Class A cumulative convertible preferred stock; 1,200,000 shares authorized;
34,435 shares issued and outstanding; aggregate
liquidation preference of $344,350 3,443 3,443
Series B cumulative convertible preferred stock; 5,000 shares authorized;
195 and 445 shares issued and outstanding in 1998 and 1997,
respectively; aggregate 1998 liquidation preference of $200,000 20 45
Series C 8% cumulative convertible preferred stock, 5,000 shares
authorized; 100 and 150 shares issued and outstanding in 1998 and 1997,
respectively; aggregate 1998 liquidation preference of $100,000 10 15
Series E 8% cumulative convertible preferred stock, 2,000 shares
authorized; 1,950 and 2,000 issued and outstanding in 1998 and 1997,
respectively; aggregate1998 liquidation preference of $1,950,000 195 200
Series F 8% cumulative convertible preferred stock, 2,500 shares
authorized; 2,000 and 2,084 issued and outstanding in 1998 and 1997,
respectively; aggregate 1998 liquidation preference of $2,000,000 200 208
Series G 5% cumulative convertible preferred stock, 3,000 shares
authorized; -0- and 3,000 issued and outstanding in 1998 and 1997,
respectively -0- 300
Common stock, $.10 par value; 15,000,000 shares authorized; 5,782,250
and 5,620,060 issued and outstanding in 1998 and 1997, respectively 578,225 562,006
Capital in excess of par value 39,600,988 43,184,670
Accumulated deficit (28,720,426) (26,437,219)
------------ ------------
10,880,562 17,313,668
------------ ------------
$ 25,633,022 $ 34,013,370
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
43
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
HANDLE
Live Jai-Alai $ 34,502,831 $ 53,283,207
ITW-Guest 58,535,618 55,664,780
ITW-Host 14,461,358 17,385,401
------------- -------------
TOTAL PARI-MUTUEL HANDLE $ 107,499,807 $ 126,333,388
------------- -------------
------------- -------------
JAI-ALAI MUTUEL REVENUE $ 12,165,716 $ 17,155,970
Less pari-mutuel taxes to State of Florida (1,733,963) (3,105,309)
Less simulcast guest commissions (1,943,741) (2,217,930)
INTER TRACK MUTUEL COMMISSIONS 5,257,576 5,018,174
------------- -------------
NET PARI-MUTUEL REVENUE 13,745,588 16,850,905
ADMISSION INCOME 332,317 499,591
PROGRAM REVENUE 497,375 594,337
FOOD AND BEVERAGE 1,824,506 2,456,062
CARD ROOM REVENUE 475,645 500,158
OTHER 688,738 674,853
------------- -------------
TOTAL OPERATING REVENUE 17,564,169 21,575,906
OPERATING EXPENSES
Advertising and promotions 851,971 1,212,092
Operating and mutuels payroll and related costs 4,052,354 4,609,917
Player payroll and related costs 5,197,910 6,345,124
Food and beverage costs 1,589,853 2,142,002
Repairs and maintenance 423,666 438,173
Totalizator/teleview rent--Note H 784,736 824,262
Programs 452,918 584,554
Card room payroll and related costs 203,019 477,177
Other card room operating costs 112,197 161,336
Depreciation and amortization 922,403 736,349
Utilities 887,531 1,067,100
Miscellaneous, net (213,802) 418,862
------------- -------------
TOTAL OPERATING EXPENSES 15,264,756 19,016,948
GENERAL AND ADMINISTRATIVE
Executive payroll and related costs 526,596 1,106,591
Directors' fees--Note G 17,000 18,000
Management consulting--Note G 524,400 466,500
Telephone and travel 535,946 721,476
Professional fees 529,073 533,978
Interest expense 780,952 849,150
Property taxes 688,542 587,479
Other--Note H 1,924,095 2,138,781
------------- -------------
5,526,604 6,421,955
------------- -------------
(LOSS) FROM OPERATIONS (3,227,191) (3,862,997)
OTHER INCOME (EXPENSE)
Sale of Tara lots--Note O 263,481 -0-
Sale of other real estate--Note J 1,055,912 -0-
Interest and dividend income--Notes C and K 56,068 280,830
Provision for loss on gaming venture investment--Note L -0- (322,193)
Loss on operation of Summer Jai Alai--Note K (186,768) -0-
Other (net)--Note D (57,348) (189,883)
------------- -------------
1,131,345 (231,246)
------------- -------------
NET LOSS $ (2,095,846) $ (4,094,243)
------------- -------------
------------- -------------
BASIC LOSS PER COMMON SHARE--Note A $ (.36) $ (.80)
------------- -------------
</TABLE>
See notes to consolidated financial statements
44
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CLASS A SERIES B SERIES C SERIES D SERIES E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
PAR VALUE $.10 PAR VALUE $.10 PAR VALUE $.10 PAR VALUE $.10 PAR VALUE $.10
--------------- --------------- --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 34,435 $ 3,443 1,992.5 $ 199 550 $ 55 650 $ 65
Stock issued--Notes B and C 2,000 $ 200
Conversion of preferred
stock to common stock--Note B (1,547.5) (154) (400) (40) (650) (65)
Dividend on Class A
preferred stock--
$.90 per share
Dividends on Series C, D and F
preferred stock
Net loss for the year
Stock warrants issued--Note D
------ ------- --- ------- --- ------- --- ------- ----- -------
BALANCES AT
DECEMBER 31, 1997 34,435 3,443 445 45 150 15 -0- -0- 2,000 200
Stock redemption--Note B and J (100) (10)
Conversion of preferred
stock to common stock--Note B (150) (15) (50) (5) (50) (5)
Dividends on Series F
preferred stock
Net loss for the year
------ ------- --- ------- --- ------- --- ------- ----- -------
BALANCES AT
DECEMBER 31, 1998 34,435 $ 3,443 195 $ 20 100 $ 10 -0- $ -0- 1,950 $ 195
------ ------- --- ------- --- ------- --- ------- ----- -------
------ ------- --- ------- --- ------- --- ------- ----- -------
</TABLE>
<TABLE>
<CAPTION>
SERIES F SERIES G
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PAR VALUE $.10 PAR VALUE $.10 PAR VALUE $.10
-------------- -------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 4,340,626 $ 434,063
Stock issued--Notes B and C 2,084 $ 208 3,000 $ 300 447,500 44,750
Conversion of preferred
stock to common stock--Note B 822,350 82,235
Dividend on Class A
preferred stock--
$.90 per share 9,577 958
Dividends on Series C, D and F
preferred stock
Net loss for the year
Stock warrants issued--Note D
----- -------- ----- ---------- ------- ------
BALANCES AT
DECEMBER 31, 1997 2,084 208 3,000 300 5,620,060 562,006
Stock redemption--Note B and J (84) (8) (3,000) (300)
Conversion of preferred
stock to common stock--Note B 162,190 16,219
Dividends on Series F
preferred stock
Net loss for the year
----- -------- ----- ---------- ------- ------
BALANCES AT
DECEMBER 31, 1998 2,000 $ 200 -0- $ -0- 5,782,250 $ 578,225
----- -------- ----- ---------- ------- ------
----- -------- ----- ---------- ------- ------
</TABLE>
<TABLE>
<CAPTION>
CAPITAL IN
EXCESS OF ACCUMULATED
PAR VALUE DEFICIT
--------- -------
<S> <C> <C>
Balances at January 1, 1997 $ 35,276,095 $(22,232,412)
Stock issued--Notes B and C 7,737,316
Conversion of preferred
stock to common stock--Note B (81,976)
Dividend on Class A
preferred stock--
$.90 per share 30,013 (30,971)
Dividends on Series C, D and F
preferred stock (79,593)
Net loss for the year (4,094,243)
Stock warrants issued--Note D 223,222
------------ ------------
BALANCES AT
DECEMBER 31, 1997 43,184,670 (26,437,219)
Stock redemption--Note B and J (3,567,487)
Conversion of preferred
stock to common stock--Note B (16,195)
Dividends on Series F
preferred stock (187,361)
Net loss for the year (2,095,846)
------------ ------------
BALANCES AT
DECEMBER 31, 1998 $ 39,600,988 $(28,720,426)
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements
45
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(2,095,846) $(4,094,243)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 922,403 736,349
Warrants issued for funding origination--Note D -0- 223,222
Provisions for loss on gaming activities 186,768 322,193
Decrease (increase) in inventory 37,051 27,162
Decrease in accounts receivable (26,686) (289,380)
(Decrease) in unclaimed winnings (369,743) (196,829)
(Decrease) increase in accounts payable and accrued expenses (1,762,163) 3,966,686
Realized gain on sale of real estate- - Note J (1,055,912) (17,493)
Increase in deposits 214,000 -0-
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (3,950,128) 677,667
INVESTING ACTIVITIES
Purchases of property and equipment (225,264) (3,184,725)
Decrease (increase) in other assets 422,893 (163,502)
Investments in gaming ventures (177,345) -0-
Decrease (increase) in miscellaneous receivables 233,034 (468,372)
Loans to affiliated company -0- (1,524,989)
Proceeds from the sale of real estate- - Note J 8,655,730 83,018
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 8,909,048 (5,258,570)
FINANCING ACTIVITIES
Redemption of preferred stock (3,583,588) -0-
Net long-term debt issued (repaid) (1,281,252) (934,667)
Proceeds from sale of stock -0- 5,650,153
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (4,864,840) 4,715,486
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 94,080 134,583
Cash and cash equivalents at beginning of period 1,042,110 907,527
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,136,190 $ 1,042,110
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES
Issuance of common stock pursuant to-
-Conversion of preferred stock $ 16,219 $ 106
Interest paid $ 891,862 $ 734,428
Payment of dividend through issuance of common stock $ -0- $ 30,971
Cancellation of debt pursuant to asset acquisition $ -0- $ 3,208,163
Issuance of preferred stock pursuant to asset acquisition $ -0- $ 2,084,000
Debt assumed pursuant to asset acquisition $ -0- $ 1,010,000
</TABLE>
See notes to consolidated financial statements
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live Jai
Alai frontons in Ft. Pierce, Miami and Ocala, Florida through its Florida Gaming
Centers, Inc. subsidiary (Centers). The Company also conducts intertrack
wagering (ITW) on jai alai, horse racing and dog racing from its Ocala Jai Alai
and Ft. Pierce facilities. On November 26, 1997, the Company acquired Tara Club
Estates, Inc. ("Tara"), a residential real estate development and commercial
project located near Atlanta in Walton County, Georgia. The Company intends to
complete the development and market the property. (See Note M) These financial
statements include the accounts of the Company and its subsidiaries. Significant
intercompany transactions have been eliminated.
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.
ESTIMATES: 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.
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.
LONG-LIVED ASSETS: The Company's investment in its residential and commercial
property is carried at cost. The Company evaluates the carrying value of its
long-lived assets under FAS 121 annually.
INVENTORY: The Company's inventory, comprising food and beverage products and
souvenirs, is stated at the lower of cost or market.
OTHER COMPREHENSIVE INCOME: During 1998, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 130, REPORTING COMPREHENSIVE
INCOME. The Company had no "other comprehensive income" during either year
presented. Accordingly, Comprehensive income is equal to net income in both
years.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
PARI-MUTUEL WAGERING: Revenue is derived from acceptance of wagers under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW
events. On-site wagers are accumulated in pools with a portion being returned to
winning bettors, a portion paid to the State of Florida, and a portion retained
by the Company. ITW wagers are also accepted and forwarded to the "host"
facility after retention of the Company's commissions. The Company's liability
to host tracks for ITW collections totaled $158,546 and $256,737 at December 31,
1998 and 1997, respectively. Unclaimed winnings (outs) totaled $244,054 and
$733,188 at December 31, 1998 and 1997, respectively.
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 bases 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.
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.
The weighted average number of shares outstanding used in the calculation of
basic net loss per common share was 5,735,266 and 5,087,656 for 1998 and 1997,
respectively. Diluted loss per common share is not presented for either year
since the amount is antidilutive.
Options and warrants to purchase 150,000 and 2,209,000 shares of the Company's
common stock were outstanding on December 31, 1998 and 1997, respectively. Had
the Company reported income, 0 and 965,000 of these shares, net of forfeitures
would have been included in the computation of diluted income per common shares
for 1998 and 1997, respectively because the weighted average market price was
greater than the exercise price of those options.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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.
RECLASSIFICATION: Certain 1997 amounts have been reclassified to conform with
their 1998 presentation.
NOTE B--PREFERRED STOCK
CLASS A PREFERRED: 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 in 1997. The Company did not declare the required dividend
in 1998.
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, 1998 and 1997, no
shares were converted. 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: 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 received by the Company upon initial issuance of each
share of the Series B stock was $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 1998, 100 Series B
shares were redeemed by the Company and 150 were converted to common stock.
During 1997, 1547.5 Series B shares were converted to 295,951 shares of common
stock.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE B--PREFERRED STOCK--CONTINUED
SERIES C PREFERRED: The Company is authorized to issue 5,000 shares of Series C
8% Cumulative Convertible Preferred Stock, $.10 par value (the "Series C
Preferred Stock"), which provides annual dividends at the rate of 8% of the
share's Stated Value. The Stated Value per share equals $1,000 (as adjusted for
any stock dividends, combination or split). At the discretion of the Company's
Board of Directors, such dividends may be paid in shares of the Series C
Preferred Stock.
Holders of Series C Preferred Stock may convert all or any of such shares to the
Company's Common Stock (the "Series C Conversion Shares") beginning 90 days
after the issuance of the Series C Preferred Stock. If not converted earlier by
the holder, the Series C Preferred Stock shall be converted automatically on
December 31, 1998. In general, the number of Series C Conversion Shares issuable
on conversion of each share of Series C Preferred Stock shall equal the
consideration paid for such share together with accrued and unpaid dividends on
such share, if any, divided by the lesser of (i) $7.50 or (ii) 80% of the
closing bid price of the Common Stock on the five trading days before
conversion. A holder of Series C Conversion Shares may not sell more than 33% of
such shares between 90 and 120 days of his purchase of Series C Preferred Stock
converted into such shares and 67% of such shares between 121 and 150 days of
his purchase; a holder may generally sell all of his Series C Conversion Shares
151 days after his purchase.
All shares of Series C Preferred Stock have been sold in offshore transactions
exempt from registration pursuant to Regulation S promulgated under the
Securities Act. The Series C Conversion Shares must be resold in transactions
exempt under Regulation S or another applicable exemption under the Securities
Act, pursuant to the registration of the Series C Conversion Shares by the
Company.
Upon liquidation, the holders of Series C Preferred Shares shall be entitled to
be paid $1,000 per share plus 8% accrued dividends before any distribution to
holders of Common Stock. The Company has the right to redeem the shares of
Series C Preferred Stock if a holder of such shares exercises the right of
conversion at a time when the conversion price is below $5.00. The redemption
price to be paid by the Company is 125% of the Stated Value of such shares
together with all accrued and unpaid dividends thereon.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE B--PREFERRED STOCK--CONTINUED
During 1998, 50 Series C shares were redeemed by the Company and during 1997,
400 Series C shares were converted to 144,518 shares of common stock. Also,
between September 21, 1998 and November 25, 1998, the holder of the Series C
shares attempted to convert the remaining 100 Series C shares into the common
stock of the Company. The Company refused to convert the Preferred shares and
made a verbal offer to redeem the shares pursuant to the subscription
agreement. The Series C shareholder has asserted a claim against the Company
asking for the issuance of 302,024 shares of common stock and the payment of
liquidated damages in excess of $750,000. Company management intends to
vigorously defend the Company's right to refuse to convert these shares to
the extent the result would be illegal or inequitable to the Company's other
shareholders. Further, the Company believes the requested liquidated damages
are so unconscionable that they constitute an unenforceable penalty. A
lawsuit has not been filed by either party in this matter.
SERIES D PREFERRED: The Company is also authorized to issue up to 5,000 shares
of Series D 8% Cumulative Convertible Preferred Stock (the "Series D Preferred
Stock"), which provides annual dividends at the rate of 8% of the shares' Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board of
Directors, such dividends may be paid in shares of the Series D Preferred Stock.
Holders of Series D Preferred Stock may convert all or any of such shares to the
Company's Common Stock beginning 90 days after the issuance of the Series D
Preferred Stock.
During 1997, the Company issued an additional 525 Series D shares at $920 per
share and 1,175 Series D shares were converted to 311,503 shares of common
stock. There were no Series D shares outstanding at December 31, 1998 and 1997.
SERIES E PREFERRED: 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
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE B--PREFERRED STOCK--CONTINUED
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; holders may
generally sell all of their Series E Conversion Shares 211 days after their
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 1998, 50 shares of the Series E preferred stock was redeemed by the
Company. During 1997, the Company issued 2,000 Series E shares at $1,000 per
share.
SERIES F PREFERRED: 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 (See
Note M). The Series F shares are all held by related parties of the Company. One
such party, Freedom Holding, returned 84 Series F shares to the Company as a
partial payment on its debt to the Company (See Note G). There remains 2,000
series F shares outstanding at December 31, 1998.
SERIES G PREFERRED: The Company is also authorized to issue up to 5,000 shares
of Series G 5% Convertible Preferred Stock (the "Series G Preferred Stock"),
which provides semi-annual dividends at the rate of 5% 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 G Preferred Stock.
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE B--PREFERRED STOCK--CONTINUED
Holders of Series G Preferred Stock may convert all or any of such shares to the
Company's common stock at any time following the 180th day following the first
date of issuance. If not converted earlier by the holder, the Series G Preferred
Stock shall be converted automatically on September 30, 2002. In general, the
number of Series G Conversion Shares issuable on conversion of each share of
Series G Preferred Stock shall equal the consideration paid for such share
together with accrued and unpaid dividend on such share, if any, divided by the
lesser of (i) 105% of the average of the reported closing price of the Company's
common stock during the fifteen consecutive trading days immediately preceding
the issuance date or (ii) 80% of the closing bid price of the common stock on
the five trading days before conversion.
Upon issuance, Series G Convertible Preferred Stock shall have all of the same
voting rights as issued and outstanding common stock of the Company. Upon
liquidation, the holders of Series G Convertible 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 3,000 Series G shares at $920 per share. During
1998, the Company redeemed all of the outstanding Series G shares through the
payment of $1,560,000 in cash and $2,000,0000 in notes payable. (See Notes I and
J)
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, the
Series F Preferred Stock and the Series G Preferred Stock are all equal in rank
with respect to the payment of dividends and the distribution of assets upon
liquidation of the Company.
NOTE C--WJA CONTRACT
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. a wholly-owned subsidiary of the Company (the
"Subsidiary"), pursuant to which the Subsidiary agreed to acquire the WJA
Frontons for the cancellation of the above-described notes and the assumption of
certain liabilities. (See details below.)
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE C--WJA CONTRACT--CONTINUED
Consideration for the acquisition included (i) the cancellation of WJA Notes
and related obligations from the Bank of Oklahoma, (ii) the retention by WJA
of the 200,000 shares of common stock owned by WJA, (iii) the assumption of
all liabilities of WJA arising in the ordinary course of business (subject to
certain limitations), including a $500,000 promissory note owed to
Wheeler-Phoenix, payable over a ten year period in equal installments, with
annual interest of 6% and (See Note I) (iv) a profit sharing arrangement
based on FGC's net profits before income taxes, wherein WJA will receive 20%
of FGC's cumulative net profits for ten years (1997 through 2000), subject to
a cumulative $1,000,000 per year cap. Other aspects of the 20% provision may
affect the profit payout. Additionally, should FGC dispose of any of its
significant assets or operations, WJA would be entitled to 10% of FGC's gain
on disposition. Although no net operating profit payments were due for 1998
and 1997, the Company may be required to pay a small disposition payment
relating to sale of the Tampa Jai Alai property. (See Note J) The amount is
subject to various contingencies that leave its determination inestimable at
this time.
Two principals of WJA, also entered into consulting arrangements with the
Subsidiary. One principal entered into a ten-year consulting agreement with the
Subsidiary, with annual compensation of $100,000 during the first five years of
the agreement and annual compensation of $50,000 during the second five years of
the agreement. The other principal entered into a five-year consulting agreement
with the Subsidiary, with annual compensation of $240,000, plus certain
benefits. These two individuals were also granted stock options on the Company's
stock with a fair value of $150,298. (See Note D) During 1997, the Company
discontinued the required payments under the above consulting agreements because
of its working capital deficiencies. Delinquent payments totaling $96,000 were
included in the accompanying 1997 balance sheet as accrued expenses.
On November 24, 1998, amendments to the consulting and noncompetition were
executed, and settlements reached requiring payments to both principals of all
amounts past due, based on the modified agreement. The revised agreement
requires annual compensation of $72,000 for the first five years and $48,600
annually during the second five years of the agreement for one principal, and
annual compensation of $120,000, plus certain benefits over a ten year period
for the other principal.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE D--STOCK OPTIONS
No options to purchase stock of the Company were granted or exercised during
1998. At December 31, 1997, options to purchase 975,000 shares for prices
ranging from $4.125 to $7.50 per share were outstanding. All of these options
were cancelled effective November 2, 1998.
On February 9, 1999, the Board of Directors rescinded the Company's Directors
Stock Option Plan, which was adopted in 1994, and the Company's Directors
Continuing Stock Option Plan, which was adopted in 1997. On the same date, the
Board of Directors adopted a new Directors and Officers Stock Option Plan and on
February 11, 1999 options were granted to each director to purchase 60,000
shares Common Stock for $1.125 per share, which was the last sales price of the
Common Stock in the over-the-counter market on February 10, 1999. In addition,
options to purchase 575,000 shares of Common Stock for $1.125 each were granted
to certain corporate officers and directors. The above options are exercisable,
in whole or in part, from time to time, anytime after August 26, 1999 and before
August 11, 2004.
Under a Stock Purchase Agreement, dated March 31, 1993 Florida Gaming granted
Freedom options to purchase 2,030,000 shares of Common Stock at an exercise
price of $1.25 per share, exercisable at any time prior to the fifth anniversary
of the closing.
Freedom exercised options to purchase 1,125,000 shares of the Company's common
stock in 1994 and 1997. Its remaining option to acquire 905,000 shares expired
on March 31, 1998.
Warrants for the purchase of 150,000 shares of the Company's common stock were
also issued during 1997 to an organization utilized by the Company to locate
capital funding sources to purchase its preferred stock. The exercise price is
110% of the quoted price of the Company's stock at date of grant or $4.18 per
share. These warrants are vested immediately and expire in five years. The
warrants had a fair value of $1.49 each at the date of issue or a total of
$223,222. This amount was charged to Other Expense in the accompanying 1997
Statement of Operations.
The fair value of the above warrants was determined using the Black-Scholes
option pricing model. The assumptions used during 1997 to value the Company's
stock options were as follows:
<TABLE>
<S> <C>
Risk-free rate of return 6.000%
Expected forfeitures None
Expected volatility 30.00%
Expected dividends None
</TABLE>
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE D--STOCK OPTIONS--CONTINUED
No compensation cost was recognized during 1997 for stock options issued to
employees and directors. There were no stock options granted in 1998. Had the
Company accounted for stock options issued during 1997 using the fair value
method (FASB 123), the Company's 1997 compensation expense would have been
increased by $908,011. Additionally, basic loss per share would have increased
by $(.18) in 1997. The fair value of stock options granted in connection with
the Company's acquisition of the Jai Alai facilities described in Note C was
$150,298. Such amount is included in the basis of the assets acquired and in
capital in excess of par value in the accompanying 1998 and 1997 balance sheets.
NOTE E--TAXES ON INCOME, HANDLE AND ADMISSIONS
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 Freedom's stock purchase discussed in Note D was considered a
change in ownership under the "deemed exercise rule" of IRC Section 382. As a
result, only the net operating losses attributable to the period after the
"change in ownership" (approximately $7,000,000) are not subject to the Section
382 limitation.
The Company has unused general business tax credits of approximately $137,000 to
offset any future tax liabilities of the Company. These credits expire at
various dates through the year 2001. Any deferred tax assets arising from
differences from taxable income and financial reporting income are deemed to be
offset by an allowance in an equal amount due to the uncertainty of future
taxable income.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida stipulating that jai alai permit holders incurring state taxes on handle
and admissions in an amount exceeding its operating earnings (before deduction
of certain expenses such as depreciation and interest) for the prior year are
entitled to credit such excess against pari-mutuel taxes due and payable. In
1997 Miami Jai Alai and Tampa Jai Alai incurred and had available 1998
pari-mutuel tax credits of $1,606,051 and $935,521, respectively. During 1998,
Miami utilized credits of $521,762 over two eligible months of operations. Tampa
Jai Alai, which discontinued live operations following its July 4th
performances, utilized pari-mutuel tax credits of $13,940. Miami will be
entitled to carry over the unused 1998 credits to 1999 and will have an
additional credit of $1,342,912 available for recovery, representing the full
amount of taxes incurred in 1998.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE F--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. The Company's costs for
matching employee contributions totalled $111,500 and $139,800 during 1998 and
1997, respectively.
NOTE G--RELATED PARTY TRANSACTIONS
Reference is made to Note I for details pertaining to the Company's credit
facility with Freedom Financial Corporation, a closely-held corporation owned
substantially by the Company's Chairman.
During 1997, the Company provided working capital advances to Freedom and made
payments to third parties on Freedom's behalf. These third party payments
comprised transfers totaling approximately $582,000 to Freedom's brokerage
margin account, which funds were used by Freedom to cover "margin calls" made by
the brokerage as the value of Freedom's collateral in the margin account
decreased in value. The collateral included Florida Gaming common stock acquired
by Freedom during 1997 pursuant to its exercise of options. The Company also
advanced approximately $118,000 directly to Freedom through this open account
during the year. Freedom made payments to the Company during 1997 totaling
$259,500 as a reimbursement of these advances and also incurred expenses on
behalf of the Company totaling approximately $207,500 which were likewise
credited to Freedom's open account. The remaining balance in the open account at
December 31, 1997 of $233,034 is included in the accompanying 1997 balance sheet
as a non-current advance to a related party. Freedom paid the receivable in its
entirety by the payment of cash and the return of $84,000 (84 shares) of the
Company's Series F Preferred Stock obtained by Freedom in connection with its
sale of real estate to the Company as described in Note M.
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom with the loan represented by a
promissory note (the "Company Note") bearing interest at the rate of 15% per
annum 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 is guaranteed by Centers and Tara with their guaranties secured
by a second lien on substantially all of their respective assets. On November
24, 1998, The Company borrowed $1,135,000 from Freedom pursuant to the above
arrangement.
Reference is made to Note D for information relating to Freedom's stock options
with respect to the Company's common stock and the exercise of a portion of
those options during 1997.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE G--RELATED PARTY TRANSACTIONS--CONTINUED
Additional information can be found in Note D pertaining to compensating stock
option arrangements between the Company and its Directors.
Reference is made to Note M for details of the Company's purchase of certain
real estate from 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
the years 1993, 1994 and 1995. 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 Financial Corporation in lieu of the salary. No
written employment or consulting agreement exists between the Company and
Freedom.
NOTE H--COMMITMENTS AND CONTINGENCIES
CASINO AMERICA: On October 4, 1994, the Company entered into a letter of intent
(the "Letter of Intent") with Casino America, Inc. ("Casino America") to form a
joint venture (the "Joint Venture") to build and operate a casino or a flea
market at its Ft. Pierce Fronton ("the Fronton"). Casino America owns and
operates located in Colorado, Florida, Louisiana and Mississippi. If the Joint
Venture is formed to build a flea market 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. Casino America will contribute up
to $2,500,000, as needed, to construct a 100,000 square foot indoor facility
suitable for a casino or flea market. If casino gaming is not permitted in
Florida by 2000, Casino America has a continuing option to convert the money
contributed to the Joint Venture to a promissory note from the Joint Venture
payable in equal payments over a ten year period with interest at 8% per annum.
If casino gaming is permitted at the Fronton by 2000, the value of the assets
contributed by the Company to the Joint Venture will be adjusted to increase the
Company's capital account up to $22,500,000. Casino America would fund its
capital account on an as needed basis up to $22,500,000. All profits and losses
of the Joint Venture will be allocated between the partners based upon capital
accounts.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
The Letter of Intent provides that Casino America will be the manager of the
casino and all casino-related improvements. The Company will manage the
operation of the jai-alai fronton, intertrack wagering and all other non-casino
related activities. Each corporation will receive a management fee based on
costs. The Letter of Intent provides that Casino America has the exclusive right
to enter into a Joint Venture with the Company for six years and Casino America
has a right of first refusal to enter into other potential gaming opportunities
in Florida with the Company for such period and during the term of the Joint
Venture. The formation of the Joint Venture is subject to certain conditions,
including the satisfactory completion of due diligence by Casino America, the
receipt of all required regulatory approvals, the approval of each partner's
board of directors, the execution of a definitive joint venture agreement, and
the approval of the Company's stockholders, if required by law. Either party may
terminate discussions in connection with the Joint Venture and neither party
shall have any liability to the other, except as otherwise specified in the
Letter of Intent.
Freedom Financial Corporation has informed the Company that Casino America has
purchased 22,500 shares of Freedom's 7% Series AA Mandatorily 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. Casino America 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 now owns directly 1,774,480
shares of the Company's 5,782,250 shares of issued and outstanding Common Stock.
(See Note D.)
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 $785,000 and $824,262, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1998, including those obligations assumed in connection with the Company's
acquisition of certain WJA assets (see Note C), are as follows:
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
<TABLE>
<CAPTION>
Minimum
Year Annual Rental
---- -------------
<S> <C> <C>
1999 $ 635,000
2000 410,000
2001 410,000
---------
$1,455,000
---------
---------
</TABLE>
STOCK APPRECIATION GUARANTEES: In connection with the purchase of certain real
estate described in Note J, the Company issued 47,336 shares of its $.10 par
value common stock having a quoted market value of $3.10 on the date of issue.
Certain relevant provisions of the real estate purchase agreement included the
Company's guarantee of the appreciation in value of such stock as follows:
- - If the seller held the stock for at least three years from the date of
closing, (the "$10.00 Guaranty Date") the market value of the stock at the
end of the three year period will be at least $10.00 per share.
- - For the purpose of the agreement, the price per share on the $10.00
Guaranty Date shall be the over the counter bid price, ("Market Value"). On
the $10.00 Guaranty Date, Seller shall request in writing to the Company to
reimburse Seller for the difference between the market value of the shares
and the guaranteed price. Seller shall remit with said request evidence
that Seller is still in ownership and possession of said stock. The Company
shall pay the difference to Seller within ninety (90) days from receipt of
Seller's request.
In addition to the Company's guarantee, Freedom Financial Corporation provided a
similar guarantee as a further inducement to the seller of the real estate.
Based on the closing price of the Company's common stock at the end of the three
year period in 1997 ($3.00), a payment of $284,016 was due under the guarantee.
This amount was included as an accrued expense in the accompanying 1997 balance
sheet. Of this amount, $217,000 was recorded as additional purchase price of the
subject real estate with the difference ($67,000) charged to interest expense
based on the time value of the money paid over the three years. During 1998, the
Company paid the seller $284,016 to fulfill its obligations under the stock
appreciation guarantee.
YEAR 2000: The Company's operations are dependent on its computerized Autotote
and accounting systems. Such systems are subject to the Year 2000 (Y2K)
millennium "bug". The Company believes its systems are or will be Y2K ready by
June, 1999.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
OTHER COMMITMENTS: Reference is made to Notes C and L for details of other
Company commitments.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and bonuses based on
parimutuel handle, certain cesta allowances and retirement benefits. The
agreement continues from year to year unless timely notice of termination is
given by either party to the agreement.
CONCENTRATION OF CREDIT: The Company maintains significant cash balances with
financial institutions in excess of the insurance provided by the Federal
Deposit Insurance Corporation (FDIC).
PAYROLL TAX PENALTY: Because of its working capital deficiencies in 1997 and
early1998, the Company was unable to remit its 1998 payroll tax withholdings on
a timely basis. At December 31, 1998, all payroll taxes due had been paid,
however, the delinquencies resulted in the assessment of penalties by the IRS
totaling approximately $360,000. The Company has appealed the penalties on the
basis of financial hardship and expects to negotiate a settlement with the IRS.
The Company has accrued a portion of this expense in the accompanying 1998
financial statements based on management's estimate of the amount it anticipates
paying as a result of the penalties.
LITIGATION: The Company is a defendant in certain other suits which are deemed
to be routine litigation 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.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE I--LONG-TERM DEBT
The Company's long-term debt comprised the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Mortgage note dated June 17, 1994 secured by real estate
located in St. Lucie County; payable in monthly installments
of $425 including interest at 8% per annum through June 17,
2004. $3,412 $19,194 $ 3,151 $ 22,605
Mortgage noted dated January 3, 1995 secured by real estate
located in St. Lucie county; payable in monthly installments
of $1,980 including interest at 9.5% per annum through
December 3, 1999 with a balloon payment of $226,774, plus
interest, due on January 3, 2000. 2,104 226,774 1,913 228,877
Mortgage note dated January 3, 1995 secured by real estate
located in St. Lucie county; payable in monthly installments
of $2,079 including interest at 9.5% per annum through
December 3, 1999 with a balloon payment of $238,113, plus
interest due on January 3, 2000. 2,208 238,114 2,009 240,321
Mortgage note dated January 31, 1995 secured by real estate
located in St. Lucie county; payable as follows: $2,655
monthly at 8% per annum through February 1, 1996; $4,548
monthly at 9% per annum from March 1, 1996 through February
1, 1998; $4,017 monthly at 9.5% or prime rate plus 2%
(whichever is greater) per annum from March 1, 1998 through
February 1, 2000; a balloon payment of approximately
$277,958, plus interest, due on February 1, 2000. 17,796 279,754 27,293 288,112
Senior non-negotiable promissory note payable to Millennium
Partners LP dated October 1, 1998; interest payments of
$33,333 on the first day of each month with final payment of
remaining principal and interest due on October 1, 2000.
Annual interest rate 20%. Each payment on note shall be
applied first to accrued but unpaid interest and then to
reduction of principal. Note issued in connection with the
Company's redemption of its Series G Preferred stock (See
Notes B and J). 0 2,000,000 0 0
</TABLE>
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE I--LONG-TERM DEBT--CONTINUED
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
A non-interest bearing note payable dated September 12, 1996
unsecured; payable in quarterly installments based on net
cash flow calculations computed by the note maker (Florida
Gaming Corporation) at the end of each quarter; note maker
has no obligation to pay principal under the note except to
the extent of an undivided fifty percent (50%) of all
collections in excess of $12,000,000 United States dollars
in respect of the WJA (World Jai Alai) notes 0 0 0 $1,000,000
Line of credit on the amount of $1,500,000 with Freedom
Financial Corporation dated November 24, 1998, secured by
2,000 shares of Tara Club Estates, Inc. and 20,000 shares of
Florida Gaming Centers Capital Stock (respectively, being
all of the issued and outstanding capital stock of said
corporations). Interest rate is 15% annually. Line of credit
matures upon demand but if no demand is made then note and
mortgages will be due in one year. $1,135,000 0 0 0
Mortgage note dated September 12, 1996 secured by real
estate located in Tampa, Ocala, Fort Pierce, and Miami,
Florida; also secured by security agreement on furniture,
fixtures, equipment, receivables and intangibles in Tampa,
Ocala, and Miami, Florida payable as follows: interest only
on the last day of January and February 1997 at prime rate
per annum; principal amount of $83,333.33 plus interest on
the last day of March 1997, April 1997, May 1997, June 1997,
July 1997, and August 1997 at prime rate per annum;
principal amount of $166,666.66 plus interest on last day of
September 1997 and thereafter on the last day of each month
until August 31, 1998 at prime rate per annum; a final
installment in the amount of all principal then outstanding
plus interest on September 12, 1998 at prime rate per annum.
(In default) 100,000 $2,702,011 $5,317,936 0
Note payable to Wheeler-Phoenix, Inc., assumed in connection
with the acquisition of assets described in Note C;
principal payable in 10 annual installments plus interest at
6%. 50,000 400,000 500,000 0
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE I--LONG-TERM DEBT--CONTINUED
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Note payable dated July 7, 1993 secured by investment real
estate in Walton County, Georgia; interest payable in
monthly installments at an adjusted monthly rate of prime
plus 1 point through September 23, 1998. 0 $837,500 $493,079 0
Mortgage note dated June 30, 1997 secured by second mortgage
in investment real estate in Walton County, Georgia; payable
on December 31, 1997; interest is payable at prime + .25% 0
0 500,000 0
----------------------------------------------------------
$1,310,520 $6,703,347 $6,845,381 $1,779,915
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
The approximate maturities of the Company's long-term debt for the five years
subsequent to December 31, 1998 are as follows: 1999--$1,310,520;
2000--$3,599,342; 2001--$354,002; 2002--$380,834; 2003--$244,205;
thereafter--$2,124,964.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the Circuit
Court of the 11th Circuit in Florida, Dade County, against Florida Gaming
Centers (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 judgement in the amount of $500,000, together with
prejudgment interest accrued up to the time of judgement, 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 anytime 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.
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE J--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Land (undeveloped) $ 1,617,495 $ 1,617,495
Land (improved) $ 2,565,930 $ 6,389,226
Buildings and improvements 8,109,491 11,313,654
Equipment furniture and fixtures 1,716,708 2,050,360
Vehicles 85,910 85,910
Less accumulated depreciation (1,711,622) (1,188,054)
---------- ----------
$12,383,912 $20,268,591
----------- -----------
----------- -----------
</TABLE>
The Company made five purchases of undeveloped land during 1994. The five
purchases comprised approximately 100 acres, all of which are adjacent to the
Ft. Pierce Jai Alai property. The amounts paid for this property totaled
$529,864 including debt assumptions of $190,000, cash payments of $185,000 and
the issuance of 47,336 shares of the Company's common stock. Reference is made
to Note H for information pertaining to guarantees of the value of such stock
and the deficiency payment made during 1998.
On September 4, 1998, the Company's Tampa Jai Alai facility was sold for
$8,300,000, pursuant to an agreement dated January 1998, between the Company and
a real estate development company based in Tampa, Florida. The sale did not
include the Company's gaming permit which remains available for future use in
Hillsborough County, Florida. The selling price for the facility was $8,300,000.
The Company also sold its North Miami Beach training facility for $487,500
during 1998. The combined gain on the sale of these two properties was
$1,055,912. Such amount is reflected as other income in the accompanying 1998
Statement of Operations.. The Company's costs associated with the closing of
Tampa Jai Alai operations including player and related costs are included in the
Company's operating expenses and are not reflected in the gain on the sale of
the Tampa real estate.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE J--PROPERTY, PLANT AND EQUIPMENT--CONTINUED
The proceeds of the sale were used as follows:
<TABLE>
<S> <C>
Bank of Oklahoma, 1st Mortgage Obligations $3,084,466
Delinquent 1996 and 1997 Real Estate Taxes 1,037,529
Delinquent Payroll Taxes 300,000
Brokerage Commissions and Other Expenses of Sale 355,883
Repurchase of Series "G" Convertible Preferred Stock 1,560,000
Repurchase of Series "B" Convertible Preferred Stock 128,000
Payoff of Unsecured Notes 160,000
Payoff of Mortgage on Ft. Pierce Property 280,000
Other Trade Payables 1,394,122
----------
$8,300,000
----------
----------
</TABLE>
The Company received an additional $125,000 for vacating the property by
November 1, 1998.
The Company's commercial property held for sale comprises the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Miami land $2,490,005 $2,490,005
Ft. Pierce land 1,834,516 1,834,516
Tara Club Estates 1,300,000 1,300,000
Other 676,617 676,617
---------- ----------
$6,301,138 $6,301,138
---------- ----------
---------- ----------
</TABLE>
Subsequent to December 31, 1998, the Company sold certain of its Miami
commercial property held for sale. The transaction is summarized as follows:
<TABLE>
<S> <C>
Sales Price $3,668,000
Expense of Sale (153,293)
----------
Proceeds 3,514,707
Basis (2,490,005)
----------
Gain on Sale $1,024,702
----------
----------
</TABLE>
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE K--SUMMER JAI ALAI
SUMMER JAI ALAI: The Company is a 21% partner in "The Summer Jai Alai
Partnership" or "SJA" and operates certain live Jai Alai dates annually on
behalf of the partnership. The partnership was formed in 1980 pursuant to an
Operator's Agreement and Fronton Lease. 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 and as a result,
the Company filed suit against the partnership to collect on the 1996 losses on
July 20, 1997. This lawsuit was amended on February 20, 1998 seeking damages
from the partners for breaching the Operator's Agreement and Fronton Lease.
Because the 1997 SJA summer season resulted in an additional loss, the Company
amended its complaint to include its partners' share of that loss. At December
31, 1997, the Company had an account receivable from SJA of $468,372.
On June 11, 1998 Florida Gaming Centers, Inc., as a resolution to the dispute
and resulting litigation, entered into an agreement with its Summer Jai Alai
partners (Hollywood Greyhound, Flagler Greyhound and Biscayne Kennel Club or
their successors). This agreement set forth the liabilities, responsibilities
and consideration to continue the agreement and resolve the dispute as follows:
- - Florida Gaming acquired the right to operate Summer Jai Alai from May 1,
1998 through November 28, 1998 and the option to run during May and June of
1999 at its own risk and for its own benefit. Florida Gaming agreed to hold
the Summer partners harmless for any and all losses or liabilities that may
be incurred.
- - If net profits from operating the 1998 Summer Season exceeded $250,000; the
Summer partners would be paid a total of $50,000 by Florida Gaming.
- - All amounts owed to the State of Florida by Summer Jai Alai were to be
paid.
- - All ITW amounts due to Flagler Greyhound were to be paid before September
30, 1998.
- - All claims and counterclaims of Florida Gaming and the Summer Partners
were dismissed with the exception of the broadcast and reception of the
respective ITW signals, which were to be resolved or litigated at a later
date.
- - The parties agreed to meet on or before December 31, 1998 to determine the
operational dates or parameters for the 1999 Summer Season.
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE K--SUMMER JAI ALAI--CONTINUED
Pursuant to this final provision requiring the partners to determine the
parameters for the 1999 Summer Season, the partners, as a continuation of and
superseding any other open issues of the June 11, 1998 agreement, agreed as
follows:
- - Florida Gaming maintains the right to operate Summer Jai Alai from May 1,
1999 through November 30, 1999 and May and June of 2000 at its own risk and
for its own benefit. Florida Gaming agrees to hold its Summer partners
harmless for any and all losses or liabilities that may be incurred.
- - Florida Gaming will pay each of Hollywood, Flagler and Biscayne the sum of
$65,000 in three installments of $21,667, with the first payment due upon
execution of the agreement and subsequent payments on June 1, 1999 and July
20, 1999.
The Company may utilize House Bill 3663 tax credits allocable to the Summer Jai
Alai permit in connection with its operation of the Summer dates. Management
expects the 1999-2000 Summer operation to result in a profit to the Company
after payment of the required amounts to its partners.
NOTE L--GAMING VENTURE INVESTMENT
During 1995, the Company entered into an arrangement with a Native American
Tribe to explore possible opportunities for gaming ventures. The arrangement
generally provided the Company the right to receive compensation from the
Tribe's share of the potential gaming profits for supplying the management
services and/or financing necessary for the construction and operation of the
gaming facilities. The Company's commitment to provide construction financing
and working capital was contingent upon the Tribes' procurement of judicial or
regulatory approval to operate a gaming venture. Recovery of these funds under
the "loan" agreement was contingent upon such agreement becoming effective after
the Tribe receives judicial approval to establish the intended gaming operation.
The Company previously charged off its investment in these arrangements
($356,193) due to the uncertainty associated with the completion of the
contemplated transactions and the expiration of the original financing agreement
on June 30, 1997. During 1998, the Company entered into an amended financing
agreement. Company management has been informed that the Tribe has now received
the necessary regulatory and judicial approval to operate the contemplated
gaming ventures. Accordingly, management intends to pursue its rights and
opportunities under the amended agreement.
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE M--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). The assets
comprise certain improved properties and a residential real estate development
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 $6,373,265 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 $1,081,102 of first mortgage promissory notes
to certain lenders by the properties purchased, and (iii) the Company canceled
$3,208,163 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 $6,373,265 comprising the
above indebtedness cancellation, debt assumption and preferred stock. In
accordance with generally accepted accounting principles, the purchase price was
allocated to the assets acquired based on their fair value at the date of
acquisition. Management estimated fair value using available appraisals or other
cost information with respect to the individual assets.
The proforma results of operations of Florida Gaming combined with the Tara
operating entity for the year ended December 31, 1997 are as follows:
<TABLE>
<S> <C>
Proforma revenue $ 21,854,906
Proforma net loss $ (4,136,701)
Proforma basic loss per share $ (.81)
</TABLE>
The Company's real estate development activities comprises a separate segment of
its operations. (See Note O)
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE N--GOING CONCERN
The Company incurred an operating loss of $4,094,243 for the year ended December
31, 1997. During 1996 the Company also invested $18,290,000 in land, buildings
and improvements in Tampa, Ocala and Miami, Florida in connection with its Jai
Alai operations and in 1997, the Company invested $6,451,444 in partially
developed residential and commercial real estate in Walton County, Georgia. The
acquisition of the Tampa, Ocala and Miami facilities resulted from the Company's
acceptance of these properties in lieu of foreclosure of certain notes payable
issued by the owner of these facilities. Reference is made to Note C for further
information pertaining to this transaction. The Walton County real estate was
acquired from Freedom Financial Corporation, a related party, in a transaction
which also included the cancellation of notes payable issued by Freedom to the
Company. Reference is made to Note M for further information pertaining to this
transaction. During 1997, the Company also expended $2,390,000 to remodel and
convert parts of its Miami and Tampa Jai Alai facilities to accommodate "Card
Rooms."
In addition to the Company's significant investment in real estate and
non-earning assets, the Company advanced funds to Freedom during 1997 totaling
$1,524,989. This receivable was paid in full in connection with the Company's
acquisition of the Freedom's Georgia property (See Note M). The Company also
continued to fund the operating losses of the "Summer Jai Alai" partnership
during this period resulting in an account receivable from the partnership
totaling $468,372 at December 31, 1997. (See Note K.)
The Company's working capital position deteriorated significantly during 1997.
This deterioration was caused by its losses from operations, its expenditures to
fund the "Card Room" remodeling and operating costs, the cancellation of current
notes receivable from Freedom in connection with the Company's acquisition of
the Georgia property and the maturity or acceleration of certain of its notes
payable and other contractual obligations more fully described in Notes C, H and
I. Its working capital deficit grew from $2,551,000 at December 31, 1996 to
$13,262,000 at December 31, 1997. This working capital deficit prevented the
Company from meeting its obligations to remit payroll taxes withheld from
employee pay, to pay property taxes on its real estate for calendar years 1996
and 1997, and to remit to the State of Florida unclaimed winnings which were to
be escheated in August, 1997.
During 1998, the Company's working capital position improved significantly. For
example, the working capital deficit decreased from $13,262,000 at December 31,
1997 to $5,616,000 at December 31, 1998. The primary source of the improvement
was the Company's sale of its Tampa jai alai facilities described in Note J. The
cash generated from this transaction allowed the Company to cure its defaults
under its notes payable, retire past due payroll and property taxes and
otherwise reduce its interest bearing indebtedness. The Company also benefited
significantly from State tax legislation which took effect on July 1, 1998.
(See Note E)
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
NOTE O--SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," as
required for this annual report. Statement 131 requires companies to report
information about the revenues derived from the enterprise's segments, about the
geographical divisions in which the enterprise earns revenues and holds assets,
and about major customers.
The Company has defined its segments into two main areas. Florida Gaming Centers
(Centers) and Tara Club Estates (Tara). These segments are organized under the
supervision of the Florida Gaming executive management team and are evaluated
based on the following information presented: Revenues from gaming operations,
revenues from lot sales and operating profit contribution to the total
corporation. All inter-segment transactions are eliminated to arrive at the
total corporation revenue and operating profit. All income and expense items
below operating profit are not allocated to the segments and are not disclosed.
The Florida Gaming Centers segment operates the Corporation's jai alai centers
in Miami, Ocala and Fort Pierce, Florida. Centers also operates the Company's
inter-track wagering operation in Florida. Tara Club Estates is a real estate
development in Loganville, Georgia. Tara develops residential building lots for
sales to builders and individuals. As permitted under Statement 131, certain
information not routinely used in the management of these segments, information
not allocated back to the segments or information that is impractical to report
is not shown. Items not disclosed are as follows: Interest income and expense,
Amortization Expense, Income Tax Expense or Benefit, Extraordinary Items,
Significant non-cash items and Long-lived assets.
Centers' gaming operations comprise 97% of the Company's revenues. Neither
Centers nor Tara has any customers that individually represent a significant
portion of their business.
<TABLE>
<CAPTION>
CENTERS TARA
---------------------- ----------------------
<S> <C> <C>
1998 SEGMENT INFORMATION BY GROUP
Customer Revenues $17,564,169 $557,900
Operating Profit (Loss) $ (3,227,191) $263,481
1997 SEGMENT INFORMATION BY GROUP
Customer Revenues $21,575,906 -0-
Operating Profit (Loss) $ (3,862,996) -0-
</TABLE>
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1998 AND 1997
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
72
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the
Company's executive officers and directors as of March 26, 1999:
<TABLE>
<CAPTION>
Director
or
Executive
Officer
Name Age Position With the Company Since
- ---- --- ------------------------- ------
<S> <C> <C> <C>
W. Bennett Collett 66 Chief Executive Officer, 1993
Director and Chairman
Robert L. Hurd 59 President and Director 1993
W. Bennett Collett, 43 Executive Vice President, 1993
Jr. Secretary and Director
Timothy L. Hensley 43 Director 1997
George W. Galloway, 65 Director 1994
Jr.
Roland M. Howell 83 Director 1995
</TABLE>
W. BENNETT COLLETT has served as Chairman of the Board, Chief
Executive Officer and a director of Freedom Financial Corporation ("Freedom")
since its formation in 1985. Freedom was a bank holding company until January
1988 at which point it sold its banking subsidiaries. Mr. Collett has served as
President and as a director of Freedom Holding, Inc. ("Holding") since its
formation in December 1992. Holding's sole business currently is to hold shares
of Freedom. Mr. Collett has been involved in the management of banking and
financial service companies for over 23 years having been a principal of ten
commercial banks. For 14 years Mr. Collett was a principal shareholder and chief
executive officer of various banks and finance companies in Alabama, Arkansas,
Georgia, Indiana and Missouri ranging in asset size from $1,000,000 to
$250,000,000.
ROBERT L. HURD has served as President and a director of Freedom
since July 1, 1991 and as President and as a director of Holding since April 20,
1998. Mr. Hurd has served as President and Chairman of General Health Care
Corporation, a New Jersey based company in the health care apparel business,
since February 13,
73
<PAGE>
1995. From 1987 until 1991, Mr. Hurd was President and Chairman of Pacific Press
& Shear Inc. a hydraulic press and shear manufacturer.
W. BENNETT COLLETT JR. served as President of Freedom from 1988 to
1989. Since August 1989, Mr. Collett has served Freedom as Executive Vice
President. He has been a director of Freedom since its formation in 1985 and a
director of Holding since April 20, 1998. He presently serves as Secretary and
Treasurer of Holding. Mr. Collett is responsible for supervision of the
Company's gaming operations (live jai-alai performances and inter track
wagering). Mr. Collett was appointed to the Company's Board of Directors on
August 9 1994. W. Bennett Collett Jr. is the son of W. Bennett Collett.
TIMOTHY L. HENSLEY served Freedom from 1988 to June 1998 in various
capacities, including President, Executive Vice President, Treasurer and a
director. Mr. Hensley was appointed to the Company's Board of Directors on
February 27, 1997. Mr. Hensley served as Executive Vice President, Treasurer and
Chief Financial Officer of the Company from 1993 until he resigned in June 1998
to accept a position as chief financial officer of Park Trust Development, a
residential and commercial real estate development company located in
Murfreesboro, Tennessee.
GEORGE W. GALLOWAY JR. has been a self-employed physician since 1958
and has served as the medical director of emergency services at Kennestone
Hospital in Marietta, Georgia since 1983.
ROLAND M. HOWELL served in hotel management for over thirty years and
was an owner and operator of hotels in Florida for approximately twenty years
before his retirement in 1969. He is currently a private investor with
investments primarily in municipal bonds, stocks, and real estate.
COMPLIANCE WITH SECTION L6(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10 per
Cent of the Company's Common stock to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of common stock. Officers, directors and greater than 10 percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports and certain representations furnished to the Company, during the
fiscal year ended December 31, 1998, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were
74
<PAGE>
satisfied.
ITEM 10. EXECUTIVE COMPENSATION
CASH COMPENSATION.
The following table sets forth all cash compensation paid by the
Company for the fiscal years ended December 31, 1998, 1997, and 1996 to W.
Bennett Collett, the Chief Executive Officer of the Company and to the Company's
other executive officers whose total annual compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation
Name and Principal Fiscal Options/ All Other
Position Year Salary Sars Compensation
<S> <C> <C> <C> <C>
W. Bennett Collett 1998 $ * -0- -0-
Chairman of the 1997 237,000 165,000 -0-
Board and Chief 1996 390,000 -0- -0-
Executive Officer
Robert L. Hurd 1998 $ ** -0- -0-
President and 1997 84,876 40,000 -0-
Director 1996 108,000 -0- -0-
W. B. Collett, Jr. 1998 $154,500 -0- -0-
Executive Vice 1997 165,500 40,000 -0-
President and 1996 97,000 100,000 -0-
Director
</TABLE>
* During the first eight months of 1997, Mr. Collett received monthly salary
payments totaling $237,000. In September, 1997, the Company discontinued the
salary payments to Mr. Collett and began paying $30,000 per month to Freedom
Financial Corporation in lieu of paying a salary to Mr. Collett. The payments to
Freedom Financial Corporation totaled $120,000 in 1997 and $360,000 in 1998. Mr.
Collett is Chairman of the Board and Chief Executive Officer of Freedom
Financial Corporation. There is no written employment or consulting agreement
between the Company and Freedom Financial Corporation.
** During the first ten months of 1997, Mr. Hurd received monthly salary
payments totaling $84,876. In November, 1997, the Company discontinued salary
payments to Mr. Hurd and began paying an average of $5,500 per month to Freedom
Financial Corporation in lieu of paying a salary to Mr. Hurd. The payments to
Freedom Financial Corporation totaled $17,500 in 1997 and $66,000 in 1998. Mr.
Hurd is President of Freedom Financial Corporation. There is
75
<PAGE>
no written employment or consulting agreement between the Company and Freedom
Financial Corporation.
DIRECTORS COMPENSATION.
The Company currently pays its non-management directors, Timothy L.
Hensley, Dr. George W. Galloway, Jr., and Roland M. Howell a $500 monthly fee.
W. Bennett Collett, W. B. Collett, Jr., and Robert L. Hurd receive no directors
fees.
STOCK OPTIONS
No options to purchase stock of the Company were granted or exercised
during 1998. At December 31, 1997, options granted to directors and executive
officers to purchase 975,000 shares for prices ranging from $4.125 to $7.50 per
share were outstanding, including options granted to W. Bennett Collett, W. B.
Collett, Jr. and Robert L. Hurd to purchase 490,000, 215,000 and 65,000 shares,
respectively. All of the options were canceled effective November 2, 1998.
On February 9, 1999, the Board of Directors rescinded the Company's
Directors Stock Option Plan, which was adopted in 1994, and the Company's
Directors Continuing Stock Option Plan, which was adopted in 1997. On the same
date, the Board of Directors adopted a new Directors and Officers Stock Option
Plan. On February 11, 1999 options were granted to each director, including W.
Bennett Collett, W. B. Collett, Jr. and Robert L. Hurd, to purchase 60,000
shares Common Stock for $1.125 per share, which was the last sales price of the
Common Stock in the over-the-counter market on February 10, 1999. Options to
purchase shares of Common Stock for $1.125 each were also granted to the
following senior officers:
<TABLE>
<CAPTION>
NAME: NUMBER OF SHARES:
<S> <C>
W. Bennett Collett
Chairman of the Board and
Chief Executive Officer 400,000
Robert L. Hurd
President 25,000
W. B. Collett, Jr.
Executive Vice President 150,000
</TABLE>
The above options are exercisable, in whole or in part, from time to
time, anytime after August 26, 1999 and before August 11, 2004.
76
<PAGE>
New Options were granted to purchase stock at the market price
prevailing on the date prior to the date of grant because the old options, which
were cancelled, were significantly out of the money and did not provide an
incentive for the directors and officers to strive to contribute to the success
of the Company.
INDEMNIFICATION
Under Section 145 of the Delaware General Corporation Law ("DGCL"),
the Company has the power to indemnify directors and officers under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorney's fees, actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative, or investigative, to which any of them is a party by reason of
his being a director or officer of the Company if it is determined that he acted
in accordance with the applicable standard of conduct set forth in such
statutory provisions. The Company's Bylaws provide that the Company shall
indemnify each person who may be indemnified pursuant to Section 145, as amended
from time to time (or any successor provision thereto), to the fullest extent
permitted by Section 145. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the March
26, 1999 concerning each stockholder known to the Company to own beneficially
more than five percent of the outstanding Common Stock of the Company and
information regarding beneficial ownership of Common Stock, the Class B Common
Stock of Freedom and the Common Stock of Freedom Holding by each director and
executive officer, and all directors and executive officers as a group. Of the
1,774,480 shares of the Company's Common Stock currently held of record by
Freedom, 1,600,000 shares have been pledged by Freedom to two banks to secure
lines of credit totaling approximately $2,000,000. Freedom and Holding each may
be deemed to be a "parent" of the Company as such term is defined in the rules
promulgated under the Securities Exchange Act of 1934. Freedom Holding's sole
business is to hold shares of Freedom.
77
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY FREEDOM HOLDING
- -------------------------------------------------------------------------------------------------------------------------------
Directors Number Percent Number Percent Number Percent
And Of Of Of Of Of Of
Executive Officers Shares Class Shares Class (3) Shares Class (4)
(1) (2) (1) (1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W.B. Collett 2,071,149(5) 34.1% 1,109,011(6 ) 95.0% 412.1 74.3%
- -------------------------------------------------------------------------------------------------------------------------------
Robert L Hurd 1,000(7) * 54.3(8) 9.8%
- -------------------------------------------------------------------------------------------------------------------------------
W.B. Collett,
Jr --- --- --- --- 87.9 15.9%
- -------------------------------------------------------------------------------------------------------------------------------
Timothy L. Hensley --- --- --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------------------
Roland M.
Howell 686,169(9) 11.3% --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------------------
George W.
Galloway, Jr --- --- --- --- --- ---
- -------------------------------------------------------------------------------------------------------------------------------
All current
directors and
Executive officers as a
group(6 persons)............... 2,758,318(10) 45.4% 1,109,011 95.0% 554.30 100%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Number Percent Number Percent Number Percent
5% Beneficial Of Of Of Of of Of
Owners Shares Class Shares Class (3) Shares Class (4)
(1) (2) (1) (1)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Freedom Financial
Corporation
(11) 2,071,149(5) 34.1% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
BOK DPC Asset Holding
Corporation
(13) 703,297 12.2% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Roland M. and
Dortohy V.
Howell(13) 686,169 11.3% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Casino America,Inc.
(15) 369,426(12) 6.4% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Less than 1%.
(1) Based upon information furnished to the Company by the named person, and
information contained in filings with the Securities and Exchange Commission
(the "Commission"). Under the rules of the Commission, a person is deemed to
beneficially own shares over which the person has or shares voting or investment
power or which
78
<PAGE>
the person has the right to acquire beneficial ownership within 60 days. Unless
otherwise indicated, the named persons have sole voting and investment power
with respect to shares shown by them.
(2) Based 5,782,250 shares outstanding as of March 31, 1999. Shares of Common
Stock subject to options exercisable or preferred stock convertible within 60
days are deemed outstanding for computing the percentage of class of the person
holding such options or preferred stock, but are not deemed outstanding for
computing the percentage of class for any other person.
(3) Based on 1,167,943 shares outstanding as of the Record Date. Class B Common
Stock is the only class of Freedom's capital stock issued and outstanding.
(4) Based on 554.3 shares outstanding on the Record Date.
(5) Includes 2,071,149 shares beneficially owned by Freedom, which includes
296,669 shares into which 1,000 shares of the Company's Series F Preferred Stock
owned by Freedom are convertible. Mr. Collett may be deemed to beneficially own
the shares held by Freedom, although he disclaims beneficial ownership of such
shares.
(6) Includes 1,109,011 shares owned by Holding. Mr. Collett may be deemed to
beneficially own the shares held by Holding, although he disclaims beneficial
ownership of such shares.
(7) Includes 1,000 shares owned by the Hurd Family Partnership, L.P., of which
Mr. Hurd is general partner.
(8) Includes 54.3 shares owned by the Hurd Family Partnership, L.P., of which
Mr. Hurd is general partner.
(9) Includes 296,669 shares into which 1,000 shares of the Company's Series F
Preferred Stock owned jointly by Mr. and Mrs. Howell are convertible. Of the
686,169 shares, Mr. and Mrs. Howell own 531,169 shares as joint tenants and
share voting and investment power, Mr. Howell owns 10,000 shares individually
and retains sole voting and investment power with respect to these shares, and
Mrs. Howell owns 145,000 shares individually and retains sole voting and
investment power with respect to these shares.
(10) Includes 593,338 shares which may be acquired by all directors and
executive officers as a group upon conversion of 2,000 shares of the Company's
Series F Preferred Stock.
(11) See Note (5). The address of Freedom Financial Corporation and Freedom
Holding, Inc. is 2669 Charlestown Road, Suite D, New Albany, Indiana 47150. The
business address of W. B. Collett is 1750 South Kings Highway. Fort Pierce,
Florida 34945-3099.
(12) Casino America, Inc. owns 27,707 shares of Freedom's 7%
79
<PAGE>
Series AA Mandatorily Redeemable Preferred Stock. (the "Freedom Preferred
Stock"). Until October 4, 1999, the Freedom Preferred Stock is convertible into
184,713 shares of the Company's Common Stock owned by Freedom if at the time of
conversion Florida law permits casino style gaming in Florida and 369,426 shares
if at the time of conversion Florida law does not permit casino style gaming in
Florida.
(13) BOK DPC Asset Holding Corporation's address is Bank of Oklahoma Tower, P.O.
Box 2300, Tulsa Oklahoma 74192
(14) Roland M. and Dorothy V. Howell's address is Plaza Venetia, Suite 22 A-B,
555 N.E. 15th Street, Miami, Florida 33132.
(15) Casino America Inc.'s address is 711 Washington Loop, Biloxi, Mississippi
39530.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Freedom and Freedom Holding may each be deemed to be a "parent" of
the Company, as such term is defined in the rules promulgated under the Exchange
Act, by virtue of Freedom's beneficial ownership of 34.1% of the Common Stock of
the Company and Freedom Holding's beneficial ownership of 95% of the common
stock of Freedom. See Item 11 "Security Ownership of Certain Beneficial Owners
and Management".
Pursuant to an Asset Purchase Agreement dated as of September 24,
1997, the Company purchased from Interstate Capital Corporation ("Interstate")
23 acres of partially improved commercial property and a residential real
estate development called Tara Club Estates (collectively, the "Properties"),
all of which are situated in Loganville, Walton County, Georgia. Interstate is a
wholly owned subsidiary of Freedom. As consideration for the purchase, the
Company paid Interstate the sum of $6,373,265, payable as follows: (i) the
Company's assumption of $1,081,102 of first mortgage promissory notes to certain
lenders secured by the Properties, (ii) the Company's issuance of 2,084 shares
of Series F 8% Convertible Preferred Stock at a stated value of $1,000 per share
(convertible on the basis of 296.6689 shares of the Company's common stock for
each $1,000 of stated value of the Preferred Stock), and (iii) the cancellation
of $3,208,163 owed by Freedom to the Company under a Credit Line Agreement and
otherwise. The transaction was approved by a Committee of the Board of Directors
of the Company who did not have a direct financial interest in the transaction
after receiving a fairness opinion from an independent investment banker.
In addition to the loans made to Freedom under the Credit Line
Agreement, 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 joint margin
account of the Company and Freedom,
80
<PAGE>
which funds were used 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 included the Company's common stock acquired by Freedom during
1997 pursuant to its exercise of stock options on the Company's common stock.
The Company also advanced approximately $118,000 directly to Freedom through
this open account during the year. Freedom made payments to the Company
during 1997 totaling $259,500 as a reimbursement of these advances. Freedom
had also incurred and paid expenses on behalf of the Company totaling
approximately $207,500, which were credited to Freedom's open account. On
June 22, 1998, the Company repurchased 84 shares of its $1,000 par value
Series F Preferred Stock from Interstate for $79,800 and Freedom paid in full
the remaining balance of $233,034, plus interest at 2% above the prime rate.
On July 10, 1997, the Company issued to an unrelated party a
$1,200,000 5% Cumulative Convertible Debenture due December 31, 1998 (the
"Debenture"). The Debenture provided its holder with certain demand rights
after December 31, 1997 to redeem part of the Debenture under certain
circumstances (the "Demand Rights"). Freedom guaranteed the Demand Rights for
the Company by pledging 300,000 shares of the Company's Common Stock owned by
Freedom pursuant to a Guaranty and Stock Pledge Agreement executed by
Freedom. The Company completed its redemption of the Debenture on December 5,
1997 and the common stock of the Company, which had been pledged by Freedom,
was returned to Freedom.
Pursuant to a Stock Purchase Agreement, on March 31, 1993, the
Company issued an aggregate of 699,480 shares of Common Stock and options for
1,630,000 shares of Common Stock to Freedom at an exercise price of $1.25 per
share. In 1994, Freedom exercised options to purchase 300,000 shares of Common
Stock. In 1997, Freedom exercised options to purchase 425,000 shares of Common
Stock. Freedom used its working capital to effect these purchases. Options for
the remaining 905,000 shares of Common Stock expired on March 31, 1998.
During the first eight months of 1997, W. Bennett Collett,
Chairman of the Board and Chief Executive Officer of the Company, received
monthly salary payments totaling $237,000. In September, 1997, the Company
discontinued the salary payments to Mr. Collett and began paying $30,000 per
month to Freedom in lieu of paying a salary to Mr. Collett. During the first
ten months of 1997, Robert L. Hurd, President of the Company, received
monthly salary payments totaling $84,876. In November, 1997, the Company
discontinued salary payments to Mr. Hurd and began paying an average of
$5,500 per month to Freedom Financial Corporation in lieu of paying a salary
to Mr. Hurd. Mr. Collett and Mr. Hurd are Chairman of the Board and Chief
Executive Officer and President, respectively, of Freedom. There is no
written employment or consulting agreement between the Company and Freedom
Financial Corporation.
On November 10, 1998, the Board of Directors of the Company
authorized the Company to borrow up to $1,500,000 from Freedom with the loan to
be represented by a promissory note (the "Company Note") bearing interest at the
rate of 15% per annum secured by a
81
<PAGE>
first lien on the shares of the Company's wholly-owned subsidiaries, Florida
Gaming Centers, Inc. ("Gaming 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 Gaming 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. Should Freedom make a loan at a commercial bank, or
from other sources (the "Freedom Note") the Freedom Note will bear interest
at the rate of 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 the 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 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.
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) LIST OF EXHIBITS FILED.
3.1 Restated Certificate of Incorporation is incorporated
by reference to Exhibit 3.1 of Form SB-2 Registration
Statement No. 33-79882.
3.2 Certificate of Designations for Series B Preferred
Stock is incorporated by reference to Exhibit 3.3 of
Form S-3 Registration Statement No. 33-99380.
3.3. Certificate of Amendment to Certificates of
Designations of Series B Preferred Stock and Series 9% AA Preferred
Stock is incorporated by reference to Exhibit 3.3 of Form S-3
Registration Statement 333- 10535.
3.5 Bylaws as amended through December 31, 1998 are
attached hereto.
4.1 Restated Certificate of Incorporation is incorporated
by reference to Exhibit 3.1 of Form SB-2 Registration
Statement No. 33-79882.
4.2 Certificate of Designations of Series C 8% Cumulative
Convertible Preferred Stock is incorporated by
reference to Exhibits 3.1 and 4.1 Current Report on
Form 8-K dated December 13, 1996.
4.3 Form of Regulation S Subscription Agreement is
incorporated by reference to Exhibit 4.2 Current
Report on Form 8-K dated December 13, 1996.
4.4 Certificate of Designations of Series E 8%
82
<PAGE>
Cumulative Convertible Preferred Stock is
incorporated by reference to Exhibits 3.1 and 4.1
Current Report on Form 8-K dated April 4, 1997.
4.5 Certificate of Designations of Series F 8% Cumulative
Convertible Preferred Stock is incorporated by
reference to Exhibits 3.1 and 4.1 Current Report on
Form 8-K dated November 26, 1997.
4.6 Certificate of Designations of Series G 8% Cumulative
and Convertible Preferred Stock is incorporated by
reference to Exhibits 3.2 and 4.2 Current Report on
Form 8-K dated November 26, 1997.
4.7 Form of Series G Convertible Preferred Stock Purchase
Agreement is incorporated by reference to Exhibit 4.3
Current Report on Form 8-K dated November 26, 1997.
10.1 Stock Purchase Agreement dated July 26, 1991, between
the Registrant and Bristol Holdings, Inc. is
incorporated by reference to Current Report on Form
8-K dated July 26, 1991.
10.2 Stock Purchase Agreement dated as of March 29, 1993,
between Freedom Financial Corporation and the
Registrant is incorporated by reference to Current
Report on Form 8-K dated March 31, 1993.
10.3 Term Note for $1,000,000 executed by the Registrant
in favor of WJA Realty Limited Partnership dated
February 1, 1994 is incorporated by reference to
Exhibit 10.3 of Form SB-2 Registration Statement No.
33-79882.
10.4 Nonqualified Stock Option Plan dated April 21, 1994
is incorporated by reference to Exhibit 10.4 of Form
SB-2 Registration Statement No. 33-79882.
10.5 Totalizator Services Agreement dated September 11,
1991, between Autotote Limited and the Registrant is
incorporated by reference to Exhibit 10.5 of Form
SB-2 Registration Statement No. 33-79882.
10.6 Indemnification Agreement dated February 23, 1993,
between Ronald P. Perella and the Registrant is
incorporated by reference to Exhibit 10.6 of Form
SB-2 Registration Statement No. 33-79882.
10.8 Letter of Intent dated October 4, 1994, between the
Registrant and Casino America, Inc., and acknowledged
by Freedom Financial Corporation is incorporated by
reference to the Current Report on Form 8-K dated
October 4, 1994 [File No. 0-9099].
83
<PAGE>
10.11 Rincon Loan Agreement dated September 11, 1995 is
incorporated by reference to Exhibit 10.1 to the Form
8-K Current Report of the Registrant dated September
15, 1995.
10.12 Amendment to Rincon Loan Agreement dated November 1,
1995 is incorporated by reference to Exhibit 10.11 of
Form SB-2 Registration Statement No. 33-79882.
10.13 Copies of mortgages and deeds are incorporated by
reference to Exhibit 10.12 of Form SB-2 Registration
Statement No. 33-79882.
10.15 Assets Purchase Agreement dated as of November 20,
1996 between the Registrant, Florida Gaming Centers,
Inc., and WJA Realty Limited Partnership (World
Jai-Alai), is incorporated by reference to Exhibit
10.1 of the Registrant's Current Report on Form 8-K
dated November 25, 1996.
10.16 Totalisator Services Agreement dated November 11,
1993 between Autotote Systems, Inc. and WJA Realty
Limited Partnership, D.B.A. Miami Jai Alai is
incorporated by reference to Exhibit 10.1 to the Form
8-K Current Report of the Registrant dated December
31, 1996, as amended.
10.17 Consulting and Noncompetition Agreement dated
December 31, 1996 by and among Florida Gaming
Centers, Inc. and Richard P. Donovan is incorporated
by reference to Exhibit 10.2 to the Form 8-K Current
Report of the Registrant dated December 31, 1996, as
amended.
10.18 Consulting and Noncompetition Agreement dated
December 31, 1996 by and among Florida Gaming
Centers, and Roger M. Wheeler, Jr. is incorporated by
reference to Exhibit 10.3 to the Form 8-K Current
Report of the Registrant dated December 31, 1996, as
amended.
10.19 Credit Line Agreement dated October 1, 1996 from
Freedom Financial Corporation to Florida Gaming
Corporation is incorporated by reference to Exhibit
10.19 to the Form 10-KSB of the Registrant for the
year ended December 31, 1996.
10.20 Mortgage dated December 31, 1996 by Florida Gaming
Corporation and Florida Gaming Centers, Inc. to Bank
of Oklahoma, N.A. is incorporated by reference to
Exhibit 10.5 to the Form 8-K Current Report of the
Registrant dated December 31, 1996, as amended.
84
<PAGE>
10.21 Promissory Note dated September 12, 1996 from Florida
Gaming Corporation to Bank of Oklahoma, N.A. is
incorporated by reference to Exhibit 10.6 to the Form
8-K Current Report of the Registrant dated December
31, 1996, as amended.
10.22 Promissory Note dated October 1, 1990 from WJA Realty
Limited Partnership to Wheeler-Phoenix, Inc. is
incorporated by reference to Exhibit 10.7 to the Form
8-K Current Report of the Registrant dated December
31, 1996, as amended.
10.23 Deed to Secure Debt by Indenture dated March 19, 1997
between Freedom Financial Corporation and Florida
Gaming Corporation is incorporated by reference to
Exhibit 10.X to the Form 10-KSB of the Registrant for
the year ended December 31, 1996.
10.24 Asset Purchase Agreement dated as of September 24,
1997, among the Registrant, Freedom Financial
Corporation and Interstate Capital Corporation is
incorporated by reference to Exhibit 2.1 to Form 8-K
dated September 26, 1997.
10.25 Addendum dated as of October 9, 1997, to Asset
Purchase Agreement dated as of September 24, 1997,
among the Registrant, Freedom Financial Corporation
and Interstate Capital Corporation is incorporated by
reference to Exhibit 2.2 to Form 8-K dated October
10, 1997.
10.26 Second Addendum dated as of October 31, 1997, to
Asset Purchase Agreement dated as of September 24,
1997, among the Registrant, Freedom Financial
Corporation and Interstate Capital Corporation is
incorporated by reference to Exhibit 2.3 to Form 8-K
dated November 26, 1997.
10.27 Agreement for Sale and Purchase of Property between
Florida Gaming Centers, Inc., City National Bank of
Florida, Trustee, and Monroe's Prestige Group,Inc.
and Staack and Klemm, P.A., Escrow Agent is
incorporated by reference to Exhibit 2.4 to Form
8-K/A dated November 26, 1997.
10.36 Bank of Oklahoma Modification Agreement dated May 1,
1998 is incorporated by reference to Exhibit 1 to
Form 10-QSB dated for the quarter ended March 31,
1998.
10.37 Amendment to Monroe Prestige Group Purchase Agreement
dated April 20, 1998 is incorporated by reference to
Exhibit 2 to Form 10-QSB for the quarter ended March
31, 1998.
85
<PAGE>
10.38 Graham Road Mortgage Modification dated April 22,
1998 is incorporated by reference to Exhibit 3.1 to
Form 10-QSB for the quarter ended March 31, 1998.
10.39 Graham Road Mortgage Note dated April 22, 1998 is
incorporated by reference to Exhibit 3.2 to Form
10-QSB for the quarter ended March 31, 1998.
10.40 Directors and Officers Stock Option Plan adopted
February 9, 1999 is attached hereto.
10.41 Specimen form of Agreement cancelling options entered
into as of November 2, 1998 between the Registrant
and W. Bennett Collett, Robert L. Hurd, W. B.
Collett, Jr., Timothy L. Hensley, Roland M. Howell
and George W. Galloway, Jr.
10.42 Amendment dated November 24, 1998 to Consulting and
Noncompetion Agreement between Florida Gaming
Centers, Inc. and Richard P. Donovan is attached
hereto.
10.43 Amendment dated November 24, 1998 to Consulting and
Noncompetion Agreement between Florida Gaming
Centers, Inc. and Roger M. Wheeler, Jr. is attached
hereto.
27. Financial Data Schedule is attached hereto.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1998.
86
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused the report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
Date: March 31, 1999 By: /s/ W. Bennett Collett
---------------------
W. Bennett Collett
Chairman and
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ W. Bennett Collett Chairman of the Board March 31, 1999
- -------------------------- of Directors and
W. Bennett Collett Chief Executive
Officer (Principal
Executive Officer)
/s/ Jennifer Chong Acting Treasurer and March 31, 1999
- -------------------------- Acting Chief Financial
Jennifer Chong Officer (Principal
Financial Officer)
(Principal Accounting
Officer)
/s/ Robert L. Hurd President and Director March 31, 1999
- --------------------------
Robert L. Hurd
/s/ W. Bennett Collett, Jr. March 31, 1999
- --------------------------
W. Bennett Collett, Jr. Director,
Executive Vice
President
and Secretary
/s/ Timothy L. Hensley March 31, 1999
- --------------------------
Timothy L. Hensley Director
/s/ George W. Galloway, Jr. Director March 31, 1999
- --------------------------
George W. Galloway, Jr.
/s/ Roland M. Howell Director March 31, 1999
- --------------------------
Roland M. Howell
</TABLE>
87
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
FLORIDA GAMING CORPORATION(1)
1. OFFICES
1.1 REGISTERED OFFICE. The Corporation shall have and maintain in
Delaware a registered office which shall be the business office of the
Corporation's registered agent in Delaware.
1.2 OTHER OFFICES. The Corporation may have such other offices at such
places, both within and without Delaware, as the Board of Directors may from
time to time designate or as the business of the Corporation may from time to
time require.
2. MEETINGS OF STOCKHOLDERS
2.1 MEETING PLACE. All meetings of the stockholders shall be held at
such place, either within or without Delaware, as the Board of Directors may
from time to time designate and as stated in the notice of the meeting.
2.2 ANNUAL MEETINGS. An annual meeting of the stockholders shall be
held for the election of directors at such date and time during each fiscal year
of the Corporation as the Board of Directors shall designate and as stated in
the notice of the annual meeting. In addition to the election of directors, the
stockholders shall transact such other business as may properly be brought
before the meeting.
- --------
(1) As amended through December 31, 1998
1
<PAGE>
2.3 SPECIAL MEETINGS. Unless otherwise prescribed by law, by the
Corporation's Certificate of Incorporation, or by these Bylaws, special meetings
of the stockholders may be called for any purpose or purposes by (a) the
Chairman of the Board, if any, or (b) the Chief Executive Officer or the
Secretary upon the written request of a majority of the members of the Board of
Directors.
2.4 MEETING NOTICES. Except as otherwise provided by law, by the
Corporation's Certificate of Incorporation, or by these Bylaws, written notice
of any annual or special meeting of the stockholders shall state the place,
date, and time thereof and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, and shall be given to each stockholder
of record entitled to vote at such meeting not less than ten nor more than sixty
days before the meeting.
2.5 PRESIDING OFFICERS; ORDER OF BUSINESS.
(a) The Chief Executive Officer, if any, shall preside at all meetings
of the stockholders at which the Chief Executive Officer is present. If the
Chief Executive Officer is not present at a meeting of the stockholders, the
following officer or person shall preside (in descending order of preference):
(1) the Chairman of the Board, if any, (2) the President, (3) a Vice President
or director specifically designated by the Board of Directors to preside at the
meeting, or (4) a stockholder chosen at the meeting
2
<PAGE>
by stockholders present in person or by proxy who own a majority of the shares
of capital stock of the Corporation entitled to vote and represented at the
meeting.
(b) If present at the meeting, the Secretary of the Corporation shall
serve as secretary of the meeting. If the Secretary of the Corporation is not
present at the meeting, a person designated by the officer or person presiding
over the meeting shall serve as secretary of the meeting.
2.6 QUORUM; ADJOURNMENTS.
(a) Except as otherwise provided by law, by the Corporation's
Certificate of Incorporation, or by these Bylaws, the holders of one third of
the shares of capital stock of the Corporation issued and outstanding and
entitled to vote at any given meeting present in person or by proxy shall be
necessary to, and shall constitute a quorum for, the transaction of business at
all meetings of the stockholders.
(b) If a quorum is not present in person or by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or by
proxy, shall have the power to adjourn the meeting from time to time, without
notice of the adjourned meeting if the time and place thereof are announced
at the meeting at which the adjournment is taken, until a quorum is present
in person or by proxy.
(c) If a meeting is adjourned in accordance with Section 2.6(b) of
these Bylaws and a quorum is present in person or by proxy at such adjourned
meeting, the stockholders may transact at the adjourned meeting any business
which might have been
3
<PAGE>
transacted at the original meeting. But if the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
2.7 VOTING.
(a) At any meeting of stockholders, every stockholder having the right
to vote on a particular subject matter shall be entitled to vote in person or by
proxy on that subject matter. Except as otherwise provided by law or by the
Corporations Certificate of Incorporation, each stockholder of record shall be
entitled to one vote (on each matter submitted to a vote) for each share of
capital stock registered in his or her name on the books of the Corporation.
(b) As to the election of directors, the candidate or candidates, up to
the number of directors to be elected, receiving the highest number of votes
shall be elected.
(c) As to all other matters and except as otherwise provided by law or
by the Corporation's Certificate of Incorporation, the vote or the holders of a
majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote on that matter, present in person or by proxy,
shall decide any question brought before the meeting.
2.8 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the stockholders may be taken without a meeting, without prior notice
and without a vote, if a written consent in lieu of such meeting, setting forth
the action so
4
<PAGE>
taken, is signed before or after such action by the holders of issued and
outstanding shares of the capital stock of the Corporation having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. All written consents shall be filed with the minutes of the meetings
of the stockholders .
3. BOARD OF DIRECTORS.
3.1. NUMBER OF DIRECTORS. Subject to any provision of the Corporation's
Certificate of Incorporation governing the number of the corporation's
directors, the exact number of the Corporation's directors may be fixed,
increased, or decreased from time to time by a resolution adopted by the vote of
the directors at the meeting, or by consent in lieu of a meeting, at which, or
by which, the time and place of the annual meeting of stockholders are
designated. Directors need not be stockholders or residents of Delaware.
3.2 TERM. Each director shall hold office for the term for which he is
elected or until his successor shall have been elected and qualifies for the
office, whichever period is longer.
3.3 VACANCIES. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining directors though
less than a quorum of the Board of Directors. A director elected to fill a
vacancy shall serve for the unexpired term of his or her predecessor in office.
3.4 CHIEF EXECUTIVE OFFICER; CHAIRMAN. The Board of Directors
5
<PAGE>
may from rime to time select from among its members a Chief Executive Officer
and a Chairman of the Board who shall serve during the pleasure of the Board of
Directors. The Chief Executive Officer, if any, shall preside at all meetings of
the Board of Directors. If there is no Chief Executive Officer or if the Chief
Executive Officer is not present at the meeting, the following shall preside (in
descending order of preference): (1) the Chairman of the Board, if any, (2) the
President, or (3) a director selected by a majority of the directors present at
a meeting at which a quorum is present.
3.5 MEETINGS. The Board of Directors may hold meetings, both regular and
special, either within or without Delaware. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as the Board
shall from time to time determine. Special meetings of the Board of Directors
may be called by the Chairman of the Board or by the Chief Executive Officer on
two days' notice to each director, either personally or by telephone or
telegram, or on seven days notice to each director by mail or overnight courier.
The President or the Secretary shall call a special meeting of the Board of
Directors in like manner and on like notice at the written request or any two
directors.
3.6 QUORUM AND VOTING. Except as otherwise provided by law or by the
Corporation's Certificate of Incorporation, a majority of the total number of
directors shall constitute a quorum for the transaction of business, and the
vote of a majority of the directors present at any meeting at which quorum is
present shall
6
<PAGE>
be the act of the Board of Directors. If less than a quorum is present at any
meeting of the Board of Directors, the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
3.7 VACANCIES. Except as otherwise provided in these Bylaws, vacancies and
newly created directorships may be filled by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective. Each director so chosen shall hold office until the earliest end of
his or her tenure as prescribed by these Bylaws, the Corporation's Certificate
of Incorporation or otherwise by law.
3.8 ACTION BY CONSENT. Any action required or permitted to be taken at any
meeting of the Board of Directors may be taken without a meeting and without
prior notice if a written consent in lieu of such meeting, setting forth the
action so taken, is signed either before or after such action by all directors.
All written consents shall be filed with the minutes of the proceedings of the
Board of Directors.
3.9 TELEPHONE MEETINGS. The Board of Directors may participate in meetings
by means of conference telephone or similar communications equipment, whereby
all directors
7
<PAGE>
participating in the meeting can hear each other at the same time, and
participation in any such meeting shall constitute presence in person by such
director at such meeting. A written record shall be made of all actions taken at
any meeting conducted by means of a conference telephone or similar
communications equipment.
4. COMMITTEES
4.1 ESTABLISHMENT OF COMMITTEES. The Board of Directors may, by resolution
duly adopted by a majority of the whole Board, appoint such committee or
committees as it shall deem advisable and with such limited authority as the
Board of Directors shall from time to time determine.
4.2 MISCELLANEOUS.
(a) The Board of Directors shall have the power at any time and from
time to time to fill vacancies in, to change the membership of, or to discharge
any committee.
(b) Unless prohibited by law, the provisions of section 3.8 ("Action
by Consent") and of Section 3.9 ("Telephone Meetings") shall apply to all
committees from time to time created by the Board of Directors.
5. OFFICERS
5.1 POSITIONS. The Corporation may have a Chief Executive Officer and a
Chairman of the Board, and shall have a President, one or more Vice Presidents,
a Secretary, and a Treasurer, all of whom shall be chosen by the Board of
Directors. The Corporation may also have such assistant officers as the Board of
Directors may deem necessary, all of whom shall be elected by the Board of
Directors. Any number of offices may be held by the same person.
8
<PAGE>
5.2 RIGHTS AND DUTIES--GENERAL. The election of any officer of the
Corporation shall not of itself create any contract rights for any much officer
with respect to that officer's position or employment by the Corporation. All
officers of the Corporation shall exercise such powers and perform such duties
as the Board of Directors may from time to time direct.
5.3 TERM OF OFFICE; REMOVAL. Each officer of the corporation shall hold
office at the pleasure of the Board of Directors and any officer may be removed,
with or without cause, at any time. The Board of Directors may fill any vacancy
in any office for the unexpired portion of the office term.
5.4 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if any, shall,
subject to the direction of the Board of Directors, have general charge and
authority over the business of the Corporation and perform such executive,
supervisory, and management functions and duties as the Board of Directors may
from time to time assign.
5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall,
subject to the direction of the Board of Directors, have general charge and
authority over the business of the Corporation and perform such executive,
supervisory, and management functions and duties as the Board of Directors may
from time to time assign.
5.6 PRESIDENT. The President, if any, shall, subject to the direction of
the Board o(pound) Directors, have general charge and authority over the
business of the Corporation and perform such executive, supervisory, and
management functions and duties as the
9
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Board of Directors may from time to time assign.
5.7 VICE PRESIDENT(S). The Vice President, or if there be more than one
Vice President the Vice Presidents in the order of their seniority by
designation (or if not designated, in the order of their seniority of election),
shall perform the duties of the President in his absence. The vice President(s)
shall have such other powers and duties as the Board of Directors or the Chief
Executive Officer, if any, or the President, if there is no Chief Executive
Officer, may assign.
5.8 SECRETARY. The Secretary shall:
(a) Issue notices of all meetings for which notice is required to be
given;
(b) Keep the minutes of all meetings and have charge of the corporate
record books; and
(c) Have such other duties and powers as the Board of Directors or the
Chief Executive Officer, if any, or the President, i(pound) there is no Chief
Executive Officer, may assign.
5.9 TREASURER. The Treasurer shall:
(a) Have the custody of all funds and securities of the Corporation;
(b) Keep adequate and correct accounts of the Corporation's affairs and
transactions; and
(c) Have such other duties and powers as the Board of Directors or the
Chief Executive Officer, if any, or the President, if there is no Chief
Executive Officer, may assign.
6. NOTICES
6.1 WRITTEN NOTICE--FORM; DELIVERY. Any written notice
10
<PAGE>
required or permitted to be given to any director, officer, stockholder, or
committee member shall be either personally delivered or given by first-class
mail or overnight courier with postage prepaid, in any case addressed to the
recipient at his or her address as it appears in the records of the Corporation.
Personally delivered notices shall be deemed given at the time they are
delivered at the address of the named recipient as it appears in the records of
the Corporation, mailed notices shall be deemed given at the time they are
deposited in the United States mail, and notices given by overnight courier
shall be deemed given at the time they are delivered to the courier. Notice to a
director may also be given by telegram sent to his or her address as it appears
on the records of the Corporation and shall be deemed given at the time
delivered at such address.
6.2 WAIVER; EFFECT OF ATTENDANCE. Whenever any notice is required to be
given by law, by the Corporation's Certificate of Incorporation, or by these
Bylaws, a written waiver thereof, signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be the
equivalent of the giving of such notice. Any stockholder who attends a meeting
of stockholders in person, or who is represented at such meeting by a proxy, or
any director or committee member who attends a meeting of the Board of Directors
or of a committee thereof, shall be deemed to have had timely and proper notice
of the meeting, unless such stockholder (or his or her proxy), director, or
committee member attends for the express purpose of objecting to the transaction
of any business on the grounds that
11
<PAGE>
the meeting is not lawfully called or convened.
7. INDEMNIFICATION
The Corporation shall indemnify each person who may be indemnified
(individually an "Indemnitee" and collectively the "Indemnitees") pursuant to
Section 145 ("Section 145") of the General Corporation Law of the State of
Delaware, as amended from time to time (or any successor provision thereto), to
the fullest extent permitted by Section 145 In each and every situation in which
the Corporation may do so under Section 145, the Corporation hereby obligates
itself to so indemnify the Indemnitees, and in each case, if any, in which the
Corporation must make certain investigations on a case-by-case basis before
indemnification, the Corporation hereby obligates itself to pursue such
investigations diligently, it being the specific intention of these Bylaws to
obligate the Corporation to indemnify each Indemnitee to the fullest extent
permitted by law at any time and from time to time. To the extent not prohibited
by Section 145 (or any other provision of the General Corporation Law of the
State of Delaware, as amended from time to time), the Indemnitees shall not be
liable to the Corporation except for their own individual willful misconduct or
actions taken in bad faith.
8. GENERAL PROVISIONS
8.1 REGISTERED STOCKHOLDERS. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person who
is registered on its books as the owner of shares of its capital stock to
receive dividends or other distributions (to the extent otherwise distributable
or
12
<PAGE>
distributed), to vote (in the case of voting stock) as such owner, and to hold
liable for calls and assessments a person who is registered on its books as the
owner or shares of its capital stock. The Corporation shall not be bound to
recognize any other person's equitable or legal claim to, or interest in, such
shares. The Corporation (or its transfer agent) shall not be required to send
notices or dividends to a name or address other than the name or address of the
stockholders appearing on the stock ledger maintained by the Corporation (or by
the transfer agent or registrar, if any), unless any such stockholder shall have
notified the Corporation (or the transfer agent or registrar, if any), in
writing, of another name or address at least ten days before the mailing of such
notice or dividend.
8.2 DIVIDENDS. Subject to the provisions of the Corporation's Certificate
of Incorporation and of the General Corporation Law of the State of Delaware, as
amended from time to time, the Board of Directors may declare dividends upon the
capital stock of the Corporation at any regular or special meeting, and such
dividends may be paid in cash, in property, or in shares of the capital stock of
the Corporation.
8.3 FISCAL YEAR. Subject to change at any time at the direction of the
Board of Directors, the fiscal year of the Corporation shall end on December 31
in each calendar year.
8.4 AMENDMENT OF BYLAWS. As provided by the Corporation's Certificate of
Incorporation, the Board of Directors shall have the power to make, alter, and
repeal these Bylaws, and to adopt new bylaws, in all cases by an affirmative
vote of a majority of
13
<PAGE>
the whole Board of Directors, provided that notice of the proposal to make,
alter, or repeal these Bylaws, or to adopt new bylaws, is included in the notice
of the meeting of the Board of Directors at which such action takes place.
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<PAGE>
EXHIBIT 10.40
FLORIDA GAMING CORPORATION
DIRECTORS AND OFFICERS STOCK OPTION PLAN
This Directors and Officers Stock Option Plan ("Plan") is established
pursuant to resolutions adopted by the Board of Directors on February 9, 1999 to
motivate the directors and officers of the Company and its subsidiaries to
contribute to the Company's success by increasing the profitability and growth
of the Company and to assist the Company to attract and retain qualified
directors and officers.
1. DEFINITIONS. As used in this Plan, the following terms or phrases shall
have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means two or more non-employee directors of the Company as
defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended,
appointed by the Board pursuant to Section 2 below.
(c) "Disability" means either a physical or mental condition of a
Participant resulting from a bodily injury or disease or mental disorder which
renders the Participant incapable of continuing the further performance of the
Participant's normal duties.
(d) "Exercise Price" means the fair market value of the Option Stock
determined as follows:
(i) If the Stock is listed on a national securities exchange, the
closing price of the Stock on the composite tape as of the most recent date on
which the Stock was traded prior to the Grant Date.
(ii) If the Stock is quoted on NASDAQ, the mean high and low market
prices for which the Stock is quoted as of the most recent date on which the
Stock was quoted prior to the Grant Date.
(iii) If the Stock is not listed on a national securities exchange or
quoted on NASDAQ, but is traded over the counter, the last sales price of the
Stock on the most recent date on which the Stock was sold in the
over-the-counter market prior to the Grant Date.
(iv) If the Stock is not listed on a national securities exchange,
quoted on NASDAQ or traded in the over-the-counter market, the book value per
share of the Stock determined in accordance with generally accepted accounting
principles as of the last day of the fiscal quarter immediately preceding the
Grant Date.
(e) "Grant Date" means the date on which an Option is granted
<PAGE>
to a Participant.
(f) "Option" means an option granted to a Participant affording the
Participant the right to purchase Option Stock under a Stock Option Agreement.
(g) "Option Period" means the 66 month period beginning on the Grant Date.
(h) "Option Stock" means Stock subject to an option or Stock issued upon
exercise of an Option.
(i) "Participant" means a director or officer of the Company selected by
the Committee to receive an Option.
(j) "Plan" means this Directors and Officers Stock Option Plan.
(k) "Stock" means the shares of the Company's $.10 common stock 10 par
value common stock authorized pursuant to the Company's Articles of
Incorporation.
(l) "Stock Option Agreement" means the written agreement between the
Company and the Participant evidencing the grant of an Option.
2. ADMINISTRATION. This Plan shall be administered by the Committee
appointed by the Board. The Committee may appoint a chairperson and a secretary.
The Committee shall hold meetings when requested by the chairperson or by a
majority of its members. A majority of the Committee members shall constitute a
quorum for purposes of a meeting. The act of a majority of the Committee members
present at any meeting for which there is a quorum shall be a valid act of the
Committee. Written action of the Committee may be taken by a majority of its
members and the actions so taken shall be fully effective as if taken by a vote
of a majority of the members at a meeting duly called and held.
3. PARTICIPATION. All directors and executive officers of the Company shall
be Participants. The Committee may also designate other officers of the Company
as Participants, who, in the opinion of the Committee, have substantial
responsibility in the management of the Company and/or its subsidiaries or who
are otherwise responsible for the Company's financial success. Participants
shall be awarded Options by the Committee based on their contribution to the
Company as determined in the discretion of the Committee.
4. STOCK SUBJECT TO PLAN. The Board shall allocate authorized and unissued
shares of Stock, from time to time, for use under the Plan and the aggregate
Options awarded by the Committee shall not exceed the number of shares allocated
by the Board.
5. TERMS AND CONDITIONS.
<PAGE>
(a) OPTIONS. Options granted pursuant to the Plan shall be evidenced by
Stock Option Agreements in such form and subject to such conditions, not
inconsistent with the Plan, as the Committee shall approve from time to time,
and shall reflect the provisions of this Section 5.
(b) EXERCISE PRICE. The Exercise Price shall be determined by the Committee
in accordance with Section l(d) of this Plan.
(c) TERM. Unless sooner exercised or terminated in accordance with Section
6 of this Plan, the Option shall expire on the last day of the Option Period.
(d) VESTING. The Option shall vest and be exercisable during the period
beginning 6 months and 15 days after the Grant Date and ending on the last day
of the option Period.
(e) METHOD OF EXERCISE. The Option may be exercised, in whole or in part,
from time to time, by the Participant delivering written notice to the Committee
setting forth the number of shares to be purchased accompanied by the Exercise
Price.
(f) RESTRICTION ON TRANSFER. The Options shall not be assignable or
transferable except by will or by the laws of descent and distribution.
(g) LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to sell and
deliver Option Stock under this Plan shall be subject to all applicable laws,
rules and regulations, including, without limitation, all applicable federal and
state securities laws.
(h) ADJUSTMENT OF SHARES. The number of shares of Stock with respect to
which Options are granted under this Plan and the Exercise Price shall be
appropriately adjusted by the Board for any increase in the number of shares of
issued Stock resulting from a subdivision or consolidation of such Stock through
a reorganization, recapitalization, stock split-up, reverse stock split, stock
distribution or stock combination, or the payment of a Stock dividend or other
increase or decrease in the number of shares effected without receipt of
consideration by the Company.
(i) WITHHOLDINQ TAXES. As a condition to the exercise of an Option, the
Company shall have the right to require the optionee to remit to the Company an
amount sufficient to satisfy all federal, state and local withholding tax
requirement.
<PAGE>
6. TERMINATION.
(a) WITHOUT CAUSE. If a Participant ceases to be a director or officer of
the Company for any reason other than for cause, the Participant, or in the
event of the Participant's death, the Participant's personal representative,
shall have the right to exercise the Participant's Option, in whole or in part,
from time to time, within one year after the Participant ceases to be a director
or officer of the Company to the extent the Participant was entitled to exercise
the option immediately prior to the Participant ceasing to be a director or
officer of the Company.
(b) FOR CAUSE. If a Participant is removed as a director of the Company by
action of the Company's shareholders or is terminated as an officer of the
Company for cause, the Participant forfeits all unexercised Options. A
Participant shall not be deemed to be terminated as an officer for cause unless
and until the Board adopts a resolution to that effect. Termination for cause
means termination due to (i) the Participant wilfully failing to substantially
perform his duties as an officer of the Company, or (ii) the Participant having
committed a criminal act, excluding traffic violations.
7. APPLICABLE LAW. All questions pertaining to the validity, construction
and administration of this Plan shall be governed by the laws of the State of
Delaware.
************************
<PAGE>
EXHIBIT 10.41
(SPECIMEN) AGREEMENT
THIS AGREEMENT is made and entered into by and between FLORIDA GAMING
CORPORATION, a Delaware corporation ("Company") and _____________ ("Optionee"),
W-I-T-N-E-S-S-E-T-H:
WHEREAS, the Optionee is an officer and/or director and/or employee of the
Company; and
WHEREAS, from time to time the Company has previously granted to Optionee
options to purchase shares of the common stock of the Company ("Common Stock")
with varying strike prices and expiration dates (the "Options"); and
WHEREAS, the strike prices substantially exceed the current fair market
value of the Common Stock; and
WHEREAS, the Company and the Optionee deem it to be in the best interest of
the Company that the Options be cancelled.
NOW, THEREFORE, in consideration of the premises and $1.00 in hand paid by
the Company to the Optionee, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. CANCELLATION OF OPTIONS. All Options previously granted by the Company
to the Optionee are hereby cancelled effective as of the date of this Agreement.
2. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties hereto and shall not be modified or amended except in writing signed by
the parties hereto.
3. COUNTERPARTS. This Agreement may be signed in separate counterparts,
each of which shall constitute an original copy hereof, but all of which
together shall constitute a single instrument.
EXECUTED as of the 2nd day of November 1998.
FLORIDA GAMING CORPORATION
By:
-----------------------
Robert L. Hurd
President
Name:
-----------------------
<PAGE>
EXHIBIT 10.42
AMENDMENT
TO
CONSULTING AND NONCOMPETITION AGREEMENT
THIS AMENDMENT is made as of the 24th day of November, 1998 by Richard
Donovan, (the "Consultant") and Florida Gaming Centers, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Consultant and the Company executed a Consulting and
Noncompetition Agreement dated December 31, 1996 (the "Agreement").
WHEREAS, a dispute has arisen regarding the Agreement and a lawsuit has
been filed in the Eleventh Judicial Circuit in and for Miami-Dade County,
Florida, DONOVAN V. FLORIDA GAMING CENTERS, Case No. 98-05324 CA(11);
WHEREAS, the Consultant and the Company desire to modify and amend the
Agreement as provided herein to resolve the lawsuit;
NOW, THEREFORE, for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meanings set forth in the Agreement.
2. MODIFICATION AGREEMENT. The Agreement is hereby modified and amended as
follows:
(a) Upon execution hereof, the Company shall pay Consultant the sum of
Eighty-four Thousand and No/100 ($84,000), which represents past due consulting
fees due under the terms of the Agreement and the pre-payment of the revised
consulting fees referenced in subsection (b) below for the months of November
and December, 1998.
(b) The first three lines of Paragraph 1 of the Agreement are hereby
amended in their entirety to read as follows: "In consideration of the Company's
purchase of the Assets from Seller and the payment by the Company to the
Consultant of $10,000 per month for each of the ninety-six months following the
date hereof, the Consultant agrees for a period of eight years from the date..."
The Company shall make such payments to the Consultant on the last day of each
calendar month, commencing January 31, 1998 and ending with the last installment
payment of $10,000 due on November 30, 2006. Additionally, the second word of
the last line of paragraph 1 of the Agreement, "sixty" is hereby changed to
<PAGE>
"twenty".
(c) Upon execution of this Amendment, the Company shall pay the past-due
premium of $14,000 for the Consultant's life insurance policy referenced in
Paragraph 2 of the Agreement. Thereafter, the premium for such policy shall be
paid on or before the last day of February through and including February, 2006.
(d) Paragraph 8 of the Agreement is hereby amended to add subsections (i)
and (j) as follows:
(i) PREPAYMENTS. The Company shall have the right at any time during the
term of this Agreement to prepay its obligations by paying Consultant fifty
percent (50%) of the current outstanding balance of its obligations under
Paragraphs 1 and 2 hereof. The outstanding balance of the consulting fees
referenced in Paragraph 1 shall be calculated by multiplying $10,000 by the
number of months remaining in the term of this Agreement. The outstanding
balance due with respect to the life insurance premiums referenced in Paragraph
2 shall be calculated by multiplying $1166.60 (monthly installments of $14,000
annual premium) by the number of months remaining in the term of the Agreement.
Upon such prepayment, the Company and the Consultant shall be relieved of any
further obligations under this Agreement.
(j) DEFAULT BY COMPANY. Upon any default by Company in the payment of the
amounts due hereunder, the Consultant shall give written notice to the Company
at Florida Gaming Centers, Inc., 3500 N.W. 37th Avenue, Miami, Florida 33142 and
to R. James Straus, 400 West Market Street, 32nd Floor, Louisville, Kentucky
40202-3363,via hand-delivery, overnight delivery by a nationally recognized
overnight courier service which obtains delivery receipts, or certified mail,
postage prepaid, return receipt requested. Such notice shall be effective upon
delivery, as evidenced by the date upon the delivery receipt. The Company shall
have a period of ninety (90) days thereafter to cure any such default. Upon any
failure by the Company to cure the default within such period, the Consultant
shall be entitled to the entry of a judgment by the Court in the amount of fifty
percent (50%) of the current outstanding balance of the Company's obligations
under Paragraphs 1 and 2, calculated as set forth above, EX PARTE and in the
form of the judgment attached as Exhibit "A".
3. EXTENT OF AMENDMENT. Except as expressly amended hereby, all terms and
provisions of the Agreement shall remain in full force and effect without
modification. This Amendment shall control over any conflicting provisions of
the Agreement.
4. MISCELLANEOUS. This Amendment shall inure to the benefit of, and be
binding upon, the parties hereto and their respective legal representatives,
successors and assigns. This Amendment shall be governed by and construed in
accordance with the internal laws of the State of Florida without regard to
principles of conflicts of law. This Amendment may be executed in any number of
counterparts, each of
<PAGE>
which shall be an original but all of which together shall constitute one
agreement. Captions and section headings contained in this Amendment are for
convenience of reference only and in no way define, describe, extend, or limit
the scope or intent of this Amendment nor the intent of any provision hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the respective dates set forth below.
COMPANY:
Witnesses: FLORIDA GAMING CENTERS, INC. a
Florida Corporation
By
- -------------------------------- ------------------------------
Name:
Title:
- --------------------------------
CONSULTANT:
- -------------------------------- --------------------------------
Richard P. Donovan
- --------------------------------
Dated: November____, 1998
<PAGE>
IN THE CIRCUIT COURT OF THE
11TH JUDICIAL CIRCUIT IN AND
FOR DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
CASE NO: 98-05324 CA (11)
RICHARD P. DONOVAN,
Plaintiff,
vs.
FLORIDA GAMING CENTERS, INC.,
Defendant.
- -----------------------------
EX PARTE JUDGMENT AFTER DEFAULT
UNDER SETTLEMENT AGREEMENT
THIS CAUSE was before the Court upon the verified motion of the plaintiff,
Richard P. Donovan, for the entry of judgment EX PARTE following a default in
payment under the "Amendment to Consulting and Noncompetition Agreement", a
settlement agreement, in this action In accordance with paragraph 2(d)j) of that
Amendment, judgment is hereby entered in favor of plaintiff, and against
defendant, in the sum of $_____________________ , with post judgment interest
from and after this dare as provided by law, for which let execution issue.
------------------------
CIRCUIT JUDGE
Copies furnished to:
Counsel of record
<PAGE>
EXHIBIT 10.43
AMENDMENT
TO
CONSULTING AND NONCOMPETITION AGREEMENT
THIS AMENDMENT is made as of the 24th day of November, 1998 by Roger M.
Wheeler, Jr., (the "Consultant") and Florida Gaming Centers, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Consultant and the Company executed a Consulting and
Noncompetition Agreement dated December 31, 1996 (the "Agreement").
WHEREAS, a dispute has arisen regarding the Agreement and a lawsuit has
been filed in the Eleventh Judicial Circuit in and for Miami-Dade County,
Florida, WHEELER V. FLORIDA GAMING CENTERS, Case No. 98-05568 CA 25;
WHEREAS, the Consultant and the Company desire to modify and amend the
Agreement as provided herein to resolve the lawsuit;
NOW, THEREFORE, for $10.00 and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. DEFINED TERMS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meanings set forth in the Agreement.
2. MODIFICATION AGREEMENT. The Agreement is hereby modified and amended as
follows:
(a) Upon execution hereof, the Company shall pay Consultant the sum of
Seventy-five Thousand and No/100 ($75,000), which represents past due consulting
fees due under the terms of the Agreement and the pre-payment of the revised
consulting fees referenced in subsection (b) below for the months of November
and December, 1998.
(b) The first three lines of Paragraph 1 of the Agreement are hereby
amended in their entirety to read as follows: "In consideration of the Company's
purchase of the Assets from Seller and the additional consideration described
below, the Consultant agrees for a period of ten years from the date of this
Amendment..."
(c) Paragraph 1(a)(1) and (2) are hereby deleted in their entirety and the
following substituted in their stead:
(a) Pay to the Consultant a fee (the "Consulting Fee") as follows:
<PAGE>
(1) Six thousand dollars ($6,000) per month during the first five
years of the term (the "First Term") of this Agreement, payable on the last day
of each calendar month, commencing January 1, 1999 and ending with the last
installment payment of $6,000 due on December 31, 2003.
(2) Four thousand fifty dollars ($4,050) per month for the final
five years of the term (the "Second Term") of this Agreement, payable on the
last day of each calendar month, commencing January 1, 2004 and ending with the
last installment payment of $4,050 due on December 31, 2008.
(d) Paragraph 5 of the Agreement is hereby amended to add subsections (i)
and (j) as follows:
(i) PREPAYMENTS. The Company shall have the right at any time during the
term of this Agreement to prepay its obligations by paying Consultant fifty
percent (50%) of the current outstanding balance of its obligations under
Paragraphs 1 hereof. The outstanding balance of the consulting fees referenced
in Paragraph 1(a)(1)shall be calculated by multiplying $6,000 by the number of
months, if any, remaining in the First Term. The outstanding balance due with
respect to the consulting fees referenced in Paragraph 1(a)(2) shall be
calculated by multiplying $4,050 by the number of months remaining in the Second
Term of the Agreement. Upon such prepayment, the Company and the Consultant
shall be relieved of any further obligations under this Agreement.
(j) DEFAULT BY COMPANY. Upon any default by Company in the payment of the
amounts due hereunder, the Consultant shall give written notice to the Company
at Florida Gaming Centers, Inc., 3500 N.W. 37th Avenue, Miami, Florida 33142 and
to R. James Straus, 400 West Market Street, 32nd Floor, Louisville, Kentucky
40202-3363,via hand-delivery, overnight delivery by a nationally recognized
overnight courier service which obtains delivery receipts, or certified mail,
postage prepaid, return receipt requested. Such notice shall be effective upon
delivery, as evidenced by the date upon the delivery receipt. The Company shall
have a period of ninety (90) days thereafter to cure any such default. Upon any
failure by the Company to cure the default within such period, the Consultant
shall be entitled to the entry of a judgment by the Court in the amount of fifty
percent (50%) of the current outstanding balance of the Company's obligations
under Paragraph 1, calculated as set forth above, EX PARTE and in the form of
the judgment attached as Exhibit "A".
3. EXTENT OF AMENDMENT. Except as expressly amended hereby, all terms and
provisions of the Agreement shall remain in full force and effect without
modification. This Amendment shall control over any conflicting provisions of
the Agreement.
4. MISCELLANEOUS. This Amendment shall inure to the benefit of,
78
<PAGE>
and be binding upon, the parties hereto and their respective legal
representatives, successors and assigns. This Amendment shall be governed by and
construed in accordance with the internal laws of the State of Florida without
regard to principles of conflicts of law. This Amendment may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one agreement. Captions and section headings contained
in this Amendment are for convenience of reference only and in no way define,
describe, extend, or limit the scope or intent of this Amendment nor the intent
of any provision hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as
of the respective dates set forth below.
COMPANY:
Witnesses: FLORIDA GAMING CENTERS, INC. a
Florida Corporation
By
- --------------------------------- ---------------------------------
Name:
Title:
Dated: November 24, 1998
CONSULTANT:
By
- ---------------------------------- ----------------------------------
Roger M. Wheeler, Jr.
- ----------------------------------
Dated: November 9, 1998
79
<PAGE>
IN THE CIRCUIT COURT OF THE
11TH JUDICIAL CIRCUIT IN AND
FOR DADE COUNTY, FLORIDA
GENERAL JURISDICTION DIVISION
CASE NO: 98-05568 CA (25)
ROGER M. WHEELER, JR.
Plaintiff,
vs.
FLORIDA GAMING CENTERS, INC.,
Defendant.
- -----------------------------
EX PARTE JUDGMENT AFTER DEFAULT
UNDER SETTLEMENT AGREEMENT
THIS CAUSE was before the Court upon the verified motion of the plaintiff,
Roger M. Wheeler Jr., for the entry of judgment EX PARTE following a default in
payment under the "Amendment to Consulting and Noncompetition Agreement", a
settlement agreement, in this action In accordance with paragraph 2(d)j) of that
Amendment, judgment is hereby entered in favor of plaintiff, and against
defendant, in the sum of $ , with post judgment interest from and after this
dare as provided by law, for which let execution issue.
-----------------------
CIRCUIT JUDGE
Copies furnished to:
Counsel of record
80
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet and statement of operation found in Item #7 of the Company's Form 10-K-SD
the year to date and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000312065
<NAME> FLORIDA GAMING CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,136
<SECURITIES> 0
<RECEIVABLES> 447
<ALLOWANCES> 0
<INVENTORY> 105
<CURRENT-ASSETS> 1,774
<PP&E> 14,095
<DEPRECIATION> (1,712)
<TOTAL-ASSETS> 25,633
<CURRENT-LIABILITIES> 7,467
<BONDS> 0
4
0
<COMMON> 578
<OTHER-SE> 10,881
<TOTAL-LIABILITY-AND-EQUITY> 25,633
<SALES> 0
<TOTAL-REVENUES> 17,564
<CGS> 0
<TOTAL-COSTS> 20,791
<OTHER-EXPENSES> 245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 781
<INCOME-PRETAX> (2,096)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,096)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,096)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> 0
</TABLE>
