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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission file number 0-9099
FLORIDA GAMING CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-1670533
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3500 NW 37TH AVENUE, MIAMI, FLORIDA 33142-0000
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
--------------
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
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6,066,816 shares of the issuer's Common Stock were outstanding as of the
latest practicable date, MAY 15 , 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 March 31, 2000 (unaudited) and December 31, 1999............................................ 3
Statements of Operations (unaudited) for Three Months ended March 31, 2000 and 1999.............................. 5
Statements of Cash Flows (unaudited) for the Three Months ended March 31, 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...................................................................................... 21
SIGNATURES....................................................................................................... 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
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ASSETS 2000 1999
- ------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 2) .................................. $ 2,114,801 $ 2,385,479
Accounts receivable & current portion of notes receivable ............ 653,757 652,075
Inventory (Note 2) ................................................... 100,823 98,929
Prepaid expense and other ............................................ 211,002 140,207
------------ ------------
Total current assets ......................................... $ 3,080,383 $ 3,276,690
PROPERTY AND EQUIPMENT:
Land ................................................................ $ 4,184,412 $ 4,184,412
Buildings and Improvements .......................................... 8,180,010 8,151,324
Furniture, fixtures and equipment ................................... 1,827,004 1,827,004
------------ ------------
$ 14,191,426 $ 14,162,740
Less accumulated depreciation ....................................... (2,445,761) (2,310,449)
------------ ------------
$ 11,745,665 $ 11,852,291
REAL ESTATE DEVELOPMENT .................................................. 4,310,607 4,262,907
COMMERCIAL PROPERTY HELD FOR SALE ......................................... 3,757,824 3,757,825
OTHER ASSETS .............................................................. 895,679 1,194,501
------------ ------------
$ 23,790,158 $ 24,344,214
============ ============
</TABLE>
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
- ------------------------------------ ---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note 2) ...................................... $ 4,720,847 $ 5,367,778
Short-term borrowing and current portion of long-term debt .......................... 3,547,135 4,234,545
------------ ------------
Total current liabilities.......................................... $ 8,267,982 $ 9,602,323
LONG-TERM LIABILITIES
Long-term portion notes payable ..................................................... 2,291,770 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; 34,435 shares issued and outstanding
at March 31, 2000 and December 31, 1999 ........................................... 3,443 3,443
Class B convertible preferred stock; convertible to common stock, 5,000 shares
Authorized; 95 shares issued and outstanding at March 31, 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 March 31, 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 March 31, 2000 and December 31, 1999 ............. 200 200
Common stock, $.10 par value, authorized 15,000,000 shares, 6,066,816 issued and
Outstanding at March 31, 2000, and December 31, 1999 .............................. 606,682
606,682
Capital in excess of par value ........................................................... 39,572,552 39,572,551
Accumulated deficit ...................................................................... (26,952,676) (27,323,544)
------------ ------------
Total stockholders' equity ................................................. 13,230,406 12,859,537
------------ ------------
Total liabilities and stockholders' equity.................................. $ 23,790,158 $ 24,344,214
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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FLORIDA GAMING CORPORATION
STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
March 31, 2000 March 31, 1999
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<S> <C> <C>
HANDLE:
Live Jai-Alai Wagering $18,508,928 $19,129,509
Inter-Track Wagering (ITW) 14,262,588 14,159,665
----------- -----------
Total Pari-Mutuel Handle $32,771,516 $33,289,174
=========== ===========
REVENUE:
Live Jai-Alai Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida $ 3,026,289 $ 2,996,459
Inter-Track Mutuel Commissions 1,381,691 1,362,690
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Net Pari-Mutuel Revenue $ 4,407,980 $ 4,359,149
Real Estate Division Income 63,000 466,000
Cardroom Income 111,948 114,684
Admissions Income, net of taxes 78,194 90,296
Programs, Food,Beverage and Other 678,402 694,459
----------- -----------
Total Operating Revenue $ 5,339,524 $ 5,724,588
=========== ===========
COSTS AND EXPENSE:
Operating $ 3,346,727 $ 3,458,373
General and Administrative 1,961,353 2,027,533
Depreciation and Amortization 170,421 183,025
Summer Jai-Alai 18,278 -
----------- -----------
Total Costs and Expense $ 5,496,779 $ 5,668,931
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Income (Loss) From Operations $ (157,255) $55,657
=========== ===========
OTHER INCOME
Interest and Other Income 568,123 711,753
Gain on Sale of Excess Real Estae - 924,702
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Net Income $ 410,868 $1,692,112
=========== ===========
Earnings per Common Share $ 0.05 $ 0.29
Earnings per Common Share (fully diluted) $ 0.04 $ 0.24
Weighted Avg. Common Shares Outstanding 6,066,816 5,782,250
</TABLE>
5
<PAGE>
FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
March 31, March 31,
--------- ---------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net Income .................................................................................... $ 410,868 $ 1,692,112
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization ......................................................... 170,421 183,026
Gain on sale of assets ................................................................ -0- (1,024,702)
Equity in earnings of Summer Jai-Alai ................................................. (118,939) 27,332
Change in Accounts receivable, net .................................................... (275,603) (283,886)
Change in Prepaid expenses ............................................................ (70,794) (96,606)
Change in Other assets ................................................................ (6,871) (10,508)
Change in Inventories ................................................................. (1,894) 3,211
Change in Accounts payable and accrued expenses ....................................... 176,470 (710,403)
----------- -----------
Total adjustments ............................................................ (127,210) (1,912,536)
----------- -----------
Net cash provided by (used in) by operating activities ........................... $ 283,658 ($ 220,424)
Investing Activities:
Proceeds from sales of property ...................................................... -0- 3,514,707
Capital Expenditures .................................................................. (28,686) (14,669)
Investment in Summer Jai-Alai ......................................................... -0- (65,001)
Increase in capitalized development ................................................... (47,700) 225,325
----------- -----------
Net proceeds provided by (used in) investing activities .......................... $ (76,386) $ 3,660,362
Financing activities:
Net proceeds from borrowing (Repayment of Borrowings) (Note 8) .................... $ ( 278,780) ($1,599,343)
Dividends Paid .................................................................... (40,000) (40,000)
----------- -----------
Net cash used in financing activities ......................................... $ (318,780) (1,639,343)
NET INCREASE (DECREASE) IN CASH ............................................................... $ (110,858) $ 1,800,595
CASH AND EQUIVALENTS AT BEGINNING OF YEAR ..................................................... $ 2,225,659 $ 1,086,285
=========== ===========
CASH AND CASH EQUIVALENTS AT MARCH 31, 2000 .................................................. $ 2,114,801 $ 2,886,880
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .................................................................................... $ 200,511 $ 163,382
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
March 31, 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 47% 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 undeveloped land
held for resale includes land owned near its existing Jai- Alai frontons
($1,834,516 at March 31, 2000 and December 31, 1999) and approximately 25 acres
of commercial property held for sale adjoining the Tara residential property in
the amount of $1,923,308 as of March 31, 2000.
INVENTORY: The Company's inventory, comprising food and beverage products and
souvenirs, is stated at the lower of cost or market.
PARI-MUTUEL WAGERING: Revenue is derived from commissions earned under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and
off-site Inter-Track Wagering ("ITW") events. On-site wagers are accumulated in
pools with a portion being returned to winning bettors, a portion paid to the
State of Florida, and a portion retained by the Company. ITW wagers are also
accepted and forwarded to the "Host" facility net of the Company's commissions
earned by the Company.
INCOME TAXES: The Company utilizes the asset and liability approach to
accounting for income taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
7
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INCOME OR LOSS PER COMMON SHARE: During 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earning Per Share, ("SFAS 128"), which requires the computation and
disclosure of basic and diluted income (loss) per common share. Basic income
(loss) per common share is determined by dividing income (loss) by the
weighted average number of shares of common stock outstanding. Diluted income
(loss) per common share is determined by dividing income (loss) by the
weighted average number of shares of common stock outstanding plus the
weighted average number of shares that would be issued upon exercise of
dilutive stock options, assuming proceeds are used to repurchase shares
pursuant to the treasury stock method plus the weighted average number of
shares that would be issued if holders of the Company's preferred stock
converted those shares to common stock using the "if converted" method.
Diluted loss per common share is not presented when the resulting calculation
is antidilutive relative to basic loss per common share.
STOCK OPTIONS: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted
market price of the stock over the option price on the grant date
(measurement date). The Company's stock option plans require the issuance of
all options at a price equal to or greater than the market price of the stock
on the grant date. Stock options issued for non-compensation purposes are
accounted for at fair value pursuant to FASB 123.
(3) INCOME TAXES
At December 31, 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 used to satisfy the Company's obligation to pay taxes
incurred on handle and admission are reported as a reduction of their taxes
in the accompanying Statements of Income. Tax credits used, depreciation
expense and interest expense are all excluded from the statutory calculation
of operating earnings or loss in the determination of future tax credits.
(4) INCOME PER COMMON SHARE
8
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The net income per common share was calculated based upon net income
attributable to common stock shareholders and the weighted average number of
outstanding common shares (6,066,816 and 5,782,250 for the three months ended
March 31, 2000, and 1999, respectively).
Weighted average equivalent shares on a fully diluted basis for the three
months ended March 31, 2000 were 8,717,153 shares, 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 weighted average
common shares. Refer to the Company's latest annual report on Form 10-KSB for
more information on outstanding options, warrants, and conversion features of
preferred stock.
Weighted average equivalent shares on a fully diluted basis for the three
months ended March 31, 1999 were 8,677,387 shares, 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 5,782,250 weighted average
common shares. Refer to the Company's latest annual report on Form 10-KSB for
more information on outstanding options, warrants, and conversion features of
preferred stock.
(5) PREFERRED STOCK
CLASS A PREFERRED STOCK
The Company's Class A preferred stock provides annual dividends, at the rate of
$.90 per share payable in cash, property or common stock, which are cumulative
and have priority over dividends on the common stock. Class A preferred stock
dividends totaled $30,971 during 1997. These dividends were paid by the issuance
of 9,577 common shares and $20 cash in lieu of fractional shares. On September
21, 1998, the Company declared a dividend on shares of the Class A preferred
that were issued and outstanding at the close of business on September 21, 1998.
The Company paid the dividend which was declared on September 21, 1998 on April
13, 2000 in cash, totaling $30,272. The dividend was not declared in 1999. Each
share of Class A preferred is convertible into .225 shares of common stock at
the holder's option. During the years ended December 31, 1997 and 1996, -0-
shares and 300 shares of Class A preferred stock were converted into -0- shares
and 67 shares of common stock, respectively. The Class A preferred is redeemable
at the option to the Company at $10.60 per share. In the event of dissolution,
the holders of Class A preferred shall be entitled to receive $10.00 per share,
plus accrued dividends, prior to any distribution to holders of common stock.
CLASS B PREFERRED STOCK
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% to 10% of the consideration paid for the stock. Such
dividends are payable in shares of the Company's common stock. The consideration
to be received by the Company upon initial issuance of each share of the Series
B stock is $1,000. Holders of Series B shares may convert all or any of such
Series B shares to the Company's common stock using a ratio based on the
consideration paid for the stock and 80% of the market value of the common
stock. On December 15, 1995, the Board of Directors reserved 600,000 shares of
the Company's common stock for issuance upon conversion of the Series B
preferred stock. Upon liquidation, the holders of Series B preferred shares
shall be entitled to be paid $1,000 per share plus 8% to 10% accrued dividends
before any distribution to holders of common stock. During the year ended
December 31, 1995, 2,400 Series B preferred shares were issued for $2,400,000 to
three unrelated parties. During the year ended December 31, 1996, the Company
issued 2,300 Series B preferred shares at $925 per share. During 1996, 2,707.5
Series B shares were converted to 473,588 shares of common stock. During 1997,
1547.5 Series B shares were converted to 295,951 shares of common stock. During
1998, 150 Series B shares were converted to 113,466 shares of common stock, and
100 shares were redeemed by the Company. On October 18, 1999, 100 Series B
shares were converted to 105,121 shares of common stock. No shares have been
converted during the first quarter of 2000.
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
9
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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 three months of 2000.
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.
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 and Isle of Capri
has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term
of the Joint Venture. The formation of the Joint Venture is subject to
certain conditions, including the satisfactory completion of due diligence by
Isle of Capri, the receipt of all required regulatory approvals, the approval
of each partner's board of directors, the execution of a definitive joint
venture agreement, and the approval of the Company's stockholders, if
required by law. Either party may terminate discussions in connection with
the Joint Venture and neither party shall have any liability to the other,
except as otherwise specified in the Letter of Intent. The Company has taken
the position that Isle of Capri is in default on a continuing basis of the
Letter of Intent since Isle of Capri failed, when requested by the Company,
to contribute its share of capital ($2,500,000) to build a flea market at
Fort Pierce.
Freedom Financial Corporation has informed the Company that Isle of Capri has
purchased 22,500 shares of Freedom's 7% Series AA Mandatory Redeemable Preferred
Stock (the "Series AA Stock"). The Series AA Stock is convertible into shares of
the Company's Common Stock owned by Freedom at prices ranging from $7.50 per
share of Common Stock to $15.00 per share of Common Stock, depending upon the
timing of the conversion and possible passage of an amendment to the Florida
Constitution permitting casino gaming at the Fronton. The Series AA Stock is
convertible into a minimum of 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.
10
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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
2001 410,000
----------
$ 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.
LITIGATION COSTS: In addition to legal fees incurred in the normal course of the
Company's business activities, during 1999 and 1998 the Company paid
approximately $301,000 and $250,000, 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 partners, and as a result, the Company filed suit against the
partnership in July 1997 to collect on the 1996 losses. This lawsuit was amended
on February 20, 1998 seeking damages from the partners for breaching the Summer
Jai-Alai Operating Agreement and Fronton Lease. At December 31, 1997, the
Company was carrying a balance due from its SJA partners of $468,372.
On June 11, 1998, the Company entered a settlement agreement with the other
members of SJA covering operational issues and, among other things,
1. Continues the existence of the partnership;
2. Stated that the Summer Jai-Alai season (May 1, 1998 to November 28,1998)
would be operated by the Company at it's own risk and for its own benefit.
Provided, however, that if net profits for the 1998 Summer Season exceeded
$250,000, then, in that event, the other members of SJA will be paid a total
of $50,000 for the 1998 Summer Season;
3. Stated that the Company would pay one of the SJA partners about $110,000 for
monies owed by the Company for ITW payments previously held by the Company as
a potential off-set of claims made in the suit;
4. Stated that the Company would have the right, subject to State Approval, to
operate the 1999 Summer Season for its own benefit, provided that the tax
credits available for the 1998 Summer Season have not been exhausted;
5. The parties agreed to meet on or before December 31, 1998 to determine the
operational dates or parameters for the 1999 Summer Season.
Effective July 1, 1998, legislation was passed by the state of Florida by which
Summer Jai-Alai Partnership was granted a tax credit of $922,000. SJA expects to
utilize the tax credits during the 1998 and 1999 SJA seasons. SJA credited the
Company's capital account for the
11
<PAGE>
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 collateral, real estate and improvements consisting of three
jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida (the "WJA
Frontons"). Consideration for the WJA Notes was a combination of $2,000,000 in
cash, a $6,000,000 promissory note bearing interest at the prime rate, 703,297
shares of the Company's Common Stock and a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA and Florida
Gaming Centers, Inc.("Centers") a wholly-owned subsidiary of the Company,
pursuant to which the Centers agreed to acquire the WJA Frontons for the
cancellation of the notes with balances aggregating about $20,000,000 and the
assumption of certain liabilities. (See details below) The acquisition was
consummated as of December 31, 1996 for accounting purposes. The WJA Frontons
acquired were combined with the Fort Pierce Fronton into a new subsidiary,
Centers.
The profit sharing arrangement is based on Centers net profits from Jai Alai
operations as defined, before income taxes. The Company will pay WJA 20% of the
defined cumulative net profits of Centers for each of the ten full calendar
years 1997 through 2006, subject to a cumulative $1,000,000 per year cap
described below. The cumulative $1,000,000 cap is equal to the product of
$1,000,000 multiplied by the number of years in the ten-year period completed,
minus the sum of all amounts previously paid under the 20% profit sharing
arrangement. In addition, Centers has net profits in any calendar year during
the ten-year period in excess of $5,000,000 and WJA does not receive a 20%
payment on the entire amount because of the cumulative $1,000,000 per year cap,
Centers shall pay WJA 5% of the portion of the net profits on which the 20%
payment is not made. No net profit payments will be due for any year after the
ten year period. If during the ten year period, Centers disposes of any of its
significant assets or operations, then WJA would be entitled to receive an
amount equal to ten percent of Centers net gain, if any, on the disposition. No
net profit payments were due for 1997 or 1998.
Two principals of WJA, also entered into consulting arrangements with Centers.
One principal, Roger M. Wheeler, Jr. ("Wheeler"), entered into a ten-year
consulting agreement with Centers, with annual compensation of $100,000 during
the first five years of the agreement and annual compensation of $50,000 during
the second five years of the agreement. The other principal, Richard P. Donovan
("Donovan"), entered into a five-year consulting agreement with Centers, with
annual compensation of $240,000, plus certain benefits. These two individuals
were also granted stock options on the Company's stock with a fair value of
$150,298. Subsequent to December 31, 1997 a lawsuit was filed against the
Company seeking payment of amounts due under these agreements.
During 1997, the Company discontinued the required payments under the above
consulting agreements because of the continuing lack of performance by the
individuals pursuant to their obligations under the consulting agreements.
On March 6, 1998, Donovan filed suit in the Circuit Court of the 11th Circuit
in Florida, Dade County, against Centers. Donovan claimed that Centers
breached the Donovan Contract and requested judgment against Centers for
compensatory damages, including $1,053,000 due for consulting services
through the term of the agreement and $56,000 due for life insurance premiums
for the term of the agreement, together with prejudgment interest, attorneys'
fees, costs and such other relief as the Court deemed just and proper. The
suit was dismissed in December, 1998 pursuant to the stipulation of the
parties following the entry into an Amendment to the Donovan Contract dated
November 24, 1998, which provided for Centers to pay Donovan (i) $84,000 for
past due consulting fees, (ii) $10,000 per month for ninety-six months
commencing January 1, 1999, and (iii) $14,000 past due life insurance
premiums and $14,000 per year for life insurance premiums for seven years
commencing in 1999. The Amendment also provided Centers with an option
exercisable at any time to purchase the balance of the Donovan Contract for
50% of the balance owed on the amended contract, and provided that Donovan
shall be entitled to a consent judgment against the Centers for the balance
due on his amended contract in the event the Company is in default for a
period of 90 consecutive days.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the
Circuit Court of the 11th Circuit in Florida, Dade County, against Centers
and the Company. Wheeler claimed that Centers breached the Wheeler Contract.
Wheeler asserted that the Company guaranteed the performance of Centers.
Wheeler requested judgment in the amount of $675,000 due for consulting
services through the term of the agreement, together with prejudgment
interest, attorneys' fees, costs and such other relief as the Court deems
just and proper. In addition, Wheeler-Phoenix, Inc. alleged that Centers
failed to make payments due under a promissory note in the principal amount
of $500,000. Wheeler-Phoenix requested judgment in the amount of $500,000,
together with prejudgment interest accrued up to the time of judgment,
attorneys' fees, costs and other relief as the court deems just and proper.
The suit was dismissed in December, 1998, following Centers payment of
$80,000 on the Wheeler-Phoenix note and pursuant to the stipulation of the
parties following the entry into an Amendment to the Wheeler Contract dated
November 24, 1998 which provided for Centers to pay Wheeler (i) $75,000 in
past due consulting fees, (ii) $6,000 per month for sixty months commencing
January 1999, and (iii) $4,050 per month for sixty months commencing January
2004. The Amendment also provided Centers with an option exercisable at any
time to purchase the balance of the Wheeler Contract for 50% of the balance
owed on the amended contract, and provided that Wheeler shall be entitled to
a consent judgment against the Company for the balance due on his amended
contract in the event the Company is in default for a period of 90
consecutive days.
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<PAGE>
(8) SALE OF TAMPA JAI-ALAI FACILITY
On September 8, 1998, the Company sold the Tampa Jai-Alai facility for
$8,300,000. The sale was pursuant to an agreement (as amended) dated January,
1998, between the Company and Monroe's Prestige Group, Inc. ("MPG"), a real
estate development company unaffiliated with the Company. The terms of the sale
were determined through arms-length negotiations with MPG. The sale did not
include the Company's Tampa gaming permit which is still owned by the Company,
and remains available for possible use at a different Hillsborough County,
Florida facility.
The Company's direct costs associated with the closing of the transaction
totaled $1,237,779. These costs consisted of commissions, property taxes, legal
fees, and other expenses related to the closing of operations. The Company was
required by the Bank of Oklahoma ("BOK") to pay off the first mortgage to BOK in
the amount of $3,084,465 out of the proceeds received from the sale of the Tampa
Jai-alai facility. The Company had other costs of approximately $1,009,273
related to carrying the facility and player contract close-out costs. These
amounts were expensed over the period which the Company owned the property.
The Company received an additional $125,000 for vacating the property by
November 1, 1998.
For further information regarding the sale, please refer to the Company's Form
8-K dated September 8, 1998.
(9) SALE OF EXCESS PROPERTY IN MIAMI
On February 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.
(10) LITIGATION AGAINST OCALA BREEDERS SALES COMPANY
The Florida Legislature authorized Intertrack Wagering ("ITW") in 1990 allowing
race tracks and jai-alai frontons which conducted full schedules of live racing
or live games to obtain ITW permits and accept inter-track wagers. The 1990
legislation also authorized one (1) ITW permit to operate for a maximum of 21
days in connection with thoroughbred sales at a permanent location holding a
quarter horse permit and specific non-wagering race criteria. Such permit was
awarded to Ocala Breeders Sales Company ("OBS") in Ocala, Marion County,
Florida. Florida Gaming Centers, Inc. operates Ocala Jai-Alai in Marion County,
Florida. The legislation was amended in 1991 and subsequent years to allow an
increase in the number of days during which ITW wagering was allowed at OBS.
From 1990 to the present, the only applicant for this thoroughbred sales ITW
license has been and remains to be OBS.
In 1995, WJA Realty, prior to its' purchase by the Company, filed a lawsuit
alleging, among other things, that the ITW issue as to OBS is unconstitutional.
In December, 1997, the Circuit Court granted Florida Gaming Centers, Inc. a
Motion for Summary Judgment and found that the section of the Statute under
which OBS was granted an ITW permit was a special law enacted in the guise of a
general law and, consequently, is unconstitutional. The State of Florida, as one
of the Plaintiffs, sought and was automatically granted a stay of the Judgment
pending an Appeal. On March 3, 1999, the District Court of Appeals affirmed the
Circuit Court decision that the law under which OBS is operating is indeed
unconstitutional.
The Company does not know at this time what action OBS or the State of Florida
will take concerning this litigation. Upon advice of counsel, management
believes that it is not possible for the Legislature to craft language
permitting only OBS to conduct ITW wagering that would be constitutional.
(11) REAL ESTATE DEVELOPMENT
On November 26, 1997, Florida Gaming Corporation (the "Company") acquired
substantially all of the assets of Interstate Capital Corporation (ICC), a
wholly-owned subsidiary of Freedom Financial Corporation (Freedom). These assets
consisted of 23 acres of partially-
13
<PAGE>
improved commercial properties and a residential real estate development
containing about 250 single-family residential lots, called Tara Club Estates
(collectively, "Tara" or the "Properties"), all of which are situated in
Loganville, Walton County, Georgia. As consideration for the purchase, the
Company paid ICC $6,473,265 as follows: (i) the Company issued to ICC 2,084
shares of Series F 8% Convertible Preferred Stock (the "Series F Preferred
Stock") at a stated value of $1,000 per share (convertible into the Company's
common stock ("Common Stock") on the basis of 296.6689 shares of the
Company's Common Stock for each $1,000 of stated value of the Series F
Preferred Stock), (ii) the Company assumed $1,181,102 of first mortgage
promissory notes to two commercial banks secured by the properties purchased,
and (iii) the Company canceled $2,107,076 in principal balances plus
$1,101,087 of accrued interest owed by Freedom to the Company.
The Company accounted for the acquisition of ICC's assets using the purchase
method of accounting. The total purchase price was $6,473,265 comprising of the
above described indebtedness cancellation, debt assumption, and issuance of the
Series F Preferred Stock. In accordance with generally accepted accounting
principles, the purchase price was allocated to the assets acquired based on
their fair market value at the date of acquisition. Management estimated fair
market value using independent appraisals or other cost information with respect
to the individual assets.
The Company's real estate development activities comprise a separate segment of
its operations. Because the development was acquired in late 1997, the Company
had virtually no income or expenses for 1997 attributable to this segment of its
business. The Company has engaged a professional real estate management and
marketing company to assist with the advertising and marketing program for the
sale of developed residential lots and the commercial property.
(12) RETIREMENT PLAN
The Company provides defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans, which cover employees included in its
current Collective Bargaining Agreement and certain non-union employees, provide
for the deferral of salary and employer matching.
(13) RELATED PARTY TRANSACTIONS
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom Financial Corporation
("Freedom"), an affiliate, with the loan to be represented by a promissory note
(the "Company Note") bearing interest at the rate of 15% per annum and secured
by a first lien on the shares of the Company's wholly-owned subsidiaries,
Florida Gaming Centers, Inc. ("Centers") and Tara Club Estates, Inc. ("Tara")
and by a second lien on substantially all of the Company's other assets. The
Note will be guaranteed by Centers and Tara with their guaranties secured by a
second lien on substantially all of their respective assets. Freedom may
partially fund the Company Note out of the proceeds of a loan from a commercial
bank (the "Freedom Note"). The Freedom Note to the Commercial Bank, if incurred,
will bear interest at 13% per annum and must be personally guaranteed by W.
Bennett Collett, the Company's Chairman and Chief Executive Officer. The Freedom
Note will be secured by an assignment of the Company Note and the collateral
securing the Company Note. The Company Note and the Freedom Note will be due on
demand or one (1) year from date if no demand is made. Five points must be paid
at the closing of the Freedom Note and a like amount will be paid at the closing
of the Company Note to Freedom.
During 1996, the Board of Directors established the Chairman's annual salary at
$360,000, payable monthly. The Chairman had previously received no salary for a
period of three (3) years. During 1997, the Chairman received 8 monthly payments
of $30,000 consistent with the Board's directive. In September, 1997, the
Company discontinued the salary payments to the Chairman and began paying
$30,000 per month to Freedom as a management fee in lieu of salary. No written
employment or consulting agreement exists between the Company and Freedom.
Beginning November 1, 1997, the Company also discontinued salary payments of
$9,000 per month to the President and began paying $8,000 per month to Freedom
as a management fee in lieu of salary.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates three
jai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton," and
collectively, the "Frontons") located in South and Central Florida. The
Company's business consists primarily of its operations at the Frontons, which
include, among other things, live jai-alai, inter-track pari-mutuel wagering
("ITW") on jai-alai, thoroughbred racing, harness racing, and dog racing, poker,
dominoes, and the sale of food and alcoholic beverages. The Company also owns a
fourth gaming permit which was previously operated at the Tampa Jai-Alai Fronton
in Hillsborough County (Tampa) Florida.
The Company's Fort Pierce and Ocala locations provide audio, video and
Inter-Track Wagering ("ITW") on live inter-track and interstate broadcasting of
horse racing, dog racing and jai-alai from around the State of Florida as well
as the rest of the country. The Miami location receives limited ITW broadcasts,
but broadcasts its jai-alai performances to other gaming facilities in Florida,
and fourteen (14) facilities in Connecticut. ITW provides significant additional
revenue as well as providing additional entertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of the
public against each other, as used in this report includes wagering on both live
Jai-Alai performances and ITW.
The Company's principal place of business and executive offices are located at
3500 NW 37th Avenue, Miami, Florida 33142. The Company was incorporated in
Delaware in 1976.
CARD ROOM DEVELOPMENT
Effective June 1, 1996, a new Florida pari-mutuel statute authorized card rooms
at licensed pari-mutuel facilities beginning in January, 1997. The card rooms
are administered and regulated by the Florida Department of Pari-Mutuel Wagering
("DPMW"). Games are limited to non-banked poker games and dominoes. Card room
authorization is also subject to approval by the county commission in which the
pari-mutuel facility is located. This same bill also authorized full-card
simulcasting of races from out of state tracks such as Belmont, Meadowlands,
Philadelphia Park, and Santa Anita. The Frontons in Fort Pierce and Ocala are
currently carrying several of these signals. This legislation also reduced the
pari-mutuel tax on handle from 5% to 4.25% at the Fort Pierce and Ocala
frontons. The pari-mutuel tax at Miami was reduced from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough County,
Florida, passed legislation permitting card rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
opened card rooms in Miami (on June 19th with 40 tables initially) and Tampa (on
May 22nd with 30 tables initially) during the second quarter of 1997. Pursuant
to Florida Statute 849.086 the Miami facility conducts low stakes ($10 per hand)
poker and dominoes at these facilities two hours prior to, during and two hours
following live jai-alai performances. A rake of $.25 per person is the
pari-mutuel's revenue from each hand dealt. Domino tables are rented at the rate
of $1.50 per half hour per player. Florida state taxes are paid at 10% of this
revenue and 4% of the revenues are paid to the Jai-Alai players.
JAI-ALAI INDUSTRY
The jai-alai industry 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, 1998,
and 1997 was approximately $57,868, $59,469, and $67,922, 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
March 31, 2000, approximately eighty (80) home sites had been sold to
builders. The residential sites are presently selling at an average in excess
of $48,000 per site. Before the acquisition of the Properties by the Company,
thirty-nine homes, having a market value of approximately $10,000,000 had
been constructed and sold at an average price of $250,000 each. The
Properties are located on Georgia Highway 81, approximately one (1) mile
south of U.S. Highway 78, inside the Loganville, Georgia city limits. Located
in western Walton County, Georgia, the Properties are approximately 2.5 miles
east of the Gwinnett County/Walton line. Gwinnett County is inside the
fifteen-county region which makes up Metropolitan Atlanta. The population of
the Atlanta area is now over four million residents. Gwinnett County is
located in the Northeast section of Metropolitan Atlanta, and is one of the
fastest growing counties in the United States. The population of Gwinnett
County has doubled in the last ten years. 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,
16
<PAGE>
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 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.
RESULTS OF OPERATIONS -- FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999
During the quarter ended March 31, 2000, the Company's operations reflects
three months' operation of live Jai-Alai performances at Miami and Ft.
Pierce. A full schedule of Inter-Track Wagering ("ITW") was also conducted at
all facilities except Miami, which offers limited ITW product due to
blackouts imposed because of its close proximity to other South Florida
pari-mutuels. The Miami facility, however, broadcasts its jai-alai
performances to other gaming facilities in Florida, the rest of the United
States, Mexico, Central America and Austria. The Ocala Fronton only operated
inter-track wagering during the first quarter and is scheduled to begin their
live jai-alai season on June 2, 2000.
HANDLE ANALYSIS
Total handle (amount of money wagered) for the three months ended March 31, 2000
was $32,771,516 of which $18,508,928 was from live jai-alai wagering and
$14,262,588 was from inter-track wagering. Total handle (amount of money
wagered) for the three months ended March 31, 1999 was $33,289,174 of which
$19,129,509 was from live jai-alai wagering and $14,159,665 was from inter-track
wagering. The net decrease, $517,658 consisted of a decrease of $620,581 in live
handle and an increase of $102,923 in ITW handle.
REVENUES Pari-mutuel revenues (net of state pari-mutuel taxes) for the
quarter ended March 31, 2000 were $4,407,981 compared to pari-mutuel revenues
of $4,359,150, for the same period in 1999. Revenues for the quarter ended
March 31, 2000 ($4,407,981) consisted of $3,026,290 from live Jai-Alai
wagering and $1,381,691 from Inter-Track Wagering. Revenues for the quarter
ended March 31, 1999 were $4,359,150 which consisted of $2,996,459 from live
Jai-Alai wagering and $1,362,690 from Inter-Track Wagering.
17
<PAGE>
Card room Revenue for the three months ended March 31, 2000 was $111,948.
Direct Operating Costs totaled $77,207.
Admissions income, net of state taxes, for the three month period ended March
31, 2000 was $78,194. This compares to $90,296 for the three month period
ended March 31, 1999. Food, beverage and other income for the three months
ended March 31, 2000 and March 31, 1999 were $678,402 and $694,459
respectively. Attendance for live jai-alai performances and ITW performances
were approximately 229,769 for the three months ended March 31, 2000,
decreasing from 242,787 for the three months ended March 31, 1999.
For the three months ended March 31, 2000, the Company had $63,000 in
revenues from lot sales from the Tara Club Estates real estate development.
Lot costs attributable to this revenue totaled $42,300.
Total Operating Revenues for the quarter ended March 31, 2000 decreased
$385,064 (7%) to $5,339,524, down from $5,724,588 for the same period in 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses were $1,961,353 and
$2,027,533 for the three months ended March 31, 2000 and March 31, 1999,
respectively. The decrease of $66,180 (3%) resulted from management's
re-alignment of various departments along with a continuing austerity program
to reduce expenses whenever possible. The Company's general and
administrative expenses and their comparison to the first quarter last year
are as follows: Executive salaries were $117,833 for the quarter ended March
31, 2000 compared to $148,000 for the quarter ended March 31, 1999 (see
consulting fees). Advertising costs for the quarter ended March 31, 2000 were
$244,371 compared to $223,306 for the same period in 1999. Professional fees
were $117,188 compared to $113,123 for the same three month period in 1999.
Consulting fees decreased from $201,967 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 $63,181 for the first
quarter of 2000, compared to $73,822 for the first quarter of 1999. Payroll
taxes increased $44,454 (19%) from $238,992 for the first quarter 1999, to
$283,446 for the first quarter 2000. Employee benefits increased $17,957
(11%) for the first quarter of 2000 compared to the same period in 1999.
Public company costs, including shareholder relations/information for the
quarter ended March 31, 2000, were $3,701 compared to $15,233 for the quarter
ended March 31, 1999. Insurance expense increased $4,417 from $118,065 for
the quarter ended March 31, 1999 to $122,483 for the quarter ended March 31,
1999. Interest expense totaled $200,511 and $235,556 for the three month
period ended March 31, 2000 and March 31, 1999, respectively.
OPERATING EXPENSES
The Company's operating expenses for the three months ended March 31, 2000
and March 31, 1999 were $3,346,727 and $3,458,373 respectively. The Company's
operating expenses and their comparison to the first quarter last year are as
follow: Depreciation and amortization expense for the three months ended
March 31, 2000 and March 31, 1999, was $170,421 and $183,026 respectively.
Player costs, salaries, benefits, and support staff, represent a significant
portion of operational expenses. Player costs for the quarter ending March
31, 2000 and March 31, 1999, were $1,174,275 and $1,108,577 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 $342,194 for the three months
ended March 31, 2000, compared to $344,461 for three months ended March 31,
1999. The components of the 2000 wagering equipment and expenses were $59,263
in ITW tote, interface, and telephone charges; $115,151 in totalizator
equipment rental; $47,200 in satellite charges and $120,580 in
camera/television rental. Utilities expense totaled $139,626 and $173,397
respectively, for the three months periods ended March 31, 2000 and March 31,
1999. Program costs totaling $85,448 and $88,431, respectively, are also
included in the total operating expenses for the three month period ended
March 31, 2000 and 1999. Operating expenses, including payroll costs for the
bar, restaurant, souvenir and concessions costs were $199,215 and $185,163
for the three month periods which ended March 31, 2000 and March 31, 1999,
respectively. Operating payrolls and contract labor costs totaled $731,041
and $697,400 for the three month periods ended March 31, 2000 and March 31,
1999, respectively, excluding player costs and payroll costs included in the
bar, restaurant, souvenir and concessions areas. Of the $731,041, $328,343
was mutuels payroll, $213,628 was maintenance payroll and $189,070 was
security payroll. Maintenance expense for the three months ended March 31,
2000, totaled $91,273.
OTHER INCOME
The Company had net interest and other income of $568,123 and $1,636,455 for the
three-month period ended March 31, 2000 and March 31, 1999, respectively. The
bulk of the income for 1999 ($924,702) was generated from the sale of the excess
property in Miami.
OTHER INFORMATION
In August, 1998 the Nasdaq Stock Market, Inc. informed the Company that Florida
Gaming Corporation common stock no longer qualified for inclusion in the Nasdaq
Stock Market, and the common stock of the Company was delisted at the close of
business on August 21, 1998.
18
<PAGE>
The staff stated that its conclusion was based on the review of the Company's
public filings and the Company's responses to staff comment letters. The
Nasdaq staff was critical of transactions between FGC and its affiliates. On
July 29, 1999 Florida Gaming Corporation was informed that the Company
started trading on the Nasdaq OTC Bulletin Board under the symbol "BETS".
TAX LOSS CARRYFORWARDS
At December 31, 1999, the Company had approximately $14,500,000 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
$5,500,000 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 $410,868 or .05 per common share, for the three
months ended March 31, 2000, compared to net income of $1,692,112 or $0.29 per
common share for the three month period ended March 31, 1999. The 1999 Net
Income ($1,692,112) includes a non-recurring gain of $924,702 ($0.16 per common
share) on the sale of excess real estate in Miami.
LIQUIDITY AND CAPITAL RESOURCES
The balance of the Company's cash and cash equivalents at March 31, 2000 totaled
$2,114,801. At March 31, 2000, the Company had an increase in working capital of
approximately $1,138,034 from December 31, 1999.
During the three months ended March 31, 2000, net cash provided by the Company's
operating activities was $283,658. 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 three months ended March 31, 2000, cash flow used in investing
activities was $76,386.
During the three months ended March 31, 2000, cash flow used in financing
activities was $318,130.
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.
<TABLE>
The proceeds of the Excess Real Estate Sale were used as follows:
<S> <C>
(a) Payment to Bank of Oklahoma ................... $1,500,000
(b) Brokerage Commissions ......................... 91,700
(c) Real Estate Taxes ............................. 88,737
(d) Title Charges ................................. 23,042
(e) Recording and Transfer Fees ................... 38,551
(f) Misc. settlement charges ...................... 7,961
(g) Deposit-paid on various trade accounts payable 200,000
----------
Total $1,949,991
==========
</TABLE>
The Company had incurred other costs related to carrying the Miami property and
lease-back obligations of approximately $899,199. These 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 was invested in short-term cash
equivalent funds.
For further information regarding the sale, please refer to the Form 8-K dated
February 18, 1999.
As a result of these transactions, the Company's cash flow is currently adequate
to meet its debts and other obligations as they come due. The Company's
operating results have improved dramatically.
19
<PAGE>
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); 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.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is the plaintiff in a suit against Ocala Breeder
Sales, Inc. (See Note 10)
The Company is also a defendant in another law suit filed in
1999 seeking the issuance of 122,579 shares of Company common
stock, interest, costs and liquidated damages of $305,000 to
over $2,000,000. The Plaintiff (Orez, Ltd.) is a private
investment company who purchased 150 shares of the Company
Series C Preferred Stock for $150,000 on December 19, 1996.
The stock was issued to Orez pursuant to the terms an
conditions of the Certificates of Designation. During 1998 and
early 1999, Orez tendered its Notes of conversion seeking to
be issued 302,024 shares of common stock upon conversion of
its Preferred Stock. The Company refused to honor the Notices
of Conversion because among other things, Orez did not comply
with the conversion formula in preparation of such notices.
The Preferred Subscription Agreement provides a schedule of
liquidated damages of up to $1,000 per day. The Company will
defend the claim and will seek to have the liquidated damages
provision held unenforceable as a penalty. It is likely the
Company will be required to issue about 13,782 additional
common shares to Orez in connection with this controversy.
On or about July 1, 1991, WJA Realty Limited Partnership ("WJA
Realty"), predecessor-in-interest to the Company, entered into
a contract with Telecom Broadcasting, Inc.,
predecessor-in-interest to Spector Entertainment Group, Inc.,
to broadcast by satellite television jai-alai performances
from the Miami fronton. Subsequent renewals of the contract
were executed by WJA Realty with the last renewal expiring
December 31, 1998. The Company properly terminated the
contract with Spector Entertainment Group, Inc. regarding the
satellite service for Miami Jai-Alai as of December 31, 1998.
On September 28, 1999 Spector Entertainment Group, Inc., a
California corporation, filed suit in the United States
District Court, Southern District of California, against the
Company. Spector Entertainment Group, Inc. alleges Breach of
Contract and Breach of the Covenant of Good Faith and Fair
Dealing. On November 4, 1999, the Company filed an answer
denying the allegations. The Company believes the claims lack
merit and intends to defend the suit vigorously.
The Company is a defendant in several suits which are deemed
to be routine litigation (mostly slip-and-fall suits) in the
ordinary course of business. The Company believes that the
ultimate resolution of the suits will not have a material
adverse impact on the Company's financial position or its
results of operations.
Item 2. CHANGES IN SECURITIES.
a) Not applicable.
b) Not applicable.
c) 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.
21
<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: MAY 15, 2000 By: /s/ W. B. Collett
---------------------- --------------------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET & STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-21-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,115
<SECURITIES> 0
<RECEIVABLES> 654
<ALLOWANCES> 0
<INVENTORY> 101
<CURRENT-ASSETS> 3,080
<PP&E> 14,191
<DEPRECIATION> (2,446)
<TOTAL-ASSETS> 23,790
<CURRENT-LIABILITIES> 8,268
<BONDS> 0
4
0
<COMMON> 607
<OTHER-SE> 13,230
<TOTAL-LIABILITY-AND-EQUITY> 23,790
<SALES> 0
<TOTAL-REVENUES> 5,340
<CGS> 0
<TOTAL-COSTS> 5,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> (157)
<INCOME-TAX> 0
<INCOME-CONTINUING> (157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 411
<EPS-BASIC> .05
<EPS-DILUTED> .04
</TABLE>
