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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission file number 0-9099
FLORIDA GAMING CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1670533
------------------- -------------------
(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3500 NW 37TH AVENUE, MIAMI, FLORIDA 33142-0000
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
--------------
Former name, former address and former fiscal year, if changed since last
report N/A
---
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
6,066,816 shares of the issuer's Common Stock were outstanding as of the latest
practicable date, AUGUST 14, 2000.
----------------
Transitional Small Business Disclosure Format:
YES NO X
--- ---
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FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 (unaudited) and December 31, 1999 ............................ 3
Statements of Operations (unaudited) for Three Months and Six Months ended
June 30, 2000 and 1999.......................................................................... 5
Statements of Cash Flows (unaudited) for the Six Months ended June 30, 2000 and 1999 ............. 6
Notes to Financial Statements (unaudited) ........................................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 15
PART II. OTHER INFORMATION ....................................................................... 22
SIGNATURES ....................................................................................... 23
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) ....................... $ 1,918,496 $ 2,525,686
Accounts receivable & current portion of notes receivable . 271,462 652,075
Inventory (Note 2) ........................................ 63,031 98,929
------------ ------------
Total current assets .............................. $ 2,252,989 $ 3,276,690
PROPERTY AND EQUIPMENT:
Land (Notes 2,7, and 11) ................................ $ 4,184,412 $ 4,184,412
Buildings and Improvements ............................... 8,166,332 8,151,324
Furniture, fixtures and equipment ........................ 1,842,697 1,827,004
------------ ------------
$ 14,193,441 $ 14,162,740
Less accumulated depreciation ........................... (2,578,759) (2,310,449)
------------ ------------
$ 11,614,682 $ 11,852,291
REAL ESTATE DEVELOPMENT ....................................... 4,419,607 4,262,907
COMMERCIAL PROPERTY HELD FOR SALE .............................. 3,757,824 3,757,825
OTHER ASSETS .................................................. 1,240,952 1,194,501
------------ ------------
$ 23,286,054 $ 24,344,214
============ ============
</TABLE>
3
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------------------------------ ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 2) ......................................... $ 4,192,865 $ 5,367,778
Short-term borrowing and current portion of long-term debt ............................. 3,534,862 4,234,545
------------ ------------
Total current liabilities............................................. $ 7,727,727 $ 9,602,323
LONG-TERM LIABILITIES
Long-term portion notes payable ........................................................ 2,185,703 1,882,354
STOCKHOLDERS' EQUITY (See Notes 2,4,5,6, and 7):
Class A convertible preferred stock, convertible to common stock; $.10 par
value, 1,200,000 shares authorized; 33,635 shares issued and outstanding
at June 30, 2000 and December 31, 1999 ............................................... 3,363 3,443
Class B convertible preferred stock; convertible to common stock, 5,000
shares authorized; 95 shares issued and outstanding at June 30, 2000 and
December 31, 1999 .................................................................... 10 10
Class E 8% cumulative convertible preferred stock, 2,000 shares authorized; 1,950
shares issued and outstanding at June 30, 2000 and December 31, 1999 ............. 195 195
Class F 8% cumulative convertible preferred stock, 2,500 shares authorized; 2,000
shares issued and outstanding at June 30, 2000 and December 31, 1999 ................ 200 200
Common stock, $.10 par value, authorized 15,000,000 shares, 6,066,816
issued and outstanding at June 30, 2000, and 6,066,816 issued and
outstanding at December 31, 1999 .................................................... 606,682 606,682
Capital in excess of par value .............................................................. 39,572,551 39,572,551
Accumulated deficit ......................................................................... (26,810,377) (27,323,544)
------------ ------------
Total stockholders' equity .................................................... 13,372,624 12,859,537
------------ ------------
Total liabilities and stockholders' equity .................................... $ 23,286,054 $ 24,344,214
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
FLORIDA GAMING CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ----------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
HANDLE:
Live Jai-Alai Wagering $ 17,337,947 $ 17,477,564 $ 35,846,875 $ 36,607,073
Inter- Track Wagering (ITW) 14,162,359 13,832,097 28,424,947 27,991,762
------------ ------------ ------------ ------------
Total Pari-Mutuel Handle* $ 31,500,306 $ 31,309,661 $ 64,271,822 $ 64,598,835
============ ============ ============ ============
REVENUE:
Live Jai-Alai Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $ 1,137,637 $ 1,066,651 $ 4,163,926 $ 4,063,111
Inter-Track Mutuel Commissions 1,179,111 1,225,883 2,560,802 2,588,573
------------ ------------ ------------ ------------
Net Pari-Mutuel Revenue $ 2,316,748 $ 2,292,534 $ 6,724,728 $ 6,651,684
Real Estate Division Income 38,294 165,500 101,294 631,500
Cardroom Income 42,483 45,280 154,430 159,964
Admissions Income, net of taxes 49,092 52,996 127,286 143,292
Programs, Food,Beverage and Other 528,201 541,799 1,206,603 1,236,258
------------ ------------ ------------ ------------
Total Operating Revenue $ 2,974,817 $ 3,098,109 $ 8,314,341 $ 8,822,698
============ ============ ============ ============
COSTS AND EXPENSE:
Operating $ 1,922,311 $ 2,017,896 $ 5,513,409 $ 5,699,575
General and Administrative 1,437,021 1,435,565 3,154,003 3,239,792
Depreciation and Amortization 170,358 178,099 340,780 361,124
------------ ------------ ------------ ------------
Total Costs and Expense $ 3,529,690 $ 3,631,560 $ 9,008,192 $ 9,300,492
------------ ------------ ------------ ------------
Net Loss From Operations $ (554,873) $ (533,451) $ (693,851) $ (477,794)
============ ============ ============ ============
OTHER INCOME
Interest Income 25,253 25,019 56,010 44,662
Pari-Mutuel Tax Credits 184,422 182,147 721,789 774,257
Other Income -- 60,967 -- 160,967
Gain on Sale of Excess Real Estate -- -- -- 924,702
Summer Jai-Alai 557,689 395,115 539,412 395,115
------------ ------------ ------------ ------------
Net Income $ 212,491 $ 129,797 $ 623,359 $ 1,821,909
============ ============ ============ ============
Earnings per Common Share $ 0.02 $ 0.01 $ 0.07 $ 0.28
Earnings per Common Share (fully diluted) $ 0.02 $ 0.01 $ 0.06 $ 0.21
Weighted Avg. Common Shares Outstanding 6,066,816 5,869,015 6,066,816 5,825,872
</TABLE>
*Summer Jai-Alai (SJA) was operated 100% by the Company for 1999 and 2000.
The handle figures include SJA
5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
--------------------------
June 30, June 30,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net Income................................................................................. $ 623,359 $ 1,821,909
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization ..................................................... 340,780 361,124
Gain on sale of assets ............................................................ -0- (924,702)
Equity in earnings of Summer Jai-Alai.............................................. (443,411) (204,304)
Realized gain on sale of marketable securities .................................... -0- -0-
Change in Accounts receivable, net ................................................ (126,525) 104,107
Change in Prepaid expenses ........................................................ (50,557) (43,137)
Change in Other assets ............................................................ (31,816) (62,735)
Change in Inventories ............................................................. 35,898 40,923
Change in Accounts payable and accrued expenses ................................... (351,514) (1,518,608)
----------- -----------
Total adjustments ........................................................ (627,145) (2,247,332)
----------- -----------
Net cash used in operating activities ......................................... ($3,786) ($425,423)
Investing Activities:
Proceeds from sales of property ................................................... -0- 3,514,707
Capital Expenditures .............................................................. (30,701) (50,547)
Cash Distribution from Summer Jai-Alai ........................................... 200,000 148,347
Decrease (Increase) in capitalized development .................................... (156,700) 265,949
----------- -----------
Net proceeds provided by investing activities ................................ $12,599 $3,878,456
Financing activities:
Net proceeds from borrowing (Repayment of Borrowings) (Note 8) ................ ($396,468) ($1,754,373)
Dividends Paid ................................................................ (110,272) (80,000)
----------- -----------
Net cash used in financing activities ........................................ ($506,740) ($1,834,373)
NET INCREASE (DECREASE) IN CASH ........................................................... ($497,927) $ 1,618,660
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ................................................. $ 2,225,659 $ 1,086,285
----------- -----------
CASH AND CASH EQUIVALENTS AT JUNE 30TH .................................................... $ 1,727,732 $ 2,704,945
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................................................ $ 403,710 $ 453,572
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
June 30, 2000
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have been
prepared without audit for filing with the United States Securities and Exchange
Commission (the "Commission"). The accompanying unaudited financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Therefore, it is suggested that the accompanying financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-KSB.
Certain information and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the year,
reflects all adjustments of a normal recurring nature, which, in the opinion of
the Company, are necessary to a fair statement of the results for the periods
indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live Jai
Alai games at frontons in Ft. Pierce, Miami, and Ocala, Florida. The Company
also conducts Inter-Track Wagering (ITW) on Jai Alai, horse racing and dog
racing from its Ft. Pierce and Ocala Jai- Alai facilities. On November 26, 1997,
the Company acquired Tara Club Estates ("Tara"), a residential and commercial
real estate development near Atlanta in Walton County, Georgia. The Company
intends to complete the development and market the property.
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.
Approximately 39.2% 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, and
pursuant to a voting arrangement for shares owned by the Bank of Oklahoma,
Tulsa, OK.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost.
Depreciation is provided using the straight-line and accelerated methods over
the estimated useful life of the related assets.
COMMERCIAL PROPERTY HELD FOR SALE: The Company's investment in land held for
resale totaling $3,757,824 at June 30, 2000. This includes land owned near the
Ft. Pierce Jai-Alai fronton in the amount of $1,834,516 and approximately 25
acres of commercial property held for sale adjoining the Tara residential
property in the amount of $1,923,308.
INVENTORY: The Company's inventory of food, beverage products and souvenirs,
is stated at the lower of cost or market.
PARI-MUTUEL WAGERING: Revenue is derived from commissions earned under a
pari-mutuel wagering system. The Company accepts wagers on on-site events and
off-site Inter-Track Wagering ("ITW") events. On-site wagers are accumulated in
pools with a portion being returned to winning bettors, a portion paid to the
State of Florida, and a portion retained by the Company. ITW wagers are also
accepted and forwarded to the "Host" facility net of commissions earned by the
Company.
INCOME TAXES: The Company utilizes the asset and liability approach in
accounting for income taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
INCOME OR LOSS PER COMMON SHARE: During 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, Earning Per
Share, ("SFAS 128"), which requires the computation and disclosure of basic and
diluted income (loss) per common share. Basic income (loss) per
7
<PAGE>
common share is determined by dividing income (loss) by the weighted average
number of shares of common stock outstanding. Diluted income (loss) per common
share is determined by dividing income (loss) by the weighted average number of
shares of common stock outstanding plus the weighted average number of shares
that would be issued upon exercise of dilutive stock options, assuming proceeds
are used to repurchase shares pursuant to the treasury stock method plus the
weighted average number of shares that would be issued if holders of the
Company's preferred stock converted those shares to common stock using the "if
converted" method. Diluted loss per common share is not presented when the
resulting calculation is antidilutive relative to basic loss per common share.
STOCK OPTIONS: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted market
price of the stock over the option price on the grant date (measurement date).
The Company's stock option plans require the issuance of all options at a price
equal to or greater than the market price of the stock on the grant date. Stock
options issued for non-compensation purposes are accounted for at fair value
pursuant to FASB 123.
(3) INCOME TAXES
At December 31, 1999, the Company had tax net operating loss (NOL) carryforwards
of approximately $14,500,000 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 2015. However, $9,000,000 of the
Company's NOL carryforwards which can be utilized to offset future taxable
income are limited to approximately $95,000 per fiscal year under Section 382 of
the IRC because Company stock purchased by Freedom Financial Corporation was
considered a "change in ownership" under the "deemed exercised rule" of IRC
Section 382. As a result, only the net operating losses attributable to the
period after the "change in ownership" (approximately $5,500,000) are not
subject to the Section 382 limitation.
The Company has unused general business tax credits of approximately $137,000 to
offset any future tax liabilities of the Company. These credits expire at
various dates through the year 2001. Any deferred tax assets arising from
differences from taxable income and financial reporting income are deemed to be
offset by an allowance in an equal amount due to the uncertainty of future
taxable income.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida stipulating that jai alai permit holders incurring state taxes on handle
and admissions in an amount exceeding its operating earnings (before deduction
of certain expenses such as depreciation and interest) for the prior year are
entitled to credit such excess amounts against pari-mutuel taxes due and
payable. In 1997 Miami Jai Alai and Tampa Jai Alai incurred and had available
1998 pari-mutuel tax credits of $1,606,051 and $935,521, respectively. During
1998, Miami utilized credits of $509,714 over two eligible months of operations.
Tampa Jai Alai, which discontinued live operations following its July 4, 1998
performances, utilized pari-mutuel tax credits of $13,940 and incurred taxes of
$439,684. Miami was entitled to carry over the unused 1998 credits to 1999 and
will have an additional credit of $1,330,864 available for recovery,
representing the full amount of taxes incurred in 1998. Accordingly, total Miami
tax credits carried forward to 1999 were $2,427,201. During 1999, Miami incurred
taxes (on handle and admission) of $1,219,042. These taxes were satisfied by the
use of available credits. Tax credits are used to satisfy the Company's
obligation to pay taxes incurred on handle and admission. Tax credits used,
depreciation expense and interest expense are all excluded from the statutory
calculation of operating earnings or loss in the determination of the amounts of
future tax credits.
(4) INCOME PER COMMON SHARE
The net income per common share for the quarter ended June 30, 2000 and June 30,
1999 was calculated based upon net income attributable to common stock
shareholders and the weighted average number of outstanding common shares
6,066,816 and 5,869,015, respectively. Weighted average equivalent shares on a
fully diluted basis for the quarter ended June 30, 2000 and June 30, 1999 were
8,588,735 and 8,390,934 shares, respectively, consisting of options held by
current and former directors, executive officers and key employees under
Qualified and Nonqualified Stock Option Plans, warrants issued to brokers as
fees, and conversion of preferred stock and the 6,066,816 for weighted average
common shares for quarter ended June 30, 2000 and 5,869,015 for the quarter
ended June 30, 1999.
The net income per common share for the six months ended June 30, 2000 and June
30, 1999 was calculated based upon net income attributable to common stock
shareholders and the weighted average number of outstanding common shares
6,066,816 and 5,825,872, respectively. Weighted average equivalent shares on a
fully diluted basis for the six months ended June 30, 2000 and June 30, 1999
were 8,588,735 and 8,347,791 shares, respectively, consisting of options held by
current and former directors, executive officers and key employees under
Qualified and Nonqualified Stock Option Plans, warrants issued to brokers as
fees, and conversion of preferred stock and the 6,066,816 for weighted average
common shares for the six months ended June 30, 2000 and 5,825,872 for the six
months ended June 30, 1999.
8
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(5) PREFERRED STOCK
CLASS A PREFERRED STOCK
The Company's Class A preferred stock provides annual dividends, at the rate of
$.90 per share payable in cash, property or common stock, which are cumulative
and have priority over dividends on the common stock. The Company paid the
dividend on the Class A Preferred Stock which was declared on September 21, 1998
on April 13, 2000 in cash, totaling $30,272. Dividends for 1999 were declared on
June 30, 2000, but have not been paid as of July 31, 2000. Each share of Class A
preferred is convertible into .225 shares of common stock at the holder's
option. The Class A preferred is redeemable at the option to the Company at
$10.60 per share. In the event of dissolution, the holders of Class A preferred
shall be entitled to receive $10.00 per share, plus accrued dividends, prior to
any distribution to holders of common stock.
CLASS B PREFERRED STOCK
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% to 10% of the consideration paid for the stock. Such
dividends are payable in shares of the Company's common stock. The consideration
to be received by the Company upon initial issuance of each share of the Series
B stock is $1,000. Holders of Series B shares may convert all or any of such
Series B shares to the Company's common stock using a ratio based on the
consideration paid for the stock and 80% of the market value of the common
stock. On December 15, 1995, the Board of Directors reserved 600,000 shares of
the Company's common stock for issuance upon conversion of the Series B
preferred stock. Upon liquidation, the holders of Series B preferred shares
shall be entitled to be paid $1,000 per share plus 8% to 10% accrued dividends
before any distribution to holders of common stock. During the year ended
December 31, 1995, 2,400 Series B preferred shares were issued for $2,400,000 to
three unrelated parties. During the year ended December 31, 1996, the Company
issued 2,300 Series B preferred shares at $925 per share. During 1996, 2,707.5
Series B shares were converted to 473,588 shares of common stock. During 1997,
1547.5 Series B shares were converted to 295,951 shares of common stock. During
1998, 150 Series B shares were converted to 113,466 shares of common stock, and
100 shares were redeemed by the Company. On October 18, 1999, 100 Series B
shares were converted to 105,121 shares of common stock. No shares have been
converted during the first six months of 2000. The Company is currently in an
arbitration proceeding relative to the conversion of 50 shares of the Class B
Preferred Stock. See "Legal Proceedings."
CLASS E PREFERRED STOCK
The Company is authorized to issue 2,000 shares of Series E 8% cumulative
convertible preferred stock, $.10 par value (the "Series E Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's stated value,
payable upon conversion of the Series E preferred stock into common stock. The
stated value per share equals $1,000 (as adjusted for any stock dividends,
combination or splits). Holders of Series E Preferred Stock may convert all or
any such shares to the Company's common stock (the "Series E Conversion Shares")
beginning 120 days after the issuance of the Series E Preferred Stock. If not
converted earlier by the holder, the Series E Preferred Stock shall be converted
automatically two years from the date of issuance. In general, the number of
Series E Conversion Shares issuable on conversion of each share of Series E
Preferred Stock shall equal the consideration paid for such share together with
accrued and unpaid dividends on such share, if any, divided by the lesser of (i)
$7.50 and (ii) 80% of the average of the closing bid price of the common stock
on the five trading days before conversion. A holder of Series E Conversion
Shares may not sell more than 25% of such shares between 120 and 150 days of his
purchase of Series E Preferred Stock converted into each share, 50% of such
shares between 151 and 180 days of his purchase of Series E Preferred Stock
converted into such shares and 75% of such shares between 181 and 210 of his
purchase of Series E Preferred Stock converted into each share; a holder may
generally sell all of his Series E Conversion Shares 211 days after his
purchase. Upon liquidation, the holders of Series E Preferred Shares shall be
entitled to be paid $950 per share plus accrued dividends before any
distribution to holders of common stock. During 1997, the Company issued 2,000
Series E shares at $1,000 per share. During 1998, 50 Series E shares were
converted to 25,176 shares of common stock. No shares have been converted in the
first six months of 2000. The Company is currently in an arbitration proceeding
relative to the conversion of 1800 shares of the Class E Preferred Stock. See
"Legal Proceedings."
CLASS F PREFERRED STOCK
The Company is also authorized to issue up to 2,500 shares of Series F 8%
Cumulative Convertible Preferred Stock (the "Series F Preferred Stock"), which
provides annual dividends at the rate of 8% of the shares' stated value. The
stated value per share equals $1,000 (as adjusted for any stock dividends,
combination or split). At the discretion of the Company's Board of Directors,
such dividends may be paid in shares of the Series F Preferred Stock. Holders of
Series F Preferred Stock may convert all or any of such shares to the Company's
common stock at any time. Each share of Series F Preferred Stock shall be
converted into 296.6689 shares of common stock (the "Conversion Stock"). The
number of shares of Conversion Stock into which each share of Series F Preferred
Stock shall be converted shall be proportionately adjusted for any increase or
decrease in the number of shares of common stock or Series F Preferred Stock.
Upon liquidation, the holders of Series F Preferred Shares shall be entitled to
be paid $1,000 per share plus accrued dividends before any distribution to
holders of common stock. During 1997, the Company issued 2,084 Series F shares
at $1,000 per share. On June 22, 1998 the Company repurchased 84 shares from
Freedom Financial Corporation as part of the cancellation of a receivable.
9
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The Class A Preferred Stock, the Series B Preferred Stock, the Series E
Preferred Stock, and the Series F Preferred Stock are all equal in rank with
respect to the payment of dividends and with respect to the distribution of
assets upon liquidation of the Company.
(6) COMMITMENTS AND CONTINGENCIES
ISLE OF CAPRI CASINOS, INC.: On September 25, 1998, Casino America, Inc. changed
its name to "Isle of Capri Casinos, Inc." On October 4, 1994, the Company
entered into a letter of intent (the "Letter of Intent") with Isle of Capri
Casinos, Inc. ("Isle of Capri") to form a joint venture (the "Joint Venture") to
build and operate a casino at its Ft. Pierce Fronton ("the Fronton"). Isle of
Capri owns and operates riverboat and dockside casinos located in Mississippi
and Louisiana and a land based Casino in Colorado. If the Joint Venture to build
a flea market at the Fort Pierce facility is formed before passage of an
amendment to the Florida Constitution to permit casino gaming at the Fronton,
the Company will contribute its interest in the Fronton to the Joint Venture
with a credit to its joint venture capital account of $5,000,000. Isle of Capri
will contribute up to $2,500,000, as needed, to construct a 100,000 square foot
indoor facility suitable for a casino or flea market. The Company contends that
Isle of Capri is in default of the Letter of Intent since Isle of Capri failed
to contribute the $2,500,000 as needed, to construct a flea market facility. If
casino gaming is not permitted in Florida by 2000, Isle of Capri has a
continuing option to convert the money contributed to the Joint Venture to a
promissory note from the Joint Venture payable in equal annual payments over a
ten year period with interest at 8% per annum. If casino gaming is permitted at
the Fronton by 2000, the value of the assets contributed by the Company to the
Joint Venture will be adjusted to increase the Company's capital account up to
$22,500,000. Isle of Capri agreed to fund its capital account on an as needed
basis up to $22,500,000. All profits and losses of either Joint Venture will be
allocated between the partners based upon capital accounts. The Letter of Intent
provides that Isle of Capri will be the manager of the casino and all
casino-related improvements. The Company will manage the operation of the
jai-alai fronton, inter track wagering and all other non-casino related
activities. Each corporation will receive a management fee based on costs. The
Letter of Intent provides that Isle of Capri has the exclusive right to enter
into a Joint Venture with the Company for six years from September 25, 1998 and
Isle of Capri has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture. The formation of the Joint Venture is subject to certain
conditions, including the satisfactory completion of due diligence by Isle of
Capri, the receipt of all required regulatory approvals, the approval of each
partner's board of directors, the execution of a definitive joint venture
agreement, and the approval of the Company's stockholders, if required by law.
Either party may terminate discussions in connection with the Joint Venture and
neither party shall have any liability to the other, except as otherwise
specified in the Letter of Intent. The Company has taken the position that Isle
of Capri is in default on a continuing basis pursuant to the Letter of Intent
since Isle of Capri failed, when requested by the Company, to contribute its
share of capital ($2,500,000) to build a flea market at Fort Pierce.
Freedom Financial Corporation has informed the Company that Isle of Capri has
purchased 22,500 shares of Freedom's 7% Series AA Mandatory Redeemable Preferred
Stock (the "Series AA Stock"). The Series AA Stock is convertible into shares of
the Company's Common Stock owned by Freedom at prices ranging from $7.50 per
share of Common Stock to $15.00 per share of Common Stock, depending upon the
timing of the conversion and possible passage of an amendment to the Florida
Constitution permitting casino gaming at the Fronton. The Series AA Stock is
convertible into a minimum of 184,713 shares and a maximum of 369,427 shares of
the Common Stock. Isle of Capri is the sole holder of Series AA Stock.
REGISTRATION RIGHTS: The Company has committed upon certain terms and
conditions, to register for resale, certain shares held by other parties,
allowing those shares to be publicly traded. The Company intends to use
reasonable efforts to comply with these commitments.
LEASES: The Company rents totalizator (Autotote) and other equipment under
leases which expire at various dates through 2001. The totalizator leases
require a minimum annual rental plus contingent rentals based on a percentage of
the handle in excess of the minimum annual rental. Total totalizator and other
equipment rental expense under operating leases for the years ended December 31,
1999 and 1998 was approximately $467,000 and $784,736, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1999, including those obligations assumed in connection with the Company's
acquisition of certain WJA assets are as follows:
<TABLE>
<CAPTION>
Minimum
Year Annual Rental
---- ---------------
<S> <C>
2000 $410,000
410,000
--------
2001 $820,000
--------
</TABLE>
On Feburary 17, 1999 The Company sold excess property, consisting of
approximately 13 acres, located near the Miami Jai-Alai facility in Miami, FL
for $3,668,000. The Company leased back from the purchaser approximately two (2)
acres of the property for overflow parking. The lease is for the term of five
(5) years at a rental of $5,508 per month.
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LITIGATION COSTS: In addition to legal fees incurred in the normal course of the
Company's business activities during 1999 the Company paid approximately
$300,000 respectively for settlement costs and legal fees associated with
various lawsuits. Such costs are included in General & Administrative expenses
in the accompanying Statements of Operations.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and bonuses based on
parimutuel handle, certain cesta allowances and retirement benefits. The
agreement continues from year to year unless timely notice of termination is
given by either party to the agreement.
CONCENTRATION OF DEPOSITS: The Company maintains significant cash balances with
financial institutions in excess of the insurance provided by the Federal
Deposit Insurance Corporation (FDIC).
SUMMER JAI ALAI: The Company is a partner in "The Summer Jai Alai Partnership"
or "SJA" and operates live Jai Alai dates annually on behalf of the partnership.
The partnership was formed in 1980 and SJA simultaneously became a party to an
Operator's Agreement and Fronton Lease along with the Company. The 1996 summer
season resulted in an operating loss and the Company made demand upon its
partners for their respective shares of the losses and to fund a "money bank "
and "operations bank" for SJA's 1997 summer season. Neither request was honored
by the other SJA partners, and as a result, the Company filed suit against the
partnership in July 1997 to collect on the 1996 losses. This lawsuit was amended
on February 20, 1998 seeking damages from the partners for breaching the Summer
Jai-Alai Operating Agreement and Fronton Lease. At December 31, 1997, the
Company was carrying a balance due from its SJA partners of $468,372.
On June 11, 1998, the Company entered a settlement agreement with the other
members of SJA covering operational issues only and, among other things,
1. Continues the existence of the partnership;
2. Stated that the Summer Jai-Alai season (May 1, 1998 to November
28,1998) would be operated by the Company at it's own risk and for its
own benefit. Provided, however, that if net profits for the 1998
Summer Season exceeded $250,000, then, in that event, the other
members of SJA will be paid a total of $50,000 for the 1998 Summer
Season;
3. Stated that the Company would pay one of the SJA partners about
$110,000 for monies owed by the Company for ITW payments previously
held by the Company as a potential off-set of claims made in the suit;
4. Stated that the Company would have the right, subject to State
Approval, to operate the 1999 Summer Season for its own benefit,
provided that the tax credits available for the 1998 Summer Season
have not been exhausted;
5. The parties agreed to meet on or before December 31, 1998 to determine
the operational dates or parameters for the 1999 Summer Season.
Effective July 1, 1998, legislation was passed by the state of Florida by which
Summer Jai-Alai Partnership was granted a tax credit of $922,000. SJA expects to
utilize the tax credits during the 1998 and 1999 SJA seasons. SJA credited the
Company's capital account for the amount due the Company at December 31, 1997.
The Company has reclassified its' receivable from SJA as an investment
consistent with SJA's treatment of the offsetting payable.
As a result of the December, 1998 meeting referred to above, the parties
negotiated a new agreement which continued the June 11, 1998 agreement with the
following modifications:
1. The Company maintains the right to operate Summer Jai-Alai from May 1,
1999 through November 30, 1999 and May and June of 2000 at its own
risk and for its own benefit. The Company agreed to hold the other
partners in SJA harmless for any and all losses or liabilities that
may be incurred;
2. In exchange for the aforementioned benefits, including the benefits
derived from the operation of the 1998 Summer Season, the Company
agreed to pay each of the other SJA Partners (Hollywood, Flagler and
Biscayne) the sum of $65,000 in three installments of $21,667 each,
with the first payment due upon execution of the agreement and the
subsequent two payments of $21, 667 each on June 1, 1999 and July 20,
1999.
Management believes that the net income and cash flow from SJA operations will
offset these payments.
(7) ACQUISITION OF WJA ASSETS
On September 12, 1996, the Company acquired notes (the "WJA Notes") of WJA
Realty Limited Partnership ("WJA"), with balances aggregating about $20,000,000
from the Bank of Oklahoma, N.A., Tulsa, Oklahoma. The WJA Notes were secured by,
among other
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<PAGE>
collateral, real estate and improvements consisting of three jai-alai and ITW
facilities located in Miami, Tampa and Ocala, Florida (the "WJA Frontons").
Consideration for the WJA Notes was a combination of $2,000,000 in cash, a
$6,000,000 promissory note bearing interest at the prime rate, 703,297 shares of
the Company's Common Stock and a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA and Florida
Gaming Centers, Inc.("Centers") a wholly-owned subsidiary of the Company,
pursuant to which the Centers agreed to acquire the WJA Frontons for the
cancellation of the notes with balances aggregating about $20,000,000 and the
assumption of certain liabilities. (See details below) The acquisition was
consummated as of December 31, 1996 for accounting purposes. The WJA Frontons
acquired were combined with the Fort Pierce Fronton into a new subsidiary,
Centers.
The profit sharing arrangement is based on Centers net profits from Jai Alai
operations as defined, before income taxes. The Company will pay WJA 20% of the
defined cumulative net profits of Centers for each of the ten full calendar
years 1997 through 2006, subject to a cumulative $1,000,000 per year cap
described below. The cumulative $1,000,000 cap is equal to the product of
$1,000,000 multiplied by the number of years in the ten-year period completed,
minus the sum of all amounts previously paid under the 20% profit sharing
arrangement. In addition, Centers has net profits in any calendar year during
the ten-year period in excess of $5,000,000 and WJA does not receive a 20%
payment on the entire amount because of the cumulative $1,000,000 per year cap,
Centers shall pay WJA 5% of the portion of the net profits on which the 20%
payment is not made. No net profit payments will be due for any year after the
ten year period. If during the ten year period, Centers disposes of any of its
significant assets or operations, then WJA would be entitled to receive an
amount equal to ten percent of Centers net gain, if any, on the disposition.
Two principals of WJA, also entered into consulting arrangements with Centers.
One principal, Roger M. Wheeler, Jr. ("Wheeler"), entered into a ten-year
consulting agreement with Centers, with annual compensation of $100,000 during
the first five years of the agreement and annual compensation of $50,000 during
the second five years of the agreement. The other principal, Richard P. Donovan
("Donovan"), entered into a five-year consulting agreement with Centers, with
annual compensation of $240,000, plus certain benefits. These two individuals
were also granted stock options on the Company's stock with a fair value of
$150,298. Subsequent to December 31, 1997 a lawsuit was filed against the
Company seeking payment of amounts due under these agreements.
During 1997, the Company discontinued the required payments under the above
consulting agreements because of the continuing lack of performance by the
individuals pursuant to their obligations under the consulting agreements.
On March 6, 1998, Donovan filed suit in the Circuit Court of the 11th Circuit in
Florida, Dade County, against Centers. Donovan claimed that Centers breached the
Donovan Contract and requested judgment against Centers for compensatory
damages, including $1,053,000 due for consulting services through the term of
the agreement and $56,000 due for life insurance premiums for the term of the
agreement, together with prejudgment interest, attorneys' fees, costs and such
other relief as the Court deemed just and proper. The suit was dismissed in
December, 1998 pursuant to the stipulation of the parties following the entry
into an Amendment to the Donovan Contract dated November 24, 1998, which
provided for Centers to pay Donovan (i) $84,000 for past due consulting fees,
(ii) $10,000 per month for ninety-six months commencing January 1, 1999, and
(iii) $14,000 past due life insurance premiums and $14,000 per year for life
insurance premiums for seven years commencing in 1999. The Amendment also
provided Centers with an option exercisable at any time to purchase the balance
of the Donovan Contract for 50% of the balance owed on the amended contract, and
provided that Donovan shall be entitled to a consent judgment against the
Centers for the balance due on his amended contract in the event the Company is
in default for a period of 90 consecutive days.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the Circuit
Court of the 11th Circuit in Florida, Dade County, against Centers and the
Company. Wheeler claimed that Centers breached the Wheeler Contract. Wheeler
asserted that the Company guaranteed the performance of Centers. Wheeler
requested judgment in the amount of $675,000 due for consulting services through
the term of the agreement, together with prejudgment interest, attorneys' fees,
costs and such other relief as the Court deems just and proper. In addition,
Wheeler-Phoenix, Inc. alleged that Centers failed to make payments due under a
promissory note in the principal amount of $500,000. Wheeler-Phoenix requested
judgment in the amount of $500,000, together with prejudgment interest accrued
up to the time of judgment, attorneys' fees, costs and other relief as the court
deems just and proper. The suit was dismissed in December, 1998, following
Centers payment of $80,000 on the Wheeler-Phoenix note and pursuant to the
stipulation of the parties following the entry into an Amendment to the Wheeler
Contract dated November 24, 1998 which provided for Centers to pay Wheeler (i)
$75,000 in past due consulting fees, (ii) $6,000 per month for sixty months
commencing January 1999, and (iii) $4,050 per month for sixty months commencing
January 2004. The Amendment also provided Centers with an option exercisable at
any time to purchase the balance of the Wheeler Contract for 50% of the balance
owed on the amended contract, and provided that Wheeler shall be entitled to a
consent judgment against the Company for the balance due on his amended contract
in the event the Company is in default for a period of 90 consecutive days.
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<PAGE>
(8) SALE OF EXCESS PROPERTY IN MIAMI
On February 17, 1999, the Company sold excess property, consisting of
approximately 13 acres, located near the Miami Jai-Alai facility in Miami, FL
for $3,668,000. The sale was pursuant to an agreement between the Company and
Adrian Industrial Properties, LTD, a Miami based developer. The Company's direct
costs associated with the sale were about $450,000. The Company was required by
Bank of Oklahoma to pay $1,500,000 of the proceeds from the sale of the excess
property to pay the first mortgage obligation to the Bank of Oklahoma. The
Company had other costs of $899,199 related to carrying the property and
lease-back obligations. These costs were expensed over the period which the
Company owned the property.
The Company leased back from the purchaser approximately two (2) acres of the
property for overflow parking. The lease, including options, is for a term of
five (5) years at a rental of $5,508 per month.
(9) SALE OF OCALA JAI-ALAI
On July 31, 2000, the company sold the Ocala Jai-Alai for $2,500,000. The sale
was pursuant to an agreement dated March 27, 2000, between the Company and Lake
Fron, Inc. The Company received $2,250,000 in cash plus a note for $250,000
payable in five annual installments of $50,000 each plus interest at 8% per
annum. The property consisted of the Ocala Jai-Alai facility (approx. 63,000
square feet), and approximately 48 acres of land on State Road #318 near Ocala,
Florida, Marion County. The sales price was determined by arm lengths
negotiations with the Buyer.
The Company's direct costs associated with the closing of the transaction
totaled $885,670, including $750,000 to the Bank of Oklahoma for the release on
the first mortgage obligation, and $118,127 for payment of the 1999 Real Estate
Taxes. The Company dismissed the suit against Ocala Breeders Sales Company as
part of the above-described sales agreement.
(10) REAL ESTATE DEVELOPMENT
On November 26, 1997, Florida Gaming Corporation (the "Company") acquired
substantially all of the assets of Interstate Capital Corporation (ICC), a
wholly-owned subsidiary of Freedom Financial Corporation (Freedom). These assets
consisted of 23 acres of partially-improved commercial properties and a
residential real estate development containing about 250 single-family
residential lots, called Tara Club Estates (collectively, "Tara" or the
"Properties"), all of which are situated in Loganville, Walton County, Georgia.
As consideration for the purchase, the Company paid ICC $6,473,265 as follows:
(i) the Company issued to ICC 2,084 shares of Series F 8% Convertible Preferred
Stock (the "Series F Preferred Stock") at a stated value of $1,000 per share
(convertible into the Company's common stock ("Common Stock") on the basis of
296.6689 shares of the Company's Common Stock for each $1,000 of stated value of
the Series F Preferred Stock), (ii) the Company assumed $1,181,102 of first
mortgage promissory notes to two commercial banks secured by the properties
purchased, and (iii) the Company canceled $2,107,076 in principal balances plus
$1,101,087 of accrued interest owed by Freedom to the Company.
The Company accounted for the acquisition of ICC's assets using the purchase
method of accounting. The total purchase price was $6,473,265 comprising of the
above described indebtedness cancellation, debt assumption, and issuance of the
Series F Preferred Stock. In accordance with generally accepted accounting
principles, the purchase price was allocated to the assets acquired based on
their fair market value at the date of acquisition. Management estimated fair
market value using independent appraisals or other cost information with respect
to the individual assets.
The Company's real estate development activities comprise a separate segment of
its operations. Because the development was acquired in late 1997, the Company
had virtually no income or expenses for 1997 attributable to this segment of its
business. The Company has engaged a professional real estate management and
marketing company to assist with the advertising and marketing program for the
sale of developed residential lots and the commercial property.
(11) 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.
(12) RELATED PARTY TRANSACTIONS
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom Financial Corporation
("Freedom"), an affiliate, with the loan to be represented by a promissory note
(the "Company Note") bearing interest at the rate
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<PAGE>
of 15% per annum and secured by a first lien on the shares of the Company's
wholly-owned subsidiaries, Florida Gaming Centers, Inc. ("Centers") and Tara
Club Estates, Inc. ("Tara") and by a second lien on substantially all of the
Company's other assets. The Note will be guaranteed by Centers and Tara with
their guaranties secured by a second lien on substantially all of their
respective assets. Freedom may partially fund the Company Note out of the
proceeds of a loan from a commercial bank (the "Freedom Note"). The Freedom Note
to the Commercial Bank, if incurred, will bear interest at 13% per annum and
must be personally guaranteed by W. Bennett Collett, the Company's Chairman and
Chief Executive Officer. The Freedom Note will be secured by an assignment of
the Company Note and the collateral securing the Company Note. The Company Note
and the Freedom Note will be due on demand or one (1) year from date if no
demand is made. Five points must be paid at the closing of the Freedom Note and
a like amount will be paid at the closing of the Company Note to Freedom.
During 1996, the Board of Directors established the Chairman's annual salary at
$360,000, payable monthly. The Chairman had previously received no salary for a
period of three (3) years. During 1997, the Chairman received 8 monthly payments
of $30,000 consistent with the Board's directive. In September, 1997, the
Company discontinued the salary payments to the Chairman and began paying
$30,000 per month to Freedom as a management fee in lieu of salary. No written
employment or consulting agreement exists between the Company and Freedom.
Beginning November 1, 1997, the Company also discontinued salary payments of
$9,000 per month to the President and began paying $8,000 per month to Freedom
as a management fee in lieu of salary.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates three
jai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton," and
collectively, the "Frontons") located in South and Central Florida. The
Company's business consists primarily of its operations at the Frontons, which
include, among other things, live jai-alai, inter-track pari-mutuel wagering
("ITW") on jai-alai, thoroughbred racing, harness racing, and dog racing, poker,
dominoes, and the sale of food and alcoholic beverages. The Company also owns a
fourth gaming permit which was previously operated at the Tampa Jai-Alai Fronton
in Hillsborough County (Tampa) Florida.
The Company's Fort Pierce and Ocala locations provide audio, video and
Inter-Track Wagering ("ITW") on live inter-track and interstate broadcasting of
horse racing, dog racing and jai-alai from around the State of Florida as well
as the rest of the country. The Miami location receives limited ITW broadcasts,
but broadcasts its jai-alai performances to other gaming facilities in Florida,
and fourteen (14) facilities in Connecticut. ITW provides significant additional
revenue as well as providing additional entertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of the
public against each other, as used in this report includes wagering on both live
Jai-Alai performances and ITW.
The Company's principal place of business and executive offices are located at
3500 NW 37th Avenue, Miami, Florida 33142. The Company was incorporated in
Delaware in 1976.
CARD ROOM DEVELOPMENT
Effective June 1, 1996, a new Florida pari-mutuel statute authorized card rooms
at licensed pari-mutuel facilities beginning in January, 1997. The card rooms
are administered and regulated by the Florida Department of Pari-Mutuel Wagering
("DPMW"). Games are limited to non-banked poker games and dominoes. Card room
authorization is also subject to approval by the county commission in which the
pari-mutuel facility is located. This same bill also authorized full-card
simulcasting of races from out of state tracks such as Belmont, Meadowlands,
Philadelphia Park, and Santa Anita. The Frontons in Fort Pierce and Ocala are
currently carrying several of these signals. This legislation also reduced the
pari-mutuel tax on handle from 5% to 4.25% at the Fort Pierce and Ocala
frontons. The pari-mutuel tax at Miami was reduced from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough County,
Florida, passed legislation permitting card rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
opened card rooms in Miami (on June 19th with 40 tables initially) and Tampa (on
May 22nd with 30 tables initially) during the second quarter of 1997. Pursuant
to Florida Statute 849.086 the Miami facility conducts low stakes ($10 per hand)
poker and dominoes at these facilities two hours prior to, during and two hours
following live jai-alai performances. A rake of $.25 per person is the
pari-mutuel's revenue from each hand dealt. Domino tables are rented at the rate
of $1.50 per half hour per player. Florida state taxes are paid at 10% of this
revenue and 4% of the revenues are paid to the Jai-Alai players.
JAI-ALAI INDUSTRY
The jai-alai industry live handle (money wagered) generally has declined in the
last several years, due to increased gaming competition such as 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, 1999, and
1998 was approximately $57,868, and $59,469 respectively. Aggregate handle,
state-wide, for the fiscal year ended June 30, 1999 decreased approximately $9.4
million or 10.2%. AGGREGATE HANDLE FOR THE COMPANY INCREASED FROM $86,627,522 IN
1998 TO $122,965,826 IN 1999, AN INCREASE OF 42%. The 1998 handle figure was
adjusted for the sale of Tampa, and the 1999 Company handle figures include
Summer Jai-Alai. There can be no assurance that the jai-alai industry will
improve significantly, if at all, in the future. Because the Company's jai-alai
business is tied directly to many, if not all, of the factors which influence
the jai-alai industry as a whole, a 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, 1998 and 1999
increased to approximately $675 million and $737.5 million, respectively. ITW
handle at the Company's Frontons has also demonstrated strong growth in recent
years. The Company's handle increased from approximately $48.5 million for the
year ended December 31, 1998, to approximately $54.4 million for the year ended
December 31, 1999. The 1998 handle figure was adjusted for the sale of the Tampa
Jai-Alai and the 1999 handle includes the Summer Jai-Alai handle.
REAL ESTATE DEVELOPMENT
In late 1997, the Company entered into a new line of business -- residential and
commercial real estate development. The following
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<PAGE>
paragraphs outline the background and the Company's approach going forward plans
as to management and use of the real estate assets acquired. On November 26,
1997, the Company acquired substantially all of the assets of Interstate Capital
Corporation ("Interstate"), a wholly-owned subsidiary of Freedom Financial
Corporation ("Freedom"). See Note 11 to the accompanying financial statements.
The assets consisted of 23 acres of partially improved commercial property and a
residential real estate development containing about 250 single-family
residential lots, known as Tara Club Estates (collectively, the "Properties"),
all of which are situated in Loganville, Walton County (near Atlanta), Georgia.
As consideration for the purchase, the Company paid Interstate $6,373,265 as
follows: (i) the Company issued to Interstate 2,084 shares of Series F 8%
Convertible Preferred Stock (the "Series F Preferred Stock") at a stated value
of $1,000 per share (convertible into the Company's common stock ("Common
Stock") on the basis of 296.6689 shares of the Company's Common Stock for each
$1,000 of stated value of the Series F Preferred Stock), (ii) the Company
assumed $1,081,102 of first mortgage promissory notes to two lenders secured by
the properties purchased, and (iii) the Company canceled a line of credit having
a principal balance of $2,107,076 plus accrued interest of $1,101,087 for a
total of $3,208,163 owed by Freedom to the Company.
The Company's real estate development activities will comprise a separate
segment of its operations. The Company engaged the services of a professional
real estate management and marketing company in 1998 to assist with an
advertising and marketing program for the sale of the developed residential and
commercial lots.
These Properties consist of over 100 fully-developed, and 150
partially-developed, single-family residential home sites, a swim and tennis
club facility, and 23 acres of partially-developed commercial property. As of
June 30, 2000, approximately ninety-six (96) home sites had been sold to
builders. The residential sites are presently selling at an average in excess of
$48,000 per site. Before the acquisition of the Properties by the Company,
thirty-nine homes, having a market value of approximately $10,000,000 had been
constructed and sold at an average price of $250,000 each. The Properties are
located on Georgia Highway 81, approximately one (1) mile south of U.S. Highway
78, inside the Loganville, Georgia city limits. Located in western Walton
County, Georgia, the Properties are approximately 2.5 miles east of the Gwinnett
County/Walton line. Gwinnett County is inside the fifteen-county region which
makes up Metropolitan Atlanta. The population of the Atlanta area is now over
four million residents. Gwinnett County is located in the Northeast section of
Metropolitan Atlanta, and is one of the fastest growing counties in the United
States. The population of Gwinnett County has doubled in the last ten years.
During 1999 Walton Country was the fifth fastest growing county in the State of
Georgia.
JAI-ALAI TAX LEGISLATION
Major tax legislation which limits the amount of state handle and admission
taxes went into effect July 1, 1998.
The new law, (Section 2, Subsection (1b) of section 550.09511, Florida Statutes)
states, in part, that "Any jai-alai permit holder that incurred state taxes on
handle and admissions in an amount that exceeds its operating earnings in a
fiscal year that ends during or after the 1997-1998 state fiscal year, is
entitled to credit the excess amount of the taxes against state pari-mutuel
taxes due and payable after June 30, 1998, during its next ensuing meets."
The Company paid state taxes on handle and admissions in the amount of
$3,105,309 for the year ended December 31, 1997. Taxes paid to the state in
fiscal 1997 of approximately $1,724,881 ($.29 per share) are eligible for
recovery by the Company during the twelve-month period beginning July 1, 1998.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida (HB3663) 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 (Miami) 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 $509,714 over two eligible months of
operations. Tampa Jai Alai, which discontinued live operations following its
July 4, 1998 performances, utilized pari-mutuel tax credits of $13,940 and
incurred taxes of $439,684. Miami was entitled to carry over the unused 1998
credits to 1999 and had an additional credit of $1,330,864 available for
recovery, representing the full amount of taxes incurred in 1998. Accordingly,
total Miami tax credits carried forward were $2,427,201. During 1999, Miami
incurred taxes (on handle and admission) of $1,219,042. These taxes were
satisfied by the use of available credits. Further, Miami Jai Alai's 1999 loss
from operations totaled $(646,894) after deducting the state taxes incurred.
Accordingly, its unused credits total $2,502,200 at December 31, 1999.
This legislation is expected to have a significant positive impact on the
Company's future earnings.
INDIAN GAMING VENTURE
RINCON, SAN LUISENO BAND OF MISSION INDIANS. In September, 1995, the Company
entered into a Loan Agreement and related agreements with the Rincon, San
Luiseno Band of Mission Indians ("Rincon Band") which, at that time, operated
the River Oaks Casino, located approximately 40 miles north of San Diego,
California. The Rincon Band, continues to own the River Oaks Casino, however,
gaming operations were suspended. The Rincon Band, which operated bingo and
other activities classified as Class II gaming, was seeking to operate
electronic gaming machines, a Class III gaming activity, if and when an
injunction prohibiting the operation of Class III gaming
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machines at River Oaks was lifted by the United States District Court for
the Southern District of California. The Loan Agreement takes effect if and when
Class III gaming machines are in legal operation at the River Oaks Casino .
At the time the Loan Agreement was made with the Rincon Band (September 11,
1995), and during the period that the Company made working capital loans to the
Rincon Band (from 9-11-95 through 3-15-96), the Rincon Band was in on-going
litigation referred to above with the United States Government and the state of
California in their attempts to operate gaming machines similar to those in
operation at that time at two casinos operated by two other Native American
reservations in the same county, in which the Rincon Band reservation is
located, i.e. San Diego County, California. There was a three year pause from
(1996 to 1999) in the Rincon Band's progress to legally operate Class III gaming
at their River Oaks location.
The Loan Agreement between the Company and the Rincon Band remained in effect,
but in a dormant state, from June 1996, until March 7, 2000, when the voters of
California passed, very decisively, Proposition 1A authorizing various forms of
Class III gaming at the Rincon Band reservation and other Native American
reservations in California.
The Company has agreed, pursuant to the terms of the Loan Agreement, to loan up
to $5,000,000 to the Rincon Band to renovate, improve, equip and expand the
Tribe's gaming facilities. Under the loan Agreement, in lieu of interest, the
company will receive a royalty equal to 12.5% of the gross receipts of the
facility (excluding gaming machines) during the seven-year term of the Loan
Agreement ,plus 12 1/2% of the "drop" or "Handle" from the gaming machines
during the first five years of the term of the Loan Agreement and 11% of the
"drop" or "handle" from the gaming machines during the sixth and seventh years
of the Loan Agreement. Subject to applicable law governing Native American
gaming, the loan is secured by security interests granted to the Company in the
equipment, accounts receivable, revenues, and other property owned by the Rincon
Band, other than the land and real estate. During the period from September 11,
1995, through March 15, 1996, the Company made, pursuant to the Loan Agreement,
working capital loans totaling $346,000 to the Rincon Band, which loans are now
due and payable.
On March 15, 2000 the Company, through its legal counsel, notified the
Rincon Band that,
a) In light of the passage or Proposition 1A, the Rincon Band is now
in a position to go forward to conduct Class III gaming as
defined in the Indian Gaming Regulatory Act of 1988;
b) The Loan Agreement with the Company has not been terminated, nor
in fact has it even commenced in accordance with Paragraph 1.2 of
the Loan Agreement;
c) The Loan Agreement was partially performed by the Company when it
advanced about $346,000 to the Rincon Band pursuant to the terms
of the Loan Agreement;
d) The Company stands ready, willing and able to perform all
obligations, on its part, as set forth in the Loan Agreement, and
the Company hereby makes demand that the Rincon Band recognize
the efficacy of the Loan Agreement and that the Tribe honor its
obligations to the Company under the terms of the Loan Agreement.
e) Officers of the Company are available to meet with the Tribe to
implement the loan Agreement.
On July 26, 2000 the Company received a cash payment of $850,000 as a "break-up"
payment in settlement of all issues between the Company and the Rincon San
Luiseno Band of Mission Indians.
RESULTS OF OPERATIONS - 2ND QUARTER AND SIX MONTHS ENDED JUNE 30, 2000
COMPARED WITH 2ND QUARTER AND SIX MONTHS ENDED JUNE 30, 1999
During the quarter and six months ended June 30, 2000, the Company's operations
reflects six months' operation of live Jai-Alai performances at the Miami
facility. The Ft. Pierce Fronton conducted live jai-alai performances January
through April. A full schedule of inter-track wagering was also conducted at all
facilities with the exception of Miami, which offers limited ITW product due to
blackouts imposed as a result of its close proximity to other South Florida
pari-mutuels. The Miami facility, however, broadcasts its jai-alai performances
to thirty-seven (37) pari-mutuel wagering locations in Florida, Connecticut and
Rhode Island, and to approximately twenty five (25) locations in Mexico, Central
America, and Austria. The Ocala Fronton only operated inter-track wagering
during the first quarter and began its live season June 2, 2000. THE 1999
FIGURES HAVE BEEN RESTATED TO REFLECT AUDIT ADJUSTMENTS. AS A RESULT OF AN
AMENDED AGREEMENT WITH SUMMER JAI-ALAI PARTNERS, SUMMER JAI-ALAI (SJA) WAS
OPERATED 100% BY THE COMPANY FOR THE YEARS 1999 AND 2000. FOR COMPARISON
PURPOSES, HANDLE, REVENUES, ATTENDANCE, OPERATING EXPENSES, AND GENERAL AND
ADMINISTRATIVE EXPENSES INCLUDE THE SJA FIGURES FOR 1999 AND 2000 SINCE SJA WAS
OPERATED 100% BY THE COMPANY. ACCORDINGLY, THE NUMBERS IN THIS ANALYSIS MAY NOT
NECESSARILY AGREE WITH ACCOMPANYING FINANCIAL STATEMENTS.
17
<PAGE>
HANDLE ANALYSIS
Total handle (amount of money wagered) for the quarter ended June 30, 2000 was
$31,500,306 of which $17,337,947 was from live Jai-Alai wagering, and
$14,162,359 was from Inter-Track wagering. Total handle for the six months ended
June 30, 2000 was $64,271,822 of which $35,846,875 was from live and host
Jai-Alai wagering and $28,424,947 was from guest Inter-Track wagering.
Total Handle (amount of money wagered) for the quarter ended June 30, 1999 was
$31,309,661 of which $17,477,564 was from live Jai-Alai wagering and $13,832,097
was from Inter-Track guest wagering. Total handle for the six months ended June
30, 1999 was $64,598,835 of which $36,607,073 was from live Jai-Alai wagering
and $27,991,762 was from Inter-Track wagering.
Total handle for the quarter ended June 30, 2000 was $31,500,306, an increase of
$190,645 over the same period in 1999. The increase consists of an increase in
ITW handle of $330,262 and a decrease of $139,617 in live Jai-Alai handle.
Total handle for the six months ended June 30, 2000 was $64,271,822, a decrease
over the same period in 1999 of $327,013. This decrease consists of a decrease
in live jai-alai wagering handle of $760,198 and an increase in inter-track
wagering handle of $433,185
REVENUES FOR THE QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED JUNE
30, 1999
Pari-mutuel revenues (net of state pari-mutuel taxes) for the quarter
ended June 30, 2000 were $4,124,226 compared to pari-mutuel revenues of
$3,952,707, for the same period in 1999, an increase of $171,519 or 4%.
Pari-Mutuel revenues for the quarter ended June 30, 2000 ($4,124,226) consisted
of $2,756,411 from live jai-alai wagering, and $1,367,815 from inter-track
wagering. Pari-Mutuel revenues for the quarter ended June 30, 1999 ($3,952,707)
consisted of $2,582,713 from live jai-alai and $1,369,994 from inter-track
wagering.
Card Room Revenue for the quarter ended June 30, 2000 totaled $111,251, compared
to $120,506 for the quarter ended June 30, 1999.
Admissions income, net of state taxes, for the quarter ended June 30, 2000 were
$68,169 compared to $75,732 for the period ended June 30, 1999. Food, beverage
and other income for the quarter ended June 30, 2000 were $556,238 and $567,011,
respectively. Attendance for live jai-alai performances and ITW performances
were approximately 189,609 and 196,248 for the three months ended June 30, 2000
and June 30, 1999, respectively.
Property sales for the quarter ended June 30, 2000 were $38,294 compared to
$165,500 for the quarter ended June 30, 1999.
Total Operating Revenue for the quarter ended June 30, 2000 was $4,898,178
compared to $4,881,457 for the quarter ended June 30, 1999.
REVENUES FOR THE SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1999
Pari-mutuel revenues (net of state pari-mutuel taxes) for the six months
ended June 30, 2000 were $8,532,207 compared to pari-mutuel revenues of
$8,311,857, for the same period in 1999, an increase of $220,350. Pari-Mutuel
revenues for the six months ended June 30, 2000 ($8,532,207) consisted of
$5,782,701 from live jai-alai, and $2,749,506 from inter-track wagering.
Card Room Revenue for the six months ended June 30, 2000 totaled $223,199,
compared to $235,190 for the six months ended June 30, 1999. Direct costs
totaled $156,629 for the six months ended June 30, 2000.
Admissions income, net of state taxes, for the six months ended June 30, 2000
were $146,362 compared to $166,028 for the period ended June 30, 1999. Food,
beverage and other income for the six months ended June 30, 2000 were $1,234,640
and $1,261,470, respectively. Attendance for live jai-alai performances and ITW
performances were approximately 419,378 and 439,035 for the six months ended
June 30, 2000 and June 30, 1999, respectively.
Real Estate sales have dropped significantly in the first six months of 2000.
Property sales for the six months ended June 30, 2000 were $101,294 compared to
$631,500 for the six months ended June 30, 1999. Lot costs attributable to these
sales for the six months ended June 30, 2000 were $42,300. Sales have decreased
due to increased interest rates.
Total Operating Revenue for the six months ended June 30, 2000 was $10,237,702
compared to $10,606,045 for the six months ended June 30, 1999, a decrease of
$368,343 (3%).
GENERAL AND ADMINISTRATIVE EXPENSES
THE FOLLOWING ANALYSIS OF GENERAL AND ADMINISTRATIVE EXPENSES IN THIS PART OF
THE REPORT COMPARES FIGURES FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND
JUNE 30, 1999. THE 1999 FIGURES HAVE BEEN RESTATED TO REFLECT AUDIT ADJUSTMENTS.
18
<PAGE>
The Company's general and administrative expenses were $1,985,093 and $3,958,138
for the three months and six months ended June 30, 2000, respectively. This
compares to $1,963,456 and $4,002,041 for the three months and six months ended
June 30, 1999, respectively.
GENERAL AND ADMINISTRATIVE FOR QUARTER ENDED JUNE 30, 2000 COMPARED TO THE
QUARTER ENDED JUNE 30, 1999
The Company's general and administrative expenses and their comparison to the
second quarter last year are as follows. Executive salaries were $126,101 for
the second quarter of 2000 compared to $115,750 for the quarter ended June 30,
1999. Advertising decreased $5,606 from $247,315 to $241,709. Professional fees
were $197,858 compared to $173,479 for the same three month period in 1999.
Consulting fees decreased from $180,374 to $168,000. Consulting fees consist of
the salaries of the Chairman/ CEO and the President of Florida Gaming being
replaced by management fees paid to Freedom Financial Corporation for their
services. Travel and entertainment expense totaled $72,600 for the second
quarter of 2000, compared to $78,148 for the second quarter of 1999. Another
significant cost included is approximately $214,897 in payroll taxes. Employee
benefits for the quarter slightly increased to $160,369 from $155,638 for the
same period in 1999. Property, Licenses and other taxes decreased from $146,632
in 1999 to $136,585 in 2000 . Insurance decreased slightly from $139,054 in 1999
to $136,311 for the second quarter of 2000. Public company costs including
shareholder relations/information and filing fees increased $5,188 to $17,263
for the quarter ended June 30, 2000 from $12,075 for the quarter ended June 30,
1999. Interest expense totaled $203,199 and $218,016, respectively, for the
three month period ended June 30, 2000 and June 30, 1999.
GENERAL AND ADMINISTRATIVE FOR SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX
MONTHS ENDED JUNE 30, 1999
Significant categories of general and administrative expenses and their
comparison on a six month period in 2000 versus 1999 are as follows. Executive
salaries were $243,934 for the six months ended June 30, 2000, compared to
$263,750 for the same period in 1999. Advertising increased from $470,621 in
1999 to $484,110. The increase of $13,489 is largely attributable to increased
advertising related to Jai-Alai tournaments in Miami. Professional fees
increased from $286,602 for the six months ended June 30, 1999 to $317,045 for
the same period in 2000. This increase is primarily the result of a settlement
of the Rincon litigation. Consulting fees decreased from $382,341 to $336,000.
Travel and entertainment expense totaled $135,781 for the first six months of
2000, compared to $151,970 for the first six months of 1999. Another significant
cost included is approximately $498,342 in payroll taxes for the six months
ended June 30, 2000, compared to $433,090 for 1999. Employee benefits for the
first six months of 2000, increased $22,689 from $322,681 to $345,371. Public
relations expense decreased from $103,266 for six months ended June 30, 1999 to
$93,704 for the six months ended June 30, 2000. Property, Licenses and other
taxes increased $10,046 from $266,001 in 1999 to $279,913 in 2000. Insurance
expense has slightly increased to $269,698 for the six months ended June 30,
2000 compared to $267,337 for 1999. Public company costs including shareholder
relations/information and filing fees decreased $5,188 to $20,964 from $27,308
in 1999. Interest expense totaled $403,710 and $453,572 for the six month period
ended June 30, 2000 and June 30, 1999, respectively.
OPERATING EXPENSES
THE FOLLOWING ANALYSIS OF OPERATING EXPENSES IN THIS PART OF THE REPORT COMPARES
FIGURES FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999. THE
1999 FIGURES HAVE BEEN RESTATED TO REFLECT AUDIT ADJUSTMENTS.
The Company's operating expenses were $3,117,712 and $6,471,039 for the three
months and six months ended June 2000, respectively. This compares to $3,256,507
and $6,703,828 for the three months and six months ended June 30, 1999,
respectively.
OPERATING EXPENSES FOR QUARTER ENDED JUNE 30, 2000 COMPARED TO THE QUARTER ENDED
JUNE 30, 1999
The Company's operating expenses and their comparison to the second quarter last
year are as follows. Depreciation and amortization expense for the three months
ended June 30, 2000 and June 30, 1999, was $170,358 and $178,099 respectively.
Player costs, which include salaries, benefits, and support staff, represent a
significant portion of operational expenses. Player costs for the quarter ending
June 30, 2000 and June 30, 1999, were $1,054,224 and $1,086,129 respectively.
Rental and service costs for totalizator wagering equipment and satellite
receiving/television equipment also represent a significant portion of operating
expenses. These expenses totaled $337,427 for the three months ended June 30,
2000, compared to $318,072 for three months ended June 30, 1999. The components
of the 2000 total ($337,427) were $86,836 in ITW tote, interface, and telephone
charges; $94,771 in totalizator equipment rental; $46,800 in satellite charges
and $109,020 in camera/television rental. Utilities expense totaled $159,811 and
$148,261 respectively, for the three months periods ended June 30, 2000 and June
30, 1999. Program costs totaling $83,791 and $87,058, respectively, are also
included in the total operating expenses for the three month period ended June
30, 2000 and 1999. Operating expenses, including payroll costs for the bar,
restaurant, souvenir and concessions costs were $405,597 and $380,816 for the
three month period ended June 30, 2000 and June 30, 1999, respectively.
Operating payrolls and contract costs totaled $814,396 and $797,985,
respectively for the three month period ended June 30, 2000 and June 30, 1999.
Operating payroll for the quarter ended June 30, 2000 consisted of the
following: $314,102 in mutuels payroll; $211,038 in maintenance payroll; and
$191,762 in security payroll. Maintenance expense for the three months ended
June 30, 2000, totaled $107,704.
OPERATING EXPENSES FOR SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1999
The Company's operating expenses for the six months ended June 30, 2000 and June
30, 1999 were $6,471,039 and $6,703,828 respectively. Depreciation and
amortization expense for the six month period ended June 30, 2000 and June 30,
1999, was $340,780 and $361,124,
19
<PAGE>
respectively. Player costs, which include salaries, benefits, and support staff,
represent a significant portion of operational expenses. Player costs for the
six months ended June 30, 2000 and June 30, 1999, were $2,228,499 and
$2,194,707, respectively. Rental and service costs for totalizator wagering
equipment and satellite receiving/television equipment also represent a
significant portion of operating expenses. These expenses totaled $683,821, for
the six months ended June 30, 2000, compared to $662,534 for six months ended
June 30, 1999. The components of the rental and service costs in 1999 ($683,821)
total were $150,298 in ITW tote, interface, and telephone charges; $209,922 in
totalizator equipment rental; $94,000 in satellite charges and $229,600 in
camera/television rental. Utilities expense totaled $299,437 and $321,657,
respectively, for the six month period ended June 30, 2000 and June 30, 1999.
Program costs were $169,239 and $175,489 respectively, for the six month period
ended June 30, 2000 and 1999. Operating expenses, including payroll costs for
the bar, restaurant, souvenir and concessions costs were $881,405 and $811,203
for the six month periods which ended June 30, 2000 and June 30, 1999,
respectively. Operating payrolls and contract costs totaled $1,651,306 and
$1,601,350 for the six month period ended June 30, 2000 and June 30, 1999,
respectively. Operating payrolls and contract costs for the six months ended
June 30, 2000 consisted of the following: $642,446 in mutuels payroll; $424,665
in maintenance payroll; and $380,832 in security payroll. Maintenance expense
for the six months ended June 30, 2000, totaled $198,977 compared to $216,409
for the six months ended June 30, 1999.
OTHER INCOME
The Company had net interest and other income of $767,364 and $1,317,211 for the
three and six month period ended June 30, 2000, respectively, as compared to
other income of $663,248 and $2,299,703 for the three and six month periods
ended June 30, 1999. Other Income ($767,364) for the quarter ended June 30, 2000
included interest income of $25,253, pari-mutuel tax credits of $184,422 and
Summer Jai-Alai income of $557,689. Other Income ($1,317,211) for the six months
ended June 30, 2000 included interest income of $56,010, pari-mutual tax credits
of $721,789 and Summer Jai-Alai income of $539,412.
TAX LOSS CARRYFORWARDS
At December 31, 1998, the Company had approximately $16,000,000 in net operating
loss carryforwards. However, because of IRC section 382 limitations due to the
change of control that occurred in March, 1993, the bulk of these carryforwards
are limited to approximately $95,000 per year. Operating losses of approximately
$7,000,000 attributed to the period after the change of ownership are not
subject to the Section 382 limitation.
SUMMARY OF OPERATIONS
The Company had net income of $212,491 or .02 per common share, for the three
months ended June 30, 2000, compared to net income of $129,797 or $0.01 per
common share for the three month period ended June 30, 1999. The Company had net
income of $623,359 or .07 per common share, for the six months ended June 30,
2000 compared to net income of $1,821,909 or $0.28 per common share for the six
month period ended June 30, 1999. The 1999 Net Income ($1,821,909) includes a
non-recurring gain of $924,702 ($0.16 per common share) on the sale of excess
commercial real estate in Miami.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at June 30, 2000 was
$1,727,732. At June 30, 2000, the Company had an increase in working capital of
approximately $850,895 from December 31, 1999.
During the six months ended June 30, 2000, net cash used in the Company's
operating activities was $3,786. The Company's continuing operating expenses
consisted principally of office expenses, general and administrative expenses,
and costs associated with Jai-Alai and ITW operations. Principal revenues were
from net pari-mutuel wagering commissions on live Jai-Alai and ITW events.
During the six months ended June 30, 2000, cash flow provided from investing
activities was $12,599.
During the six months ended June 30, 2000, cash flow used in financing
activities was $506,740.
On February 17, 1999, the Company sold excess real estate consisting of 12.99
acres, located near the Miami Jai-Alai facility in Miami, FL for $3,668,000.
20
<PAGE>
The proceeds of the Excess Real Estate Sale were used as follows:
<TABLE>
<S> <C> <C>
(a) Payment to Bank of Oklahoma.................... 1,500,000
(b) Brokerage Commissions.......................... 91,700
(c) Real Estate Taxes.............................. 88,737
(d) Title Charges.................................. 23,042
(e) Recording and Transfer Fees.................... 38,551
(f) Misc. settlement charges....................... 7,961
(g) Deposit-paid on various trade accounts payable. 200,000
----------
Total $1,949,991
==========
</TABLE>
The Company incurred other costs related to carrying the Miami property and
lease-back obligations of approximately $899,199.. These other property-related
costs were expensed as operating costs over the period from January 1, 1998 to
February 17, 1999 - - - the period which the Company owned the property.
The balance of the cash received, $1,718,009 has been invested in short-term
cash equivalent funds.
For further information regarding the sale, please refer to the Form 8-K dated
February 18, 1999.
As a result of these transactions, the Company's cash flow is currently adequate
to meet its debts and other obligations as they come due. The Company's
operating results have improved dramatically.
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
Company believes that the forward-looking statements are based upon reasonable
assumptions, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from the
results anticipated in the forward-looking statements include, but are not
limited to: economic conditions (both generally and more specifically in the
markets in which the Company operates); competition for the company's customers
from other providers of entertainment and gaming opportunities; government
legislation and regulation (which changes from time to time and over which the
Company has no control); material unforeseen complications related to addressing
the Year 2000 Problem experienced by the Company or its service provider,
Autotote, Inc. its suppliers, and governmental agencies; and other risks
detailed in the Company's filings with the Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond the control
of the Company. The Company undertakes no obligation to republish
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events .
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Orez, Ltd. has named the Company as a defendant in a suit
challenging the number of common stock shares issued in the
Preferred Stock Series C conversion. The Company has answered
the suit and Management is of the opinion that the outcome
will not have a material adverse impact on the Company's
financial position or its results of operations.
Legong Investments NV ("Legong") domiciled in the Netherlands
Antilles, is the holder of 50 shares of the Company's B
Convertible Preferred Stock and 1800 shares of the Company's
Series E 8% Convertible Preferred Stock. Legong has applied to
the Florida Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering for permission to
own 5% or more of the Company's shares of common stock. Legong
has also initiated an arbitration proceeding to resolve how
many shares of the Company's common stock it will receive upon
conversion of the Preferred Stock into Common Stock in
accordance with the terms of the Preferred Stock. Legong
claims that it would be entitled to 2,439,880 shares of common
stock plus damages in the amount of $366,000. The Company
claims that Legong would be entitled to 2,301,969 shares of
common stock. The Company will vigorously contest any claim by
Legong for damages.
The Company is a defendant in several suits which are deemed
to be routine litigation (mostly slip-and-fall suits) in the
ordinary course of business. The Company believes that the
ultimate resolution of the suits will not have a material
adverse impact on the Company's financial position or its
results of operations.
Item 2. CHANGES IN SECURITIES.
a) Not applicable.
b) Not applicable.
c) Not applicable.
d) Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None at date of filing.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
---------
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K.
-------------------
None.
22
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
--------------------------
(Registrant)
Date: December 27, 2000 By: /s/ W. B. Collett
-------------------- ----------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
23
