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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended OR December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission File Number 0-9099
FLORIDA GAMING CORPORATION
(Name of Small Business Issuer in its Charter)
DELAWARE 59-1670533
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 N.W. 37th Avenue
Miami, Florida 33142
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number
including area code: (305) 633-6400
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($.10 par value) and Class A Convertible Preferred Stock ($.10 par
value)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
ITEM 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated herein by reference in Part III of this Form 10-KSB or
any amendment to this Form 10-KSB. [X]
The registrant's revenues for the most recent fiscal year: $12,865,298
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 24, 2000.
Common stock, par value of $.10 per share - $3,087,039
The number of shares of the registrant's common stock outstanding as of
March 27, 2000 - 6,066,816 shares.
Transactional Small Business Disclosure Format
Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates
three jai-alai fronton and inter-track pari-mutuel wagering facilities (each, a
"Fronton", and collectively, the "Frontons") located in South and Central
Florida. The Company's business at this time consists primarily of its
operations at the Frontons, which include, among other things, live jai-alai
performances, inter-track pari-mutuel wagering ("ITW") on jai-alai, horse racing
(both thoroughbred and harness) and dog racing, and the sale of food and
alcoholic beverages. The Fort Pierce and Ocala locations provide inter-track
wagering on interstate simulcasting of horse racing, dog racing, and jai-alai
from various tracks and frontons in the United States and within the State of
Florida. The Miami location offers limited ITW wagering, and simulcasts its
jai-alai performances to other gaming facilities in the United States, Mexico
and Central America.
The term "pari-mutuel wagering" refers to the betting by members of
the public against each other, and as used in this report, and includes
wagering on both live performances and inter-track pari-mutuel wagering.
In November 1997, the Company entered into the real estate development
business. See "Real Estate Development."
Since its inception, and before the acquisition of the Fort Pierce,
Jai-Alai Fronton in February 1994, the Company engaged in several other lines of
business, none of which are currently in operation. The Company was incorporated
in Delaware in 1976 as Lexicon Corporation. The Company changed its name in
March 1994, to Florida Gaming Corporation. Present management assumed control of
the Company in 1993.
The Company's principal place of business and executive offices are
located at the Miami Jai-Alai facility, 3500 N.W. 37th Avenue, Miami, Florida
33142.
ACQUISITION OF FRONTONS/DEVELOPMENT OF CARDROOMS
ACQUISITION OF THE FT. PIERCE FRONTON. On February 1, 1994, the Company
and its' key executives and directors received regulatory approval from the
Florida Department of Business and Professional Regulation, Division of
Pari-Mutuel Wagering (the "DPMW") to transfer the Ft. Pierce pari-mutuel permit
for the Ft. Pierce Fronton from WJA Realty Limited Partnership ("WJA") to the
Company. The Company closed the purchase of the Ft. Pierce facility on that
date. Consideration paid to WJA for the acquisition of the Fort Pierce Jai-Alai
facility consisted of 200,000 shares of Company Common Stock, $1,500,000 paid in
cash and a ten-year 8% mortgage for $1,000,000.
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ACQUISITION OF THE MIAMI, TAMPA AND OCALA FRONTONS. On September 12,
1996, the Company acquired secured notes (the "WJA Notes") of WJA, with balances
aggregating about $20,000,000 from the Bank of Oklahoma, N.A., Tulsa, Oklahoma.
The WJA Notes were secured by real estate and improvements consisting of three
jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida (the "WJA
Frontons"). 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
promissory note.
On November 25, 1996, the Company entered into an agreement with WJA
and Florida Gaming Centers, Inc. ("Centers"), a wholly-owned subsidiary,
pursuant to which Centers agreed to acquire the three (3) WJA Frontons. The
acquisition was consummated as of January 1, 1997. The Fort Pierce Fronton was
also transferred into Centers.
The consideration for the acquisition of the three frontons included
(i) the cancellation of WJA Notes and related obligations acquired by the
Company from the Bank of Oklahoma, NA, (ii) the retention by WJA of 200,000
shares of the Company's common stock received by WJA in the sale of the Ft.
Pierce facility, and (iii) a profit sharing arrangement described below. The
Company assumed all liabilities of WJA arising in the ordinary course of the
business, subject to certain limitations and exceptions. The Company also
assumed the principal amount outstanding under a $500,000 promissory note owed
to Wheeler-Phoenix, Inc., by WJA with the terms of the note amended to provide
for repayment of principal over a ten year period, following the closing, in
equal annual installments plus interest at 6% per annum. See "ITEM 3. Legal
Proceedings."
The profit sharing arrangement with WJA is based on Centers' net
profits, as defined, before income taxes. The Company agreed to pay WJA 20% of
the cumulative net profits of Centers for each of the ten full calendar years
1997 through 2006, subject to a cumulative $1,000,000 per- year cap described
below. The cumulative $1,000,000 cap is equal to the product of $1,000,000
multiplied by the completed number of years in the ten-year period, minus the
sum of all amounts previously paid under the 20% profit sharing arrangement. In
addition, if Centers has net profits in any calendar year during the ten-year
period in excess of $5,000,000, but has not paid WJA a 20% payment on the entire
amount because of the cumulative $1,000,000 per year cap, Centers will pay WJA
5% of the portion of the net profits on which the 20% payment was 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 10% of
Centers gain, if any, on the disposition.
Two principals of WJA, Roger M. Wheeler, Jr. and Richard P. Donovan,
entered into consulting arrangements with Centers. Mr. Wheeler entered into a
ten-year consulting agreement with Centers, with annual compensation of $100,000
during the first five years of the agreement and annual compensation of $50,000
during the second five years of the agreement. Mr. Donovan entered into a
five-year consulting agreement with Centers, with annual compensation of
$240,000, plus certain benefits. Both of these consulting
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arrangements were modified pursuant to amended agreements dated November 24,
1998. See "ITEM 3. Legal Proceedings."
In 1980, WJA and three other pari-mutuel permit holders formed Summer
Jai-Alai Partners ("SJA"), a Florida general partnership, to own a pari-mutuel
permit and to conduct pari-mutuel jai-alai operations at the Miami Fronton
during the summer months ("Summer Operations"). As part of the acquisition of
the WJA assets, the Company acquired and currently owns a 21% interest in SJA.
Under the terms of the partnership agreement, certain of the Company's costs and
expenses are allocated to Summer Operations based upon specific formulas set
forth in the agreement. In addition, pursuant to a lease agreement which expires
in the year 2004, SJA rents the Miami Fronton from the Company for the period
during which the Summer Operations are conducted. The rental is based upon 1% of
handle, plus applicable Florida sales tax. The Company's 21% interest in SJA is
accounted for under the equity method. See "ITEM 3. Legal Proceedings."
CARDROOM DEVELOPMENT. Legislation which authorized card rooms at
licensed parimutuel facilities (Section 849.086 of the Florida Statutes) started
January, 1997. The card rooms are administered and regulated by the DPMW. Games
are limited to non-banked poker games. The establishment of a card room
operation is also subject to approval by the county commission in which the
pari-mutuel facility is located. This same statute also authorized full-card
simulcasting of races from out-of-state tracks such as Belmont, Meadowlands,
Philadelphia Park, and Santa Anita. The Frontons in Fort Pierce and Ocala are
currently carrying several of these race simulcast signals. This same
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 rate was reduced at Miami
from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough
County, Florida, passed legislation permitting poker rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
developed poker rooms in Miami (with 40 tables) and Tampa (with 30 tables)
during the second quarter of 1997. The Miami facility conducts low stakes ($10
per hand) poker and dominoes two hours prior to, live jai-alai performances,
during, and two hours following live jai-alai performances. Poker revenues
consist of a rake of $.25 per hand per person from each poker hand dealt. State
taxes are 10% of the rake and 4% of the rake must be paid as commission to the
jai-alai players. The Miami facility also offers dominoes. The Tampa facility
was sold in November, 1998. (See ITEM 2. "Description of Property.")
THE SPORT OF JAI-ALAI; FORM OF JAI-ALAI PLAYED AT THE FRONTONS
Jai-alai, a sport of French and Spanish Basque origins, was introduced
to Florida as a professional sport in 1926. In the United States, jai-alai is
played by either one or two man teams, in a round robin fashion, with the
winning team or player remaining on the court until defeated. Originally a form
of handball, jai-alai has developed over time into a ball game of high speed and
strategy. Players compete against each other in a three-walled arena and score
win points against each other by successfully positioning the ball ("pelota") in
play in
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such a way that the opposing player is unable to keep the ball in play. The
pelota is propelled by means of a gloved wicker sling ("cesta"). The combination
of the extremely hard pelota, which is slightly smaller than a baseball, and the
sling-shot action of the cesta, makes the sport of jai-alai the fastest ball
game in the world. The winner of the game is the first team to score a
pre-determined number (usually 7 points or 9 points) of points. The Company
believes this system of play makes it extremely difficult to predetermine the
winner or order of finish.
Games are supervised by the general manager of each of the Frontons.
The players' manager and judges are appointed by each of the Frontons. The
general manager of the Fronton, the players' manager, the judges, and the
players are licensed annually by the State of Florida DPMW. The Florida DPMW
also assigns two of its employees to act as officials in addition to the judges
provided by the Fronton. The Florida DPMW also assigns an auditing official to
supervise the pari-mutuel wagering operations. Player compensation is based
largely upon performance. Player contracts and/or rules of the Florida DPMW
prohibit wagering by the players or their families and contact between players
and spectators before and during play.
PARI-MUTUEL WAGERING AT THE FRONTONS
Under the laws of Florida, pari-mutuel wagering on jai-alai games is
prohibited unless played at a Fronton holding a permit under the applicable
state statute. Wagers may be placed at each of the Frontons on performances
conducted by the Company at the Fronton (live wagering) or Inter-Track Wagering
("ITW") on performances (including jai-alai, thoroughbred racing, harness
racing, and dog racing) conducted by other pari-mutuel operators sending
(simulcasting) performances from other pari-mutuels to the Fronton. The Fronton
acts as the broker for wagers by the public and deducts a negotiated commission
as the guest (receiving) facility with each host (sending) facility as
authorized by law. Neither the Company nor the State of Florida has any interest
in which player or team wins a given game.
Customers may wager on jai-alai performances in a variety of ways. For
example, wagers may be for win, place, and show (first, second and third); for
teams or individuals to place first and second with the order not specified
(called "Quinella"); to place first and second with the order specified (called
"Perfecta"); or to place first, second and third with the order specified
(called "Trifecta").
Wagers are placed by purchasing tickets in the Fronton at wagering
areas equipped with ticket-issuing machines. The Fronton has totalizator
equipment furnished by Autotote Systems, Inc. which automatically registers any
type of bet, and in addition, verifies all winning tickets.
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FRONTON'S SCHEDULE OF JAI-ALAI PERFORMANCES
Pursuant to the pari-mutual wagering permit granted by the Florida
Department of Pari-Mutuel Wagering ("DPMW"), each Fronton, in order to conduct
ITW, must offer a "full schedule" of jai-alai performances of at least 100 live
evening and/or matinee performances per year. In addition, the Fronton may offer
ITW year-round so long as a pari-mutuel facility in Florida is providing the
required number of live performances per year. Each Fronton has received a
license from the DPMW to conduct live jai-alai performances during the 1999-2000
season. The Miami Fronton conducts live jai-alai performances year round. Fort
Pierce and Ocala operate four-month seasons. All of the Frontons, with the
exception of Miami, remain open for ITW year-round during the period (about nine
months) when live jai-alai performances are not being conducted.
The Company is permitted to operate a limited number of charitable and
scholarship nights in addition to its regular performances. The taxes otherwise
due to the State of Florida for such nights are allocated to various charitable
causes and scholarships as determined by the Company in accordance with Florida
law.
COMPETITION AND MARKETING
The gaming industry is highly competitive. Other gaming companies have
substantially greater financial resources and larger management staffs than the
Company. Because of the growing popularity and profitability of gaming
activities, competition is significantly increasing. The Company competes for
customers with other forms of legal wagering, including charitable gaming,
pari-mutuel wagering and state lotteries. The Company also competes with other
entertainment providers for its customers. With the exception of the one fronton
operated full-time in Dania, Florida. The Company does not consider itself to be
in direct competition with any other fronton facility. Florida's pari-mutuel
legislation does not permit the construction of any jai-alai facility within a
geographic radius of 50 miles of any other jai-alai facility.
There are currently 41 pari-mutuel permits issued by the State of
Florida to operate pari-mutuel facilities in the state; 33 of those permits
are presently active. Of the 33 active permit holders, only eight are held by
jai-alai operators; the other 25 permit holders engage in horse racing,
harness racing and dog racing. Aside from the Company's Frontons, the only
other operating jai-alai frontons in the State of Florida are in Dania, FL
and Orlando, FL.
The Miami area offers a wide range of pari-mutuel and other
entertainment activities that compete with the Company for spectators'
leisure-time and wagering patronage. Within a 35-mile radius of the Company's
Miami Fronton, there is another jai-alai fronton which competes with the Miami
Fronton, three thoroughbred horse racing tracks that operate during part of the
Miami Fronton's season (although not at the same time of day and not at night),
and two dog racing tracks, one of which operates during substantial portions of
the Miami Fronton's season. The Summer jai-alai operation competes directly with
two dog racing tracks (owned and operated by two of the Company's partners in
the summer jai-alai operation) and Dania jai-alai fronton which operates during
the summer season. In addition
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to these pari-mutuel activities, the Company's Miami Fronton competes with
numerous other sporting and entertainment activities, including professional
sports teams, especially numerous Miami Beach night clubs, Indian Gaming
facilities, cruise and cruise/gaming ships, and gaming activities in the
Bahamas, which are readily accessible from the Miami area. The primary market
for the Miami Fronton includes approximately 3.5 million adults within 50 miles
of the fronton.
The pari-mutuel operation closest to the Ocala Fronton is 75 miles
away. The Ocala Fronton does, however, compete with the Ocala Breeders Sales
Company ("OBS"), which offers limited ITW wagering. There are no substantial
competing evening entertainment activities in Ocala. The primary market for the
Ocala Fronton includes approximately 350,000 adults within 30 miles of the
facility.
The primary market area for the Fort Pierce Fronton includes
approximately 500,000 adults within 35 miles of the facility. The major
population centers in the vicinity of this fronton include Fort Pierce, Port St.
Lucie, Stuart, and Vero Beach, Florida. The Company does not, however, consider
itself to be in direct competition with any other fronton or other pari-mutuel
facility permitted to operate in Florida in its market area at this time. The
closest pari-mutuel facilities are dog racing facilities in West Palm Beach,
approximately 50 miles south of the Fort Pierce Fronton, and in Melbourne,
approximately 53 miles north of the Ft. Pierce Fronton. The Fort Pierce Fronton
competes to a certain extent with the St. Lucie Civic Center which features
sporting events and entertainment activities and a day-cruise gaming vessel
which operates out of Ft. Pierce.
POTENTIAL GAMING JOINT VENTURES
ISLE OF CAPRI CASINOS, INC.: On September 25, 1998, CASINO AMERICA,
INC. changed its name to "Isle of Capri Casinos, Inc." The Company entered
into a letter of intent dated October 4, 1994 (the "Letter of Intent") with
Isle of Capri Casinos, Inc., ("Isle of Capri Casinos, Inc.") to form a joint
venture (the "Joint Venture") to build and operate a casino at the Ft. Pierce
Fronton. Pursuant to a letter of intent, a Joint Venture was to be formed to
build a flea market if the passage of an amendment to the Florida
Constitution to permit casino gaming at the Ft. Pierce Fronton failed. The
Company agreed to contribute its interest in a portion of the Ft. Pierce
Fronton property to the Flea Market Joint Venture with a credit to its
capital account of $5,000,000. Isle of Capri Casinos, Inc. agreed to
contribute up to $2,500,000, as needed, to construct a 100,000 square foot
indoor facility suitable for a flea market or a casino if and when casino
gaming became legal. If casino gaming is not permitted in Florida within six
years and two months from October 4, 1994, Isle of Capri Casinos, Inc. has a
continuing option to convert the money contributed to the Joint Venture to a
promissory note from the Joint Venture payable in equal payments over a ten
year period with interest at 8% per annum. If casino gaming is permitted at
the Ft. Pierce Fronton before December 4, 2000, pursuant to the Agreement,
the value of the assets to be contributed by the Company to the Joint Venture
were to be adjusted to increase the Company's portion of the capital account
to $22,500,000. Isle of Capri Casinos, Inc. agreed to fund its portion of the
capital account on an as needed basis up to $22,500,000. All profits
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and losses of the Joint Venture will be allocated between the partners based
upon capital accounts.
The Letter of Intent agreement provides that Isle of Capri Casinos,
Inc. will be the manager of the casino and all casino-related activities. The
Company will manage the operation of the Ft. Pierce jai-alai fronton,
inter-track wagering and all other non-casino related activities such as the
flea market. Each corporation will receive a management fee based on costs. The
Letter of Intent agreement provides that Isle of Capri Casinos, Inc. has the
exclusive right to enter into a Joint Venture with the Company for six years and
two months from October 4, 1994, and Isle of Capri Casinos, Inc. has a right of
first refusal to enter into other potential casino gaming opportunities in
Florida with the Company for the same 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 Casinos,
Inc., related to the casino operation, the receipt of all required regulatory
approvals, the approval of each partner's board of directors, the execution of a
definitive joint venture agreement, and the approval of the Company's
stockholders, if required by law. If no definitive Joint Venture agreement is
executed by March 31, 1995, and the Letter of Intent is not extended by either
party no later than June 30, 1995, either party may terminate discussions in
connection with the Joint Venture and neither party shall have any liability to
the other, except as otherwise specified in the Letter of Intent. By letter
dated March 21, 1995, Isle of Capri Casinos, Inc. extended the period of time to
June 30, 1995. Although no definitive Joint Venture agreement has yet been
executed and the parties are not actively negotiating, neither party has
formally terminated the Agreement.
Freedom Financial Corporation ("Freedom") has informed the Company that
Isle of Capri Casinos, Inc. has purchased 22,500 shares of Freedom's 7% Series
AA Mandatorily Redeemable Preferred Stock (the "Freedom Preferred Stock") for an
aggregate purchase price of $2,250,000. Freedom has also issued 5,207 shares of
Freedom Preferred Stock to Isle of Capri Casinos, Inc. in payment of dividends.
The Freedom Preferred Stock is convertible into shares of the Company's Common
Stock owned by Freedom at prices ranging from $7.50 per share of Common Stock to
$15.00 per share of Common Stock, depending upon the timing of the conversion
and passage of an amendment to the Florida Constitution permitting casino gaming
at the Fronton. The Freedom Preferred Stock is convertible into a minimum of
184,713 shares of the Common Stock and a maximum of 369,427 shares of the Common
Stock. Isle of Capri Casinos, Inc. is the sole holder of the Freedom Preferred
Stock. Freedom has granted certain piggyback registration rights to Isle of
Capri Casinos, Inc. with respect to and the underlying shares of the Company's
Common Stock into which the Freedom Preferred Stock is convertible.
EMPLOYEES
The Company had 86 jai-alai players under contract as of December 31,
1999.
Players' compensation includes base salary, prizes for winning games
played (first, second, third places), and bonuses. The Company enters into
seasonal contracts with its
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players with no provision for vacation. Florida law prohibits any fronton
facility from requiring a jai-alai player to perform on more than six
consecutive calendar days.
The Company competes with all other frontons in the United States and
elsewhere for high quality jai-alai players. To the extent additional frontons
are opened in the future, the demand for high quality players may increase the
competition and costs associated with signing such individuals.
As of December 31, 1999, in addition to jai-alai players, the Company
employed approximately 218 part-time employees and 139 full-time employees, none
of which are unionized. The Company believes that its present employee relations
with its jai-alai players, some of whom belong to the International Jai-Alai
Players Association/U.A.W., and the Company's relations with other employees are
satisfactory.
SALE OF ALCOHOL; ACTIVITIES OF MINORS
Under Florida law, the operator of a jai-alai fronton may also obtain a
license for the sale of alcoholic beverages. These licenses may be revoked or
suspended for violation of applicable alcoholic beverage control regulations or
of any other laws or regulations.
Minors (persons under the age of 18) may attend events at the Frontons
so long as they are accompanied by an adult guest. Minors may not engage in any
pari-mutuel wagering. However, minors may be employed at the Frontons so long as
their employment does not cause them to be directly involved with alcoholic
beverages or wagering.
INDUSTRY OVERVIEW
The jai-alai industry live handle (money wagered) generally has
declined except for the calendar year 1999, in the last several years, due to
increased gaming competition such Indian Gaming, gambling cruise ships, and the
state-wide lottery. Also, competition in the sports/entertainment area has
increased significantly with more professional sports teams in the Company's
market areas. Average state-wide on-track handle per performance for the state
of Florida fiscal years ended June 30, 1999, 1998, and 1997 was approximately
$57,868, $56,966, 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 $117,696,766 IN 1998 TO
$122,965,826 IN 1999, AN INCREASE OF 4.5%.. 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
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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 increasing from approximately $48.5 million for the
year ended December 31, 1998, and 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.
All Florida permit-holders are authorized to engage in ITW year-round,
subject to certain restrictions, all of which are not discussed herein. ITW is
permitted on thoroughbred racing, harness racing, dog racing, and jai-alai. ITW
is permitted at a pari-mutuel facility so long as at least one facility in
Florida is providing live pari-mutuel performances on any such day that ITW is
offered.
Pursuant to the statute and subject to certain restrictions, Florida
jai-alai frontons and dog racing tracks may receive broadcasts of dog races or
jai-alai games conducted at tracks or frontons located outside of Florida
("out-of-state host facilities"). Among the restrictions applicable to such
broadcasts, however, are the following: (1) that the receipt of out-of-state
broadcasts by the Florida fronton or dog racing track (the "Florida guest
facility") only be permitted during the Florida guest facility's operational
meeting, (2) in order for the Florida guest facility to receive such broadcasts,
the out-of-state host facility must hold the same type of class of pari-mutuel
permit as the Florida guest facility, i.e., horse to horse, jai-alai to
jai-alai, etc., (3) the guest facilities may not accept wagers on out-of-state
races or games that exceed 20% of the total races or games on which wagers are
accepted live. All wagering placed on out-of-state ITW broadcasts is included in
the amount taxed pursuant to the Pari-Mutuel Law.
Each of the Frontons, as a guest facility when it participates in ITW,
is entitled by statute to a minimum of 7% of the total contributions to the
pari-mutuel pool when the ITW broadcast is by a host horse racing facility. Each
of the Frontons is eligible by statute to receive a minimum of 5% of the total
contributions to the pari-mutuel pool when the ITW broadcast is by facilities
other than horse racing facilities (greyhound and jai-alai). In addition, each
of the Frontons is authorized to receive admissions and program revenue when
conducting ITW.
INDIAN GAMING VENTURE
RINCON, SAN LUISENO BAND OF MISSION INDIANS. 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 gaming machines at River Oaks was lifted by the United States
District Court for the Southern District of California. The Loan
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Agreement takes effect if and when Class III gaming machines are in legal
operation at River Oaks.
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 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
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
Indiana 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
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<PAGE>
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.
GOVERNMENT REGULATION
GENERAL.
Gaming ventures are regulated by federal and state laws and regulations
applicable to the gaming industry generally and to the distribution of gaming
equipment. The following description of the regulatory environment in which the
Company operates is intended to be a summary and is not intended to be a
complete recitation of all applicable law. Moreover, because the regulatory
environment is dynamic and evolving, it is impossible to predict how certain
provisions will be ultimately interpreted or how they may affect the Company.
Changes in such laws or regulations could have a material adverse impact on the
Company's ability to finance, develop and operate.
The Company will need to secure regulatory approvals from state and
local authorities for each of its prospective gaming ventures from time to time.
No assurance can be given that any of these approvals will be secured in a
timely fashion, or at all.
FLORIDA LAW AND REGULATION.
OVERVIEW. Pari-mutuel wagering in Florida must be conducted in
compliance with the applicable Florida statutes and regulations of the DPMW.
In the 1992 Special Session, the Florida Legislature enacted several new
statutes governing pari-mutuel activities in the State of Florida and
repealed many laws enacted before the 1992 Special Session regarding
pari-mutuels in Florida. Certain provisions of the new pari-mutuel statute,
which governs all pari-mutuel activities relating to horse racing, dog
racing, and jai-alai, were amended in the 1994 Regular Session. The
amendments from the 1994 Regular Session became effective July 1, 1994. In
1996, the legislature enacted statutes permitting interstate simulcasts and
temporarily reduced the tax on jai-alai performances as discussed below. The
new pari-mutuel statute, as amended, is referred to herein as the
"Pari-Mutuel Law."
THE ROLE OF THE DPMW. The DPMW, in its administration of the
Pari-Mutuel Law, is authorized to adopt reasonable rules for the control,
supervision, and direction of all applicants, permittees, and licensees and for
holding, conducting, and operating of all pari-mutuel activities in Florida. In
addition to its taxation powers already described above, the DPMW's powers
include, but are not limited to (1) testing occupational license holders
officiating at or participating in any race or game at any pari-mutuel facility
for a controlled substance or alcohol, and (2) excluding "certain persons" from
any pari-mutuel facility in Florida, including but not limited to persons who
have engaged in conduct that violates certain Florida laws or regulations.
Certain forms of conduct are expressly prohibited at
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<PAGE>
pari-mutuels and include but are not limited to, (1) conniving to prearrange the
outcome of a game, (2) use of alcohol or a controlled substance by an official
or participant in a jai-alai performance, and (3) bookmaking. Failure to comply
with the requirements of the Pari-Mutuel Law can result in a fine imposed by the
DPMW of up to $1,000 per offense, as well as a suspension or revocation of a
pari-mutuel permit, pari-mutuel license, or an occupational license.
PARI-MUTUEL PERMIT AND LICENSE REQUIREMENTS. Each Fronton must obtain
an initial pari-mutuel permit and an annually renewable pari-mutuel license
specifying the number of performances authorized at the Fronton during the year
with respect to which such license is issued. A permit for any new pari-mutuel
must either be enacted by the Legislature, or be ratified by the electorate of
the county in which it is to be located. Currently only two counties, Levy and
Polk, will allow, under state law, ratification of a pari-mutuel permit.
Pari-mutuel permits and licenses may be revoked or suspended by the DPMW for, in
the case of licenses, willful violations of laws, rules or regulations or, as to
permits, by a vote of the county electorate. Any amendment or repeal of the
Pari-Mutuel Laws or suspension or revocation of the Company's permits or
licenses, could be materially adverse to its business.
LIMIT ON SHARE ACCUMULATIONS. Florida law requires that before any
person or Company obtains a 5% or greater equity interest in a pari-mutuel
operator and exercises control with respect to those shares, such person or
company must receive the approval of the DPMW. Such person or company must
submit to a background investigation equivalent to that required of
permit-holders to determine that such person or company has the requisite
qualifications for holding a permit. Consistent with Florida law, the Company
cannot issue shares of Common Stock to a person or company who would thereby
have obtained a 5% or greater equity interest, whether in a single transaction
or series of integrated transactions, until the purchaser has received the
approval of the DPMW.
REQUIRED NUMBER OF LIVE JAI-ALAI PERFORMANCES. In order to qualify to
offer ITW, a fronton must offer a "full schedule" of live races per year. A
"full schedule" of jai-alai means the operation of at least 100 live evening or
matinee performances during a year. In this context, a live performance must
consist of no fewer than 8 games conducted live for each of a minimum of three
performances per week at the permit-holder's facility under a single admission
charge. The Company anticipates it will offer at least 100 live evening or
matinee performances on an annual basis at each of its Frontons.
OCCUPATIONAL AND TOTALIZATOR LICENSE REQUIREMENTS. The DPMW requires
that persons "connected with" pari-mutuels have one of two forms of occupational
licenses.
One form of occupational license is the "unrestricted license" issued
to persons with access to restricted areas such as the backside, racing animals,
jai-alai player rooms, the mutuels, or money room, or to persons, who by virtue
of the position they hold, might be granted access to such areas. Any person
obtaining an unrestricted license must undergo a Federal Bureau of Investigation
and Florida Department of Law Enforcement criminal
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<PAGE>
records check as well as submit fingerprints with their application for a
license. The category of persons qualifying for unrestricted licenses includes,
but is not limited to, trainers, officials, doctors, jai-alai players, owners,
members of management, officers, directors, stockholders who own 5% or greater
equity interest, and other professional employees.
Another form of occupational license is the "restricted license" issued
to persons who are denied access to restricted areas. Applicants for a
restricted license do not usually have to undergo a criminal background check
nor submit fingerprints with their application, although the DPMW may require
such if it deems necessary.
The DPMW also requires all totalizator operators, including the
Company's vendor, Autotote Systems, Inc., to possess an annual totalizator
license. Among the various requirements imposed by the DPMW, the totalizator
operator is required to agree in writing to pay the DPMW an amount equal to any
loss of state revenue from missed or canceled performances due to acts of the
totalizator owner, operator, agents, or employees, and for any failure of the
totalizator system, unless such acts are beyond the control of the above-listed
persons. Every licensed totalizator operator must file a performance bond issued
by a surety approved by the DPMW in the amount of $250,000 insuring the state
against such revenue loss.
Businesses, such as vendors and contractual concessionaires, must also
obtain an occupational license from the DPMW. Minors may be employed by a
pari-mutuel facility as long as their employment is not directly involved with
alcoholic beverages or wagering.
DAILY LICENSE FEE. During the 1999-2000 live jai-alai season, a Daily
License Fee of $40 was assessed for each jai-alai game conducted at each of the
Company's Frontons. The Daily License Fee regulations amendments provide,
however, that should an amendment to the Florida Constitution be adopted that
would permit casino gambling at pari-mutuels such as the Frontons, the fee would
return to $80 per jai-alai game; no such amendment has been passed. Such fee is
paid to the DPMW to defray regulatory costs.
TAXATION. The pari-mutuel tax structure applicable to frontons
operating in Florida provides for distribution of taxes, on a daily basis, based
on the Handle. As discussed below, the pari-mutuel tax structure changed
effective July 1, 1994, as a result of amendments adopted by the Florida
Legislature in the 1994 Regular Session. The various taxes applicable to the
Fronton are as follows:
1. Tax on Handle: Effective July 1, 1994, the tax rate
established by the State of Florida was amended to a rate
of 5% on handle in excess of $30,000 per day where the live
handle for such jai-alai fronton has been less than $15
million during the preceding state fiscal year. Effective
July 1, 1996, the pari-mutuel tax rate was reduced from 5%
to 4.25% at the Ft. Pierce and Ocala Frontons and from 5%
to 3.85% at the Miami Fronton. However, the Pari-Mutuel Law
also provides that, should casino gaming be conducted at a
jai-alai fronton (i.e., assuming
15
<PAGE>
an amendment to the Florida Constitution is adopted), the tax
rate will return to 7.1% as it was under the pre-amended
statute. When a fronton has paid a total of admissions tax,
daily license fee and tax on handle for live performances in
excess of the tax revenues from wagering on live jai-alai
performances paid by the fronton in fiscal year 1991-1992, the
tax on Handle for live jai-alai wagering drops to 3.3%, with
no exception.
JAI-ALAI TAX LEGISLATION. Major tax legislation which limits
the amount of state handle and admission taxes went into
effect July 1, 1998.
The new law, (Section 2, Subsection (1b) of section 550.09511,
Florida Statutes) states, in part, that "Any jai-alai permit
holder that incurred state taxes on handle and admissions in
an amount that exceeds its operating earnings in a fiscal year
that ends during or after the 1997-1998 state fiscal year, is
entitled to credit the excess amount of the taxes against
state pari-mutuel taxes due and payable after June 30, 1998,
during its next ensuing meets."
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 tax
credits of $509,714 over two eligible months of operation.
Tampa Jai-Alai which discontinued live operations following
its July 4th, 1998 performances, utilized pari-mutuel tax
credits of $13,940.
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. Miami's tax credits carried forward into 1999 were
$2,427,201. Miami had a loss from operations totaling
$(646,894) for 1999 and has unused credits totaling $2,502,200
at December 31, 1999.
2. Breaks Tax -- Jai-alai permit-holders must pay a tax equal to
the "breaks." The "breaks" are that portion of each
pari-mutuel pool, computed by rounding down to the nearest
multiple of $.10, which is not re-distributed to the
contributors or withheld by the permit-holder as takeout
(commission). Breaks tax amounts may be retained, however, by
the jai-alai permit-holder for special prize awards.
3. Admission Tax: In addition to a sales tax of 6%, the Frontons
must pay an admission tax equal to 15% of the entrance fee or
10 cents, whichever is greater, for any person attending a
jai-alai game.
4. Daily License Fee: Effective July 1, 1994, the daily license
fee of $80 per game paid by jai-alai frontons was reduced to
$40 per game. The amendments adopted in the 1994 Regular
Session provide, however, that should an
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<PAGE>
amendment to the Florida Constitution be adopted that would
permit casino gaming at pari-mutuels such as the Frontons, the
fee would return to $80 per jai-alai game; no such amendment
has been passed.
5. Jai-Alai Tournament of Champions: The amendments adopted in
the 1994 Regular Session create a special jai-alai meet called
the "Jai-Alai Tournament of Champions" (the "Tournament"). The
Tournament, which may be held only once a year and for no
longer than four performances over four days, permits
permit-holders selected to participate in the Tournament to do
so even though they would not otherwise be authorized to
conduct a meet at such time. In addition, the participants do
not have to pay any taxes on Handle for performances during
the Tournament and may apply any credit they receive, up to
$150,000 aggregated between all participants, to supplement
awards for the performance conducted during the Tournament as
well as to taxes otherwise due and payable by them to the
State of Florida.
REAL ESTATE DEVELOPMENT
In November, 1997, the Company entered into a new business - -
residential real estate development described below. The following paragraphs
outline the background and the Company's approach going forward as to management
and use of the assets acquired. On November 26, 1997, the Company acquired
substantially all of the assets of Interstate Capital Corporation
("Interstate"), a wholly-owned subsidiary of Freedom Financial Corporation
("Freedom"). The assets consisted of certain improved and partially - improved
commercial properties and a residential real estate development called Tara Club
Estates (collectively, the "Properties"), all of which are situated in
Loganville, Walton County, Georgia. As consideration for the purchase, the
Company paid Interstate $6,373,265 as follows: (i) the Company issued to
Interstate 2,084 shares of Series F 8% Convertible Preferred Stock (the "Series
F Preferred Stock") at a stated value of $1,000 per share (convertible into the
Company's common stock ("Common Stock") on the basis of 296.6689 shares of the
Company's Common Stock for each $1,000 of stated value of the Series F Preferred
Stock), (ii) the Company assumed $1,081,102 of first mortgage promissory notes
to lenders secured by a portion of the properties purchased, and (iii) the
Company canceled $3,208,163 owed by Freedom to the Company.
The Company's real estate development activities comprise a
separate segment of its operations. The Company has engaged the services of a
professional real estate management and marketing company to assist with the
evaluation of the market potential, assess competitive factors in the
Atlanta/Walton County market, and to develop an advertising and marketing
program for the sale of the developed residential and commercial property.
These Properties consist of over 100 fully developed, and 150
partially-developed, single-family residential home sites, a swim and tennis
club facility, and 23 acres of commercial property. Eighty Four home sites have
been sold to individuals and builders.
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<PAGE>
As of December 31, 1999, a total of seventy four homes have been sold or are
under construction, having an aggregate market value of approximately
$20,000,000. The sites are presently selling at an average price in excess of
$45,000 per site. Before the acquisition of the Properties by the Company,
thirty-nine homes, having an aggregate value of about $10,000,000, had been
constructed and sold at an average price of $250,000. The Properties are located
on the east side of Georgia Highway 81, approximately one (1) mile south of U.S.
Highway 78, inside the Loganville, Georgia city limits. Located in western
Walton County, Georgia, the Properties are approximately three miles east of the
Gwinnett County/Walton line. Gwinnett County is inside the fifteen county region
which makes up Metropolitan Atlanta. The population of the Atlanta area is now
over four million residents and is continuing to increase. Gwinnett County is
located in the Northeast section of Metropolitan Atlanta, and is one of the
fastest growing counties in the United States. It has doubled its population in
the last ten years, and now has more than 350,000 residents. For the calendar
year of 1999, Walton County Georgia was the fifth fastest growing county in the
state of Georgia.
CERTAIN CONSIDERATIONS
CERTAIN STATEMENTS AND INFORMATION IN THIS ITEM 1 AND ELSEWHERE IN THIS
FORM 10-KSB CONSTITUTE FORWARD-LOOKING STATEMENTS AS THAT TERM IS DEFINED IN THE
SECURITIES ACT. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS
AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS OR PERFORMANCE OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS OR PERFORMANCE
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED BELOW AND ELSEWHERE IN THIS
FORM 10-KSB. THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS.
GAMING COMPETITION. The gaming industry is highly competitive. Other
gaming companies have substantially greater financial resources and larger
management staffs than the Company. Because of the growing popularity and
profitability of gaming activities, competition is significantly increasing. The
Company competes for customers with other forms of legal wagering, including
video poker gaming in non-casino facilities, charitable gaming, pari-mutuel
wagering and state lotteries.
Further expansion of gaming opportunities could also significantly and
adversely affect the Company's business. In particular, the expansion of casino
gaming in or near the geographic areas from which the Company attracts or
expects to attract a significant number of its customers could have a material
adverse effect on the Company's business. The Company expects that it will
experience significant competition as the emerging casino industry matures.
POTENTIAL DILUTION AND MARKET IMPACT FROM OUTSTANDING CAPITAL STOCK AND
OPTIONS. As of March 27, 2000, the Company had 6,066,816 shares of Common Stock
issued and outstanding. In addition, as of that date, 1,190,000 shares of Common
Stock were issuable upon the exercise of outstanding options, and additional
shares of Common Stock were issuable upon the conversion of outstanding shares
of Series A, Series B, Series E, and
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<PAGE>
Series F preferred stock at a conversion price based on the market price of the
Common Stock. The voting power of each holder of Common Stock would be diluted
by the issuance of additional shares of Common Stock. Moreover, the prevailing
market price for the Common Stock may be materially and adversely affected by
the addition of a substantial number of shares of Common Stock into the market
or by the registration under the Securities Act for the sale of the shares
offered thereby. Moreover, if the prevailing market price is materially
adversely affected by the addition of shares of Common Stock into the market,
the number of shares of Common Stock issuable upon the conversion of shares of
preferred stock will increase; as the number of shares increases upon
conversion, the prevailing market price would become further depressed as the
shares of Common Stock are added to the market.
Of the approximately 6,066,816 shares of Common Stock issued and
outstanding as of March 27, 2000, persons who may be deemed "affiliates" (as
that term is defined under the Securities Act) of the Company or who acquired
the shares in a transaction exempt from registration under the Securities Act
since March 25, 1995, hold approximately 2,979,777 shares ("Restricted Shares"),
which may only be sold in the public market if such shares are registered under
the Securities Act or sold in accordance with Rule 144 promulgated under the
Securities Act. For additional information with respect to the Restricted
Shares, see "ITEM 5. Market for Common Equity and Related Stockholder Matters."
POTENTIALLY VOLATILE STOCK PRICE. The price of the Common Stock on the
NASDAQ SmallCap Market in the past two years has shown significant volatility.
During 1998 the price of the Common Stock ranged between $.41 and $3.00 and
during 1999 the price of Common Stock ranged from $.50 and $2.00. Factors such
as the Company's operating results or other announcements by the Company or its
competitors may have a significant impact on the market price of the Company's
securities. On August 21, 1998, the Company's common stock was de-listed from
the Nasdaq Small-Cap Market and the stock is now traded on the Over-the-Counter
- - -- Bulletin Board.
RISKS ASSOCIATED WITH ACQUISITIONS. There may be liabilities which the
Company fails or is unable to discover in the course of performing due diligence
investigations on any company or business it seeks to acquire or has acquired,
including liabilities arising from non-compliance with certain federal, state or
local laws by prior owners, and for which the Company, as a successor owner, may
be responsible. The Company has sought to minimize its exposure to such
liabilities by obtaining indemnification from former owners, which may be
supported by deferring payment of a portion of the purchase price. However,
there is no assurance that such indemnification's, even if obtainable,
enforceable and collectible (as to which there also is no assurance), will be
sufficient in amount, scope or duration to fully offset the possible liabilities
arising from the acquisitions. The success of the Company in the gaming industry
is dependent on a number of factors including, but not limited to, economic
conditions, competitive environment, adequate capital, accurate site selection,
construction schedules, and supply of trained personnel. There can be no
assurance that the Company will be successful in the fronton and gaming industry
or in any related industries which it enters.
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<PAGE>
MANAGEMENT OF GROWTH AND RESTRUCTURING. Since the change in management
of the Company in March 1993, the Company has substantially expanded its
operations. In 1996, the Company acquired three new jai-alai facilities and in
1997 the Company acquired a real estate development near Atlanta, Georgia. For
most of 1998 the Company's working capital position was negatively impacted. The
Company has completed a major part of its strategic plan to improve its' working
capital and achieve profitability. During 1998, and early 1999, the Company
completed the sale of the Tampa facility and sold other excess property located
near the Miami Fronton but not needed in its day-to-day operations for an
aggregate cash consideration for both properties of $12,455,000. These real
estate sales reduced the Company's over-all debt level, thereby reducing
interest expense and other operating expenses. The Tampa facility --- which was
the only facility out of four which was losing money, at the operating level,
was also closed.
These actions, along with substantial operational cost reductions, and the new
Jai-alai Tax relief bill have significantly improved the Company's operating
cash flow and operating efficiencies.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent,
in part, on its key management personnel. In particular, the Company is highly
dependent upon W. Bennett Collett, and W. Bennett Collett, Jr. The loss of their
services could have a material adverse effect on the Company. There is no
assurance that the Company will be able to hire qualified individuals to replace
either of these persons if necessary. The Company does not have any employment
contracts with its' executives, nor does the Company have any key man life
insurance policies on their lives.
CONTROL OF THE COMPANY. As of March 27, 2000, W. Bennett Collett,
Chairman and Chief Executive Officer of the Company, beneficially owned or
controlled directly and by proxy an aggregate of 2,775,446 shares (45.8%) of the
Company's issued and outstanding shares of Common Stock (including 2,072,149
shares (34.2%) beneficially owned by Freedom, with respect to which Mr. Collett
disclaims beneficial ownership), and including 703,297 shares (11.6%) owned by a
wholly-owned subsidiary of the Bank of Oklahoma. Mr. Collett, as CEO of the
Company, pursuant to the terms of a Consent Order entered into between the
Florida Department of Business and Professional Regulation, Florida Gaming
Centers, Inc. and the Bank of Oklahoma, is vested with the continuing voting
rights for 703,297 shares (11.6%) of the Company's issued and outstanding shares
of common stock. Mr. Collett is and will be able to exert considerable influence
over the election of the Company's directors and the outcome of corporate
actions requiring stockholder approval.
ABSENCE OF DIVIDENDS ON COMMON STOCK. The Company has not paid any
dividends on its Common Stock in the past and does not anticipate paying
dividends on its Common Stock in the foreseeable future. In the event the
Company is not contractually prohibited from paying dividends, the holders of
Common Stock would be entitled to receive dividends only when and as declared by
the Board of Directors of the Company, subject to the prior rights and
preferences, if any, of holders of preferred stock.
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ANTITAKEOVER EFFECTS OF CERTAIN INSTRUMENTS, AGREEMENTS OF THE COMPANY,
AND LAWS. The Company's certificate of incorporation and bylaws, certain
contracts to which the Company is a party, the Delaware General Corporation Law
and Florida gaming laws contain provisions that could delay or prevent a
transaction that results in a change of control of the Company or discourage a
tender offer or other plan to restructure the Company favored by a significant
portion of the Company's stockholders. For example, the Florida laws require
that before any person or entity can legally acquire a 5% or greater equity
interest in the Company, such person or entity must receive prior approval of
the State of Florida Department of Business and Professional Regulation,
Division of Pari-Mutuel Wagering.
POTENTIAL CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS. Certain
relationships among the Company, its management and affiliates create various
potential and actual conflicts of interest. See "ITEM 12. Certain Relationships
and Related Transactions." It is the Company's policy that all material
affiliated transactions and loans will be made or entered into on terms that are
no less favorable to the Company than those that can be obtained from
unaffiliated third parties. All future material affiliated transactions and
loans must be approved by a majority of the independent directors who do not
have an interest in the transactions.
CONSTRUCTION RISKS. The Company anticipates that its prospective gaming
ventures may often include the construction of additional facilities. The
Company's cost estimates and projected completion dates for construction of
facilities may change significantly as the projects progress. In addition, the
Company's development projects could entail significant construction risks,
including shortages of materials or skilled labor, unforeseen environmental or
engineering problems, work stoppages, weather interferences and unanticipated
cost increases, any of which could have a material adverse effect on the
projects and could delay their scheduled openings.
ITEM 2. DESCRIPTION OF PROPERTY.
Set forth below is a brief description of the Frontons:
<TABLE>
<CAPTION>
Number Size of Number
of Building of
Location Acres Sq. Ft. Gaming Seats
-------- ----- ------- ------------
<S> <C> <C> <C>
Ft. Pierce 137.00 80,000 2,150
Miami 12.51 165,000 4,389
Ocala 47.98 63,000 1,774
------- -------- -----
Totals 197.49 308,000 8,313
======= ======== =====
</TABLE>
On February 18, 1999, the Company sold to an unaffiliated purchaser
12.99 acres of commercial property located near its Miami, Florida Fronton for
$3,414,707 cash net of
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related expenses. Approximately 80% of the property sold was used for parking
automobiles when the fronton first opened. However, all but two acres of the
parking space was no longer needed. There were no structures on the remaining
acreage sold. The Company leased back from the purchaser approximately two acres
of the property for over-flow parking for a term of four years at a rental of
$5,508 per month.
The Company's Miami fronton, near Miami International Airport, was
built in 1926 and most recently remodeled in 1982. In addition to its jai-alai
auditorium, the fronton has a restaurant overlooking the jai-alai court, a
banquet room, four television lounges and a 12,000 square foot low-stakes card
room that can accommodate 80 poker and dominoes tables. Parking facilities at
the Miami fronton (including on-street parking) accommodate 2,000 cars.
The Company's Ocala fronton, completed in 1973, is situated on a 48
acre site midway between Ocala and Gainesville in north-central Florida. It has
seating for 1,774 people and a total capacity for spectators of approximately
3,800. Parking facilities at the Ocala fronton accommodate approximately 1,100
cars.
Fort Pierce is a coastal community in St. Lucie County, Florida
approximately 110 miles north of Miami. The Fort Pierce fronton, completed in
1974, is located approximately one mile from an exit on the Florida Turnpike,
two miles from an exit on Interstate Highway 95 and five miles west of U.S.
Highway 1. The Florida Turnpike is the primary route between South Florida and
Orlando. The Fort Pierce fronton is situated on a thirty five acre site and its
parking facilities accommodate approximately 2,000 cars.
All of the Company's frontons have pari-mutuel windows, liquor bars and
concession stands.
Substantially all of the Company's real estate associated with the
frontons (excluding 102 acres contiguous to the Fort Pierce fronton discussed
below) provides collateral for the $1,066,855 balance remaining on the original
$7,000,000 secured promissory note and mortgage issued by the Company in
connection with purchase of the frontons on January 1, 1997.
In January 1995, the Company acquired five parcels of land encompassing
approximately 102 acres contiguous to the Fort Pierce fronton property. For a
description of the long-term debt secured by this property, see Note I to the
Company's financial statements included in this Form 10-KSB. The Company plans
to sell or develop (with a joint venture partner) these properties in the near
future.(See Note J for a description of other real estate owned)
ITEM 3. LEGAL PROCEEDINGS.
On December 31, 1996, Florida Gaming Centers, Inc. ("Centers"), a
wholly-owned subsidiary of the Company, entered into a Consulting and
Noncompetition Agreement with Richard P. Donovan, (the "Donovan Contract") a
copy of which was filed as Exhibit 10.2 to
22
<PAGE>
the Company's Report on Form 8-K dated as of December 31, 1996 and is
incorporated herein by reference. The Donovan Contract required Centers to
pay Donovan $20,000 per month for sixty months, to pay Donovan's life
insurance premiums of $14,000 per year for five years, and to grant Donovan a
five option to purchase 50,000 shares of the Company's common stock at a
price equal to the market value of the shares on December 31, 1996.
On March 6, 1998, Donovan filed suit in the Circuit Court of the 11th
Circuit in Florida, Dade County, against Centers. Donovan claimed that Centers
breached the Donovan Contract and requested judgment against Centers for
compensatory damages, including $1,053,000 due for consulting services through
the term of the agreement and $56,000 due for life insurance premiums for the
term of the agreement, together with prejudgment interest, attorneys' fees,
costs and such other relief as the Court deemed just and proper.
SUIT SETTLED
The suit was dismissed in December, 1998 pursuant to the stipulation of
the parties following the entry into an Amendment to the Donovan Contract dated
November 24, 1998, which provided for Centers to pay Donovan (i) $84,000 for
past due consulting fees, (ii) $10,000 per month for ninety-six months
commencing January 1, 1999, and (iii) $14,000 past due life insurance premiums
and $14,000 life insurance premiums for seven years commencing in 1999. The
Amendment also provided Centers with an option exercisable at any time to
purchase the balance of the Donovan Contract for 50% of the balance owed on the
amended contract, and provided that Donovan shall be entitled to a consent
judgment against the Centers for the balance due on his amended contract in the
event the Company is in default for a period of 90 consecutive days.
On December 31, 1996, Centers entered into a Consulting and
Noncompetition Agreement with Roger M. Wheeler, Jr., (the "Wheeler Contract")
a copy of which was filed as Exhibit 10.3 to the Company's Current Report on
Form 8-K dated as of December 31, 1996 and is incorporated herein by
reference. The Wheeler Contract required Centers to pay Wheeler $8,333 per
month for sixty months commencing January 1997, to pay Wheeler $4,167 per
month for sixty months commencing January 2002, to grant Wheeler a five
option to purchase 25,000 shares of the Company's common stock at a price
equal to the market value of the shares on December 31, 1996 and to elect
Wheeler and one person designated by him to the Company's board of directors
for ten years.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the
Circuit Court of the 11th Circuit in Florida, Dade County, against Centers and
the Company. Wheeler claimed that Centers breached the Wheeler Contract. Wheeler
asserted that the Company guaranteed the performance of Centers. Wheeler
requested judgment in the amount of $675,000 due for consulting services through
the term of the agreement, together with prejudgment 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
23
<PAGE>
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.
SUIT SETTLED
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.
SPECTOR ENTERTAINMENT GROUP, INC.
The Company is a defendant in a law suit filed during 1999 alleging
breach of contract and breach of the implied covenant of good faith and fair
dealing. The case concerns a dispute over the plaintiff s (Spector
Entertainment Group, Inc.) alleged rights under a satellite broadcast
agreement with Florida Gaming's predecessor in interest, WJA Realty Limited
Partnership. The Plaintiff seeks damages in an unspecified amount. The
Company believes the allegations lack merit and intends to defend the action
vigorously.
OREZ LTD.
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 Notice 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.
SUMMER JAI-ALAI PARTNERSHIP
As part of the purchase of the assets of World Jai-Alai ("WJA"), in January,
1997, Florida Gaming Centers, Inc. ("Centers") acquired a 21% interest in the
Summer Jai-Alai
24
<PAGE>
("SJA") partnership. One of the purposes of the partnership was to operate a
summer jai-alai season at the Miami Jai-Alai facility. Disputes arose between
Centers and the other SJA Partners as to the rights and obligations under the
various agreements governing summer jai-alai and its day to day operations by
Centers. The disputes were based on the other summer partners' failure to pay
certain accrued expenses and losses, and Center's method(s) of operation. As
a result of the inability to reach an amicable settlement of these issues,
Centers filed suit against the SJA Partners in the Circuit Court of the 11th
Judicial Circuit in and for Dade County, Florida in Case No. 97-16271-CA30.
SETTLEMENT AGREEMENT
On June 11, 1998, Centers, entered into a into a settlement Agreement with the
other SJA Partners (Hollywood Greyhound, Flagler Greyhound and Biscayne Kennel
Club or their successors). The Agreement contains the following provisions:
- Centers maintained the right to operate Summer Jai-Alai from May 1,
1998 through November 28, 1998 and the option to run during May and
June of 1999 at its own risk and for its own benefit. Centers agreed
to hold the SJA harmless for any and all losses or liabilities that
may be incurred;
- If net profits from operating the 1998 Summer Season exceeded
$250,000, Centers agreed to pay a total of $50,000 to the other SJA
Partners;
- All amounts owed to the State of Florida by SJA were to be paid by
Centers;
- All ITW amounts due to Flagler Greyhound were to be paid by Centers
before September 30, 1998;
- All claims and counterclaims of Centers and SJA contained in the
lawsuit were dismissed with the exception of the broadcast and
reception of the respective ITW signals. These issues are to be
resolved or litigated at a later date;
- The parties agreed to meet on or before December 31, 1998 to
determine the operational dates or parameters for the 1999 Summer
Season.
As a result of the December, 1998 meeting, the parties agreed to a continuation
of the June 11, 1998 agreement with the following modifications:
- Centers maintains the right to operate Summer Jai-Alai from May 1,
1999 through November 30, 1999 and May and June of 2000 at its own
risk and for its own benefit. Centers agrees to hold the other
partners in SJA harmless for any and all losses or liabilities that
may be incurred.
- For the aforementioned benefits, including the benefits derived from
the operation of the 1998 Summer Season, Centers will pay each of
the other SJA Partners (Hollywood, Flagler and Biscayne) the sum of
$65,000 in three installments of $21,667, with the first payment was
due upon execution of the agreement and subsequent payments on June
1, 1999 and July 20, 1999.
25
<PAGE>
OCALA BREEDERS SALES COMPANY
The Florida Legislature authorized Intertrack Wagering ("ITW") in 1990
allowing tracks and jai-alai frontons which conducted full schedules of live
racing or live games to obtain ITW permits and accept inter-track wagers. The
1990 legislation also authorized one (1) ITW permit to operate for a maximum of
21 days in connection with thoroughbred sales at a permanent location holding a
quarter horse permit and specific non-wagering race criteria. Such permit was
awarded to Ocala Breeders Sales Company ("OBS") in Ocala, Marion County,
Florida. Florida Gaming Centers, Inc. operates Ocala Jai-Alai in Marion County.
The legislation was amended in 1991 and subsequent years to allow an increase in
the number of days during which ITW wagering was allowed at OBS. From 1990 to
the present, the only applicant for this thoroughbred sales ITW license has been
and remains to be OBS.
In 1995, WJA Realty, which was purchased by the Company, filed a
lawsuit in State County alleging, among other things, that the ITW issue as to
OBS is unconstitutional. In December, 1997, the Circuit Court granted Florida
Gaming Centers, Inc. a Motion for Summary Judgment and found that the section of
the Statute under which OBS was granted an ITW permit was a special law enacted
in the guise of a general law and, consequently, is unconstitutional. The State
of Florida, as one of the Plaintiffs, sought and was automatically granted a
stay of the Judgment pending an Appeal. On March 3, 1999, the District Court of
Appeals affirmed the Circuit Court decision that the law under which OBS is
operating is unconstitutional.
The Company does not know at this time what action OBS or the State of
Florida will take concerning this litigation. Management believes that it is not
possible for the Legislature to craft language permitting only OBS to conduct
ITW wagering that would be constitutional.
The Company is a defendant in certain other suits which are deemed to
be routine litigation in the ordinary course of business. The Company believe
that the ultimate resolution of the suits will not have a material adverse
impact on the Company's financial position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's 1999 Annual Meeting of Shareholders held on December
20, 1999, the following actions were taken:
26
<PAGE>
The following directors were elected for terms of office expiring in
2000:
<TABLE>
<CAPTION>
VOTES BROKER
VOTES VOTES FOR: WITHHELD ABSTENTIONS* NON-VOTES*
<S> <C> <C> <C> <C>
W. Bennett Collett 3,403,270 5,685 N/A N/A
Robert L. Hurd 3,404,054 4,890 N/A N/A
W. B. Collett, Jr. 3,404,010 4,945 N/A N/A
George Galloway, Jr. 3,404,000 4,955 N/A N/A
Roland M. Howell 3,403,963 4,992 N/A N/A
Timothy L. Hensley 3,404,000 4,955 N/A N/A
</TABLE>
*Pursuant to disclosures in the Proxy Statement, proxies received by
management were voted, unless authority was withheld, in favor of the election
of the six nominees named.
The following summarizes the voting to ratify the appointment of King &
Company PSC as the Company's auditors for the year ended December 31, 1999:
<TABLE>
<CAPTION>
VOTES ABSTEN- BROKER
VOTES FOR WITHHELD TIONS NON-VOTES
--------- -------- --------- ----------
<S> <C> <C> <C> <C>
King & Company PSC 3,396,515 29,933 None None
</TABLE>
27
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock was traded on the NASDAQ SmallCap Market under the
trading symbol "BETS" until August 21, 1998, at which time it was delisted. The
Common Stock traded on the pink sheets from August 22, 1998 until July 28, 1999.
On July 29, 1999 the Common Stock began trading on Over the Counter - Bulletin
Board.
The following table shows the high and low bid prices for the Common
Stock for the period January 1 to August 21, 1998. Bid prices were not available
from August 21, 1998 to July 28, 1999. The bid prices reflect inter dealer
prices, without retail mark-up, markdown or commissions and may not represent
actual transactions. Actual sales prices are shown for the periods from August
21, 1998 to July 28, 1999. The table shows then the high and low bid prices from
July 29, 1999 to December 31, 1999.
<TABLE>
<CAPTION>
1998: HIGH LOW
- - ----- ---- ---
<S> <C> <C>
For the Quarter Ended:
March 31, 1998 3 1 13/16
June 30, 1998 2 1 5/16
For the Period:
July 1 to August 21 1 3/8 17/32
August 22 to Sept 30 1* 7/16*
For the Quarter Ended:
December 31 1 3/8* 13/32*
* Represents actual sales prices.
1999: HIGH LOW
<S> <C> <C>
For the Quarter Ended:
March 31, 1999 1 7/8* 7/8*
June 30, 1999 1 1/2* 1/2*
For the Period:
July 1 to July 28 7/8* 1/2*
July 29 to Sept 30 2 5/8
For the Quarter Ended:
December 31 1 7/16 15/16
</TABLE>
* Represents actual sales prices.
28
<PAGE>
As of March 27, 2000 , the Company had approximately 4,800 holders of
record of its Common Stock.
Of the 6,066,816 shares of Common Stock outstanding as of March 27,
2000, persons who may be deemed "affiliates" of the Company or who acquired the
shares in a transaction exempt from registration under the U. S. Securities and
Exchange Act ("the "Securities Act") hold approximately 2,979,777 shares
("Restricted Shares"), which may only be sold in the public market if such
shares are registered under the Securities Act or sold in accordance with Rule
144 promulgated under the Securities Act. Of these Restricted Shares, 703,297
shares of Common Stock have been held by the holder for over one year and are
thus available for sale in the public market subject to the volume and other
limitations of Rule 144, and may be subject to approval by the State of Florida.
Freedom, the holder of 1,775,480 Restricted Shares, has demand registration
rights for its shares. Freedom has pledged a total of 1,650,000 Shares of Common
Stock to secure loans to Freedom, including the pledge of 1,400,000 shares to
one bank, 200,000 shares to another bank, and the pledge of 50,000 shares to a
director of the Company. The Company has registered a total of 1,029,480 shares
of Common Stock for resale by and for the account of any bona fide pledge of the
Common Stock by Freedom. The Restricted Shares (1,775,480 shares) have been held
by Freedom for over one year and are thus available for sale in the public
market, subject to the volume and other limitations of Rule 144.
In general, under Rule 144 a person (or person whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
including a person who may be deemed an affiliate of the Company, is entitled to
sell within any three-month period up to that number of shares of Common Stock
that does not exceed the greater of 1% of the then-outstanding shares
(approximately 60,668 shares) of Common Stock of the Company or up to the number
of shares equal to the average weekly trading volume of the Common Stock on the
Over-the-Counter Market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain restrictions relating to manner
of sale, notice, and the availability of current public information about the
Company. A person who has not been an affiliate of the Company at any time
during the 90 days preceding a sale and who has beneficially owned shares for at
least two years could be entitled to sell such shares without regard to the
volume limitations, manner of sale provisions and other requirements of Rule
144.
The Company has issued a total of 1,040,000 stock options to purchase
comon stock of the Company to current or former directors and officers and to
certain key employees. These option shares have not been registered by the
Company for sale in the public market.
THE COMPANY HAS FOUR ISSUES OF CONVERTIBLE PREFERRED STOCK OUTSTANDING
AS OF DECEMBER 31, 1999. A COMPLETE DESCRIPTION AND SUMMARY OF THE CONVERTIBLE
PREFERRED STOCK IS SET FORTH IN "ITEM 7. FINANCIAL STATEMENTS - NOTE B.
29
<PAGE>
Sales of a substantial number of shares of Common Stock, including
following conversion of shares of the Company's preferred stock or pursuant to
Rule 144, or a registered offering, could adversely affect the market price of
the Common Stock, increase significantly the number of shares of Common Stock
issuable upon the conversion of the Company's preferred stock, the conversion
rates which are related to the prevailing market price, and make it more
difficult for the Company to sell equity securities in the future at a time and
price that it deems appropriate.
The Company has never paid any cash dividends on its Common Stock and
currently anticipates that earnings will be retained for use in its operations.
The Company is not contractually restricted from paying dividends on its Common
Stock, however, it does not intend to pay any cash dividends on its Common Stock
in the foreseeable future. Any future determination as to cash dividends will
depend on the earnings and financial position of the Company, as well as any
legal restrictions and such other factors as the Board of Directors many deem
appropriate.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
The Company currently owns and operates three jai-alai and inter-track
pari-mutuel wagering ("ITW") facilities located in South and Central Florida.
The Company's business consists primarily of its gaming operations at the
Frontons, which include, among other things, live jai-alai games, ITW for
thoroughbred racing, harness racing, and dog racing and jai-alai. The Company
also conducts poker and dominoes at the Miami facility. The Company sells food
and alcoholic beverages at all locations. The Company also owns and operates a
residential real estate development acquired in late 1997 in Loganville (near
Atlanta) Georgia.
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
During the twelve months ended December 31, 1999, the Company's operations
reflects twelve months operation of live jai-alai performances at the Miami
facility. The Ft. Pierce Fronton conducted live jai-alai performances January
through April, 1999, and the Ocala facility conducted live performances from
June 4, 1999 to August 28, 1999. A year-round schedule of Inter-Track Wagering
("ITW") was also conducted at the Ft. Pierce and Ocala facilities. The Miami
location offers limited ITW product due to blackouts imposed as a result of its
close proximity to other South Florida pari-mutuels. The Miami facility,
simulcasts its live jai-alai performances to other gaming facilities in Florida,
the rest of the United States, Mexico, and most of Central America. The Miami
fronton also operates six months of each year under the Summer Jai-Alai
Partnership Agreement ("SJA"). (See "ITEM 1. Description of Business".)
30
<PAGE>
COMPARISON DEFINITION
THE FOLLOWING ANALYSIS OF HANDLE, REVENUES, ATTENDANCE, OPERATING
EXPENSES AND GENERAL & ADMINISTRATIVE EXPENSES IN THIS PART OF THE REPORT
COMPARES FIGURES FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 TO FIGURES FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1998, FOR THE THREE PARI-MUTUEL FACILITIES
PRESENTLY OPERATING--- MIAMI, FT. PIERCE, AND OCALA. THE TAMPA FACILITY WAS SOLD
IN NOVEMBER, 1998, AND ALL OPERATIONS CEASED AT THAT TIME. AS A RESULT OF AN
AMENDED AGREEMENT WITH THE SUMMER JAI-ALAI PARTNERS, SUMMER JAI-ALAI (SJA) WAS
OPERATED 100% BY THE COMPANY FOR THE YEAR 1999. FOR COMPARISON PURPOSES, HANDLE,
REVENUES, ATTENDANCE, OPERATING EXPENSES, AND GENERAL & ADMINISTRATIVE EXPENSES
INCLUDE SJA FIGURES FOR 1999 SINCE SJA WAS OPERATED 100% BY THE COMPANY. THESE
FIGURES DO NOT INCLUDE THE HANDLE, REVENUE, OR EXPENSES FOR THE MIAMI FACILITY
FOR THE PERIOD FROM MAY 1, 1998 THROUGH NOVEMBER 28, 1998 SINCE THIS WAS
OPERATED SEPARATELY UNDER THE SJA PERMIT PERIOD. Accordingly, the numbers in
this analysis may not necessarily agree with accompanying financial statements.
HANDLE ANALYSIS
Total Handle (amount of money wagered) for the twelve months ended
December 31, 1999 was $122,965,826 of which $53,150,000 was wagered on live
jai-alai, $15,401,000 was wagered on the Miami jai-alai signal as a host site
via inter-track simulcasting, and $54,414,000 was wagered on inter-track guest
signals carried at the Company's three frontons.
Total Handle for the twelve months ended December 31, 1998 was
$86,627,522 of which $23,626,220 was wagered on live jai-alai games and
$14,461,358 was wagered on the Miami jai-alai signal as a host site via
inter-track simulcasting. The aggregate amount wagered on inter-track guest
signals carried at the Company's frontons was $48,539,944.
HANDLE INCREASES AND DECREASES
Total handle for the twelve months ended December 31, 1999 was
$122,965,826. This figure represents a net increase for the same period in 1998
of $36,338,304 (42%). This net increase is explained as follows:
1. Live handle increased from $38,087,578 in 1998 to $68,551,487
for the same period in 1999, ---an increase of $30,463,909
(80%).
2. ITW handle increased from $48,539,944 in 1998 to $54,414,339
for the same period in 1999, ---an increase of $5,874,395
(12%).
The over-all increase is attributable to an increase in live jai-alai
attendance, handle and from operating under the SJA permit 100% for the
benefit of Miami Jai-Alai.
31
<PAGE>
PARI-MUTUEL REVENUES
Pari-mutuel revenues for the year ended December 31, 1999 were
$15,128,498 compared to pari-mutuel revenues of $10,751,554 for the same period
in 1998, an increase of $4,376,944 or 40.7%. Revenues for the twelve months
ended December 31, 1999, consisted of $9,942,729 from live and simulcast
jai-alai wagering and $5,185,769 from inter-track guest commissions.
Pari-mutuel revenues for the year ended December 31, 1998 were
$10,751,554. Revenues for the year ended December 31, 1998, consisted of
$6,371,721 from live and simulcast jai-alai wagering and $4,379,832 from
inter-track guest commissions. These numbers do not include revenues for the
Miami facility for the SJA season from May 1, 1998 through November 28, 1998.
During the 1998 SJA season the Company operated the fronton under the SJA permit
pursuant to an operating agreement with SJA dated June 11, 1998 which allowed
the Company to operate the SJA permit for its own account.
Card room revenue for the Miami Crystal Card Room for the twelve
months ended December 31, 1999 was $440,281 compared to Miami Crystal Card
Room revenues of $238,773 for the same period in 1998.
Admissions income, net of state taxes, for the year ended December 31,
1999, was $296,429, net of state taxes, compared to $257,346 for the year ended
December 31, 1998. Program revenue for the year ended December 31, 1999,
increased $13,940 to $414,854 from $400,914 for the year ended December 31,
1998.
Attendance for live jai-alai performances and ITW performances was
approximately 759,435 for the year ended December 31, 1999, compared to 574,170
for the same period in 1998. The year 1999 includes Summer Jai-Alai since the
Company operated 100% and 1998 did not include Miami from the period May 1,
1998 through November 28, 1998.
Food and beverage income increased $230,820 to $1,489,007 for the year
ended December 31, 1999, compared to $1,258,187 for the year ended December 31,
1998.
OPERATING EXPENSES
The Company's operating expenses for the year ended December 31,
1999 were $16,617,700 increasing $3,734,301 from $12,883,399 in 1998. The
reason for the increase is the Company operated the SJA permit during the
1999 SJA season 100% for its own account.
32
<PAGE>
Operating payrolls and related costs totaled $3,150,000 and $2,963,009
respectively, for the years ended December 31, 1999 and 1998. This figure
excludes player payroll costs, bar restaurant, and concession payroll costs. The
$3,150,000 consisted of $1,194,339 in mutuels payroll, $825,001 in
maintenance/janitorial payroll, $737,629 in security payroll, $302,441 in office
payroll, and $90,590 in admissions payroll. Player costs, which include
salaries, benefits, and support staff, represent a significant portion of
operational expenses. Player costs for the year ended December 31, 1999, for all
three facilities totaled $3,920,289 compared to $3,704,545 for the same period
in 1998.
Repairs and Maintenance expenses for the twelve months ended December
31, 1999, totaled $416,291 compared to $435,683 for the same period in 1998.
Rental and service costs for totalizator wagering equipment also
represent a significant portion of operating expenses. These expenses totaled
$571,863 for the year ended 1999, and $498,012 for the year ended December 31,
1998.
Programs expense totaled $331,307 for the year ended December 31, 1999
and $364,853 for the year ended December 31, 1998.
Card Room payroll costs totaled $215,333 and other card room operating
costs totaled $107,076 for the twelve months ended December 31, 1999. Card room
payroll costs totaled $104,726 and other card room costs were $61,508 for the
same period in 1998.
Depreciation and amortization expense for the twelve month period ended
December 31, 1999 was $733,017 compared to $761,032, for the same period in
1998.
Utilities expense totaled $662,673 for the year ended December 31, 1999
compared to $739,719 for the year ended December 31, 1998.
GENERAL AND ADMINISTRATIVE EXPENSES
The Company's general and administrative expenses were $3,724,219
for the twelve months ended December 31, 1999, compared to $3,462,621 for the
twelve-months ended December 31, 1998.
Comparisons of significant categories of general and administrative
expense for 1999 versus 1998 are as follows: Executive payroll and related
costs were $496,917 in 1999, compared to $543,596 in 1998. Professional fees
were $578,615 in 1999 compared to $497,618 in 1998. Consulting fees increased
to $746,189 in 1999 compared to $524,400 in 1998. Travel and entertainment
expense in 1999 totaled $295,910 compared to $277,230 in 1998. Telephone and
other data line charges increased $12,988 to $224,685 in 1999 compared to
$211,697 in 1998. Property and other taxes decreased significantly to
33
<PAGE>
$560,039 in 1999 from $673,857 in 1998. The decrease was attributable to the
sale of the Tampa facility excess property in Miami.
Interest expense totaled $881,453 in 1999 compared to $780,952 in
1998.
OTHER INCOME AND EXPENSE
Other income for the year ended December 31, 1999, was $3,852,281 compared to
$1,131,145 for the same period in 1998. The increase is primarily due to SJA
operations & tax credits.
Residential lot sales at Tara Club Estates totaled $775,500, an average sales
price of $45,000 per lot for a total of 17 lots sold. These lots sales produced
a net income of $414,102, which is included in other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,525,686 at December 31, 1999.
The Company had a decrease in working capital of approximately $650,000 during
the year ended December 31, 1999. The decrease in working capital is largely due
to several long term liabilities becoming current liabilities in 1999.
Net cash provided by the Company's operations totaled $644,461 for the year
ended December 31, 1999.
Net cash provided by investing totaled $2,802,003.
During 1999, net cash used in financing activities totaled $2,056,908. The
Company paid off $1,896,968 of long term debt during 1999.
On February 19, 1999 the Company sold excess commercial real estate near the
Miami Jai-Alai Fronton for $3,568,000. The Company paid $1,500,000 of the
proceeds received from the sale to the Bank of Oklahoma. As of the date of this
report, the Company owes the Bank of Oklahoma, $1,066,855 - - - down from over
$7,000,000 at the beginning of 1998.
During the twelve month period from February 20, 1998 to February 20, 1999,
the Company sold the Tampa facility (which was losing money) and other excess
real estate for an aggregate of over $12,500,000. As a result of these
transactions and the change in tax laws, the Company was returned to
profitability and its balance sheet was dramatically improved.
34
<PAGE>
The Company's cash flow is currently adequate to meet its' debts and other
obligations as they come due.
The Company received an unqualified opinion from its public accounting firm on
its financial statements for the years ended December 31, 1999 and December 31,
1998.
ITEM 7. FINANCIAL STATEMENTS
LIST OF FINANCIAL STATEMENTS FILED. See accompanying
Financial Statements:
Balance Sheets as of December 31, 1999 and 1998.
Statements of Operations for the years ended December 31, 1999
and 1998.
Statement of Changes in Stockholders' Equity for the two years
ended December 31, 1999 and 1998.
Statements of Cash Flows for the years ended December 31, 1999
and 1998.
Notes to Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
Company's executive officers and directors as of the Record Date:
35
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR OR
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- -------------------
<S> <C> <C> <C>
W. Bennett Collett 67 Chief Executive Officer, 1993
Director and Chairman
Robert L. Hurd 60 President and Director 1993
W. Bennett Collett, 44 Executive Vice President, 1993
Jr Secretary and Director
Timothy L. Hensley 44 Director 1997
George Galloway, Jr 66 Director 1994
Roland M. Howell 84 Director 1995
</TABLE>
W. BENNETT COLLETT has served as Chairman of the Board, Chief Executive
Officer and a director of Freedom Financial Corporation ("Freedom") since its
formation in 1985. Freedom was a bank holding company until January, 1988 when
it sold its banking subsidiaries. Mr. Collett has served as Chairman and
director of Freedom Holding, Inc. ("Holding") since its formation in December
1992. Holding's sole business currently is to hold shares of Freedom. Mr.
Collett has been involved in the management of banking and financial service
companies for over 23 years, having been a principal of ten commercial banks.
For 14 years Mr. Collett was a principal shareholder and chief executive officer
of various banks and finance companies in Alabama, Arkansas, Georgia, Indiana
and Missouri ranging in asset size from $1,000,000 to $250,000,000.
ROBERT L. HURD has served as President and a director of Freedom since
July 1, 1991 and as President and as a director of Holding since April 20, 1998.
Mr. Hurd has served as President and Chairman of General Health Care
Corporation, a New Jersey based company in the health care apparel business,
since February 13, 1995. From 1987 until 1991, Mr. Hurd was President and
Chairman of Pacific Press & Shear Inc. a hydraulic press and shear manufacturer.
W. BENNETT COLLETT JR. served as President of Freedom from 1988 to
1989. Since August 1989, Mr. Collett has served as Executive Vice President of
Freedom. He has been a director of Freedom since its formation in 1985 and a
director of Holding since April 20, 1998. He presently serves as Secretary and
Treasurer of Holding. Mr. Collett is responsible for directing the Company's
gaming operations (live jai-alai performances and inter track wagering). Mr.
Collett was appointed to the Company's Board of Directors on August 9, 1994. W.
Bennett Collett Jr. is the son of W. Bennett Collett.
36
<PAGE>
TIMOTHY L. HENSLEY served Freedom from 1988 to June 1998, in various
capacities, including Executive Vice President, Treasurer and Director. Mr.
Hensley was appointed to the Company's Board of Directors in February, 1997. Mr.
Hensley served as Executive Vice President, Treasurer and Chief Financial
Officer of the Company from 1993 until he resigned in June 1998 to accept a
position as Chief Financial Officer of Park Trust Development, a residential and
commercial real estate development company.
GEORGE W. GALLOWAY JR., M.D. has been a self-employed physician since
1958 and has served as the medical director of the emergency room at Kennestone
Hospital in Marietta, Georgia since 1983.
ROLAND M. HOWELL was employed in hotel management for over thirty
years. He owned and operated hotels in Florida for approximately twenty years
before his retirement in 1969. He is currently a private investor with interests
primarily in municipal bonds, stocks, and real estate.
COMPLIANCE WITH SECTION L6(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10 per
Cent of the Company's Common stock to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of common stock. Officers, directors and greater than 10 percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports and certain representations furnished to the Company, during the
fiscal year ended December 31, 1999, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
CASH COMPENSATION.
The following table sets forth all cash compensation paid by the
Company for the fiscal years ended December 31, 1999, 1998, and 1997 to W.
Bennett Collett, W. Bennett Collett, Jr. (W. B. Collett, Jr.), Daniel
Licciardi and Robert L. Hurd. W. Bennett Collett received no cash compensation
from the Company from the time he began service as an executive officer on
March 31, 1993 through December 31, 1995.
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------- ----------------------------
NAME AND PRINCIPAL FISCAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY SARS COMPENSATION
<S> <C> <C> <C> <C>
W. Bennett Collett 1999 $ * 460,000 -0-
Chairman of the 1998 * -0- -0-
Board and Chief 1997 237,000 165,000 -0-
Executive Officer
Robert L. Hurd 1999 $ ** 85,000 -0-
President and 1998 ** -0- -0-
Director 1997 84,876 40,000 -0-
W. B. Collett, Jr 1999 $189,000 210,000 -0-
Executive Vice 1998 154,500 -0- -0-
President and 1997 165,500 40,000 -0-
Director
Daniel Licciardi 1999 $114,667 45,000 -0-
Executive Vice 1998 92,500 -0- -0-
President-Pari- 1997 93,308 -0- -0-
Mutuels Manager
</TABLE>
* During the first eight months of 1997, Mr. Collett received monthly salary
payments aggregating $237,000. In September, 1997, the Company discontinued the
salary payments to Mr. Collett and began paying $30,000 per month to Freedom
Financial Corporation in lieu of paying a salary to Mr. Collett. The payments to
Freedom Financial Corporation totaled $120,000 in 1997 and $360,000 in 1998, and
1999. Mr. Collett is Chairman of the Board and Chief Executive Officer of
Freedom Financial Corporation. There is no written employment or consulting
agreement between the Company and Freedom Financial Corporation.
** During the first ten months of 1997, Mr. Hurd received monthly salary
payments totaling $84,876. In November, 1997, the Company discontinued salary
payments to Mr. Hurd and began paying an average of $5,500 per month to Freedom
Financial Corporation in lieu of paying a salary to Mr. Hurd. The payments to
Freedom Financial Corporation totaled $17,500 in 1997 and $66,000 in 1998. The
payments to Freedom Financial Corporation totaled $96,000 in 1999. Mr. Hurd is
President of Freedom Financial Corporation. There is no written employment or
consulting agreement between the Company and Freedom Financial Corporation.
38
<PAGE>
DIRECTOR COMPENSATION
The Company currently pays its non-management directors, Timothy L.
Hensley, Dr. George W. Galloway, Jr., and Roland M. Howell a $500 monthly fee.
W. Bennett Collett, W. B. Collett, Jr., and Robert L. Hurd receive no directors
fees.
STOCK OPTIONS
On August 9, 1994, the Company adopted a Directors' Stock Option Plan
pursuant to which each current and future director of the Company will receive
an option to purchase 25,000 shares of Common Stock. All options previously
granted pursuant to the Directors' Stock Option Plan were canceled effective
November 2, 1998.
On February 26, 1997, the Company adopted a Directors' Continuing Stock
Option Plan that provides that every director will be granted an option to
purchase 10,000 shares of common Stock for each full or partial year that such
director served as such before January 1, 1997 and for each full year as a
director after December 31, 1996. All options previously granted pursuant to the
Directors' Continuing Stock Option Plan were canceled effective November 2,
1998.
On February 9, 1999, the Board of Directors rescinded the Company's
Directors Stock Option Plan, which was adopted in 1994, and the Company's
Directors Continuing Stock Option Plan, which was adopted in 1997. On the same
date, the Board of Directors adopted a new Directors and Officers Stock Option
Plan. On February 11, 1999 options were granted to each director, including W.
Bennett Collett, W. B. Collett, Jr. and Robert L. Hurd, to purchase 60,000
shares Common Stock for $1.125 per share, which was the last sales price of the
Common Stock in the over-the-counter market on February 10, 1999. Additional
options were granted to executive officers W. Bennett Collett, Chairman and CEO,
for 400,000 shares, W. B. Collett, Jr., Executive Vice-President, for 150,000
shares, and Robert L. Hurd, President, for 25,000 shares. The options are
exercisable, in whole or in part, from time to time, anytime after August 26,
1999 and before August 11, 2004.
New options were granted to purchase stock at the market price
prevailing on the date prior to the date of grant because the old options, which
were canceled, were significantly out of the money and did not provide an
incentive for the directors and officers to strive to contribute to the success
of the Company.
INDEMNIFICATION
Under Section 145 of the Delaware General Corporation Law ("DGCL"), the
Company has the power to indemnify directors and officers under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorney's fees, actually and reasonably incurred
in connection with any action, suit or proceeding, whether civil, criminal,
administrative, or investigative, to which any of them is a party by reason of
his being a director or officer of the Company if it is determined that the
39
<PAGE>
officer or director acted in accordance with the applicable standard of conduct
set forth in such statutory provisions. The Company's Bylaws provide that the
Company shall indemnify each person who may be indemnified pursuant to Section
145, as amended from time to time (or any successor provision thereto), to the
fullest extent permitted by Section 145. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information as of the Record
Date concerning each stockholder known to the Company to own beneficially more
than five percent of the outstanding Common Stock of the Company and information
regarding beneficial ownership of Common Stock, the Class B Common Stock of
Freedom, and the Common Stock of Holding by each director and executive officer,
and all directors and executive officers as a group. Of the 1,775,480 shares of
the Company's Common Stock currently held of record by Freedom, 1,400,000 shares
have been pledged by Freedom to a bank to secure a $1,150,000 line of credit and
most of the remaining shares have been pledged to other creditors. Freedom and
Holding each may be deemed to be a "parent" of the Company as such term is
defined in the rules promulgated under the Securities Exchange Act of 1934.
Holding's sole business currently is to hold shares of Freedom.
<TABLE>
<CAPTION>
THE COMPANY FREEDOM HOLDING
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Directors Number Percent Number Percent Number Percent
And Of Of Of Of Of Of
Executive Officers Shares Class Shares Class Shares Class
(1) (2) (1) (3) (1) (4)
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
W.B. Collett 3,235,446(5) 47.4% 1,109,011(6) 95.0% 412.1 74.3%
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Robert L Hurd 86,000(7) 1.4% 54.3(8) 9.8%
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
W.B.Collett, Jr 210,000(16) 3.3% --- --- 87.9 15.9%
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Roland M. Howell 856,669(9,14) 13.3% --- --- --- ---
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Timothy L. Hensley 60,000(17) LESS THAN 1% --- --- --- ---
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
George W. Galloway, Jr. 60,000(18) LESS THAN 1% --- --- --- ---
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
All current directors and
Executive officers as a
group (6 persons)
(10)......................... 4,508,115 59.4% 1,109,011 95.0% 554.30 100%
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Number Percent Number Percent Number Percent
5% Beneficial Of Of Of Of Of Of
Owners Shares Class Shares Class Shares Class
(1) (2) (1) (3) (1) (4)
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Freedom Financial
Corporation (11) 2,072,149 34.1% N/A N/A N/A N/A
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
BOK DPC Asset Holding
Corporation(13)(5) 703,297 11.6% N/A N/A N/A N/A
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Roland M. and Dorothy V.
Howell(9)(14) 856,669 13.3% N/A N/A N/A N/A
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
Isle of Capri Casinos,
Inc.*(15) 369,426(12) 6% N/A N/A N/A N/A
- - ----------------------------- ---------------- ------------ -------------- ---------- ------------ ----------
</TABLE>
*Casino America, Inc. changed their name to Isle of Capri Casinos, Inc.
on September 25, 1998
(1) Based upon information furnished to the Company by the named person, and
information contained in filings with the Securities and Exchange Commission
(the "Commission"). Under the rules of the Commission, a person is deemed to
beneficially own shares over which the person has or shares voting or investment
power or which the person has the right to acquire beneficial ownership within
60 days. Unless otherwise indicated, the named persons have sole voting and
investment power with respect to shares shown by them.
(2) Based on 6,066,816 shares outstanding as of the Record Date. Shares of
Common Stock of the Company subject to options exercisable or preferred stock
convertible within 60 days are deemed outstanding for computing the percentage
of class of the person holding such options or preferred stock, but are not
deemed outstanding for computing the percentage of class for any other person.
(3) Based on 1,167,943 shares outstanding as of the Record Date. Class B Common
Stock is the only class of Freedom's common capital stock issued and
outstanding.
(4) Based on 554.3 shares outstanding on the Record Date.
(5) Includes 2,072,149 shares beneficially owned by Freedom, which includes
296,669 shares of the Company into which 1,000 shares of the Company's Series F
Preferred Stock owned by Freedom are convertible. Mr. Collett may be deemed to
beneficially own the shares held by Freedom, although he disclaims such
beneficial ownership of such shares. Also, Mr. Collett, as CEO of the Company,
pursuant to the terms of a Consent Order entered into between the Florida
Department of Business and Professional Regulation, Florida
41
<PAGE>
Gaming Centers, Inc. and BOK DPC Asset Holding Corporation, a wholly-owned
subsidiary of the Bank of Oklahoma, is vested with continuing voting rights for
703,297 shares (11.6%) of the Company's common stock owned by the wholly-owned
subsididary of the Bank of Oklahoma, BOK DPC Asset Holding Corporation. Mr.
Collett is and will be able to exert considerable influence over the election of
the Company's directors and the outcome of corporate actions requiring
stockholder approval. The above number of shares (3,235,446) also includes
options granted to Mr. Collett to purchase 460,000 shares of the Company's
common stock.
(6) Includes 1,109,011 shares owned by Holding. Mr. Collett may be deemed to
beneficially own the shares held by Holding, although he disclaims beneficial
ownership of such shares.
(7) Includes 1,000 shares owned by the Hurd Family Partnership, L.P., of which
Mr. Hurd is general partner. In addition, it includes Mr. Hurds option to
purchase 85,000 shares.
(8) Includes 54.3 shares owned by the Hurd Family Partnership, L.P., of which
Mr. Hurd is general partner.
(9) Includes 296,669 shares of common stock into which 1,000 shares of the
Company's Series F Preferred Stock owned jointly by Mr. and Mrs. Howell are
convertible. Of the 856,669 shares, Mr. and Mrs. Howell own 641,669 shares as
joint tenants and share voting and investment power, Mr. Howell owns 10,000
shares individually and retains sole voting and investment power with respect to
these shares. Mrs. Howell owns 145,000 shares individually and retains sole
voting and investment power with respect to these shares. In addition, the above
figure (856,669) includes options granted to Mr. Howell to purchase 60,000
shares of the Company's common stock.
(10) Includes 1,528,338 shares which may be acquired by all directors and
executive officers as a group.
(11) See Note (5). The address of Freedom Financial Corporation and Freedom
Holding, Inc. is 2669 Charlestown Road, Suite D, New Albany, Indiana 47150. The
business address of W. B. Collett is 1750 South Kings Highway, Fort Pierce,
Florida 34945-3099.
(12) Isle of Capri Casinos, Inc. owns 27,707 shares of Freedom's 7% Series AA
Mandatorily Redeemable Preferred Stock. (the "Freedom Preferred Stock"). Until
December 4, 2000, the Freedom Preferred Stock is convertible into 184,713 shares
of the Company's Common Stock owned by Freedom if at the time of conversion
Florida law permits casino style gaming in Florida and 369,427 shares if at the
time of conversion Florida law does not permit casino style gaming in Florida.
(13) BOK DPC Asset Holding Corporation's address is Bank of Oklahoma Tower, P.O.
Box 2300, Tulsa Oklahoma 74192
(14) Roland M. and Dorothy V. Howell's address is Plaza Venetia, Suite 22 A-B,
Miami, Florida 33123.
42
<PAGE>
(15) Isle of Capri Casinos, Inc. address is 711 Washington Loop, Biloxi,
Mississippi 39530.
(16) W. Bennett Collett, Jr. has been granted the option to purchase 210,000
shares.
(17) Timothy L. Hensley has been granted the option to purchase 60,000 shares.
(18) George W Galloway, Jr. has been granted the option to purchase 60,000
shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Freedom and Freedom Holding may each be deemed to be a "parent" of the
Company as such term is defined in the rules promulgated under the U.S.
Securities & Exchange Act, by virtue of Freedom's beneficial ownership of 38.8%
of the Common Stock of the Company and Freedom Holding's beneficial ownership of
95% of the Common Stock of Freedom. See ITEM 11, "Security Ownership of Certain
Beneficial Owners and Management".
43
<PAGE>
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 (November 10, 1998) if no
demand is made. A fee if 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. All funds advanced to the Company from Freedom under this line of
credit were advanced from Freedom's internal funds. No funds were borrowed from
a commercial bank.
As of December 31, 1999, the outstanding principal balance due to
Freedom from the Company was $1,066,208. This note is due on demand and is
included as a short-term liability in the financial statements of the Company.
44
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) LIST OF EXHIBITS FILED.
3.1 Restated Certificate of Incorporation is incorporated by
reference to Exhibit 3.1 of Form SB-2 Registration Statement
No. 33-79882.
3.2 Certificate of Designations for Series B Preferred Stock is
incorporated by reference to Exhibit 3.3 of Form S-3
Registration Statement No. 33-99380.
3.3. Certificate of Amendment to Certificates of Designations of
Series B Preferred Stock and Series 9% AA Preferred Stock is
incorporated by reference to Exhibit 3.3 of Form S-3
Registration Statement 333-10535.
3.5 Bylaws as amended through December 31, 1998 is incorporated
by reference to Exhibit 3.5 to Form 10-KSB for year ended
December 31, 1998.
4.1 Restated Certificate of Incorporation is incorporated by
reference to Exhibit 3.1 of Form SB-2 Registration Statement
No. 33-79882.
4.2 Certificate of Designations of Series C 8% Cumulative
Convertible Preferred Stock is incorporated by reference to
Exhibits 3.1 and 4.1 Current Report on Form 8-K dated December
13, 1996.
4.3 Form of Regulation S Subscription Agreement is incorporated by
reference to Exhibit 4.2 Current Report on Form 8-K dated
December 13, 1996.
4.4 Certificate of Designations of Series E 8% Cumulative
Convertible Preferred Stock is incorporated by reference to
Exhibits 3.1 and 4.1 Current Report on Form 8-K dated April 4,
1997.
4.5 Certificate of Designations of Series F 8% Cumulative
Convertible Preferred Stock is incorporated by reference to
Exhibits 3.1 and 4.1 Current Report on Form 8-K dated November
26, 1997.
4.6 Certificate of Designations of Series G 8% Cumulative and
Convertible Preferred Stock is incorporated by reference to
Exhibits 3.2 and 4.2 Current Report on Form 8-K dated November
26, 1997.
4.7 Form of Series G Convertible Preferred Stock Purchase
Agreement is incorporated by reference to Exhibit 4.3 Current
Report on Form 8-K dated November 26, 1997.
45
<PAGE>
10.4 Nonqualified Stock Option Plan dated April 21, 1994 is
incorporated by reference to Exhibit 10.4 of Form SB-2
Registration Statement No. 33-79882.
10.5 Totalizator Services Agreement dated September 11, 1991,
between Autotote Limited and the Registrant is incorporated by
reference to Exhibit 10.5 of Form SB-2 Registration Statement
No. 33-79882.
10.8 Letter of Intent dated October 4, 1994, between the Registrant
and Casino America, Inc., and acknowledged by Freedom
Financial Corporation is incorporated by reference to the
Current Report on Form 8-K dated October 4, 1994 [File No.
0-9099].
10.11 Rincon Loan Agreement dated September 11, 1995 is incorporated
by reference to Exhibit 10.1 to the Form 8-K Current Report of
the Registrant dated September 15, 1995.
10.12 Amendment to Rincon Loan Agreement dated November 1, 1995 is
incorporated by reference to Exhibit 10.11 of Form SB-2
Registration Statement No. 33-79882.
10.13 Copies of mortgages and deeds are incorporated by reference to
Exhibit 10.12 of Form SB-2 Registration Statement No.
33-79882.
10.15 Assets Purchase Agreement dated as of November 20, 1996
between the Registrant, Florida Gaming Centers, Inc., and WJA
Realty Limited Partnership (World Jai-Alai), is incorporated
by reference to Exhibit 10.1 of the Registrant's Current
Report on Form 8-K dated November 25, 1996.
46
<PAGE>
10.16 Totalisator Services Agreement dated November 11, 1993 between
Autotote Systems, Inc. and WJA Realty Limited Partnership,
D.B.A. Miami Jai Alai is incorporated by reference to Exhibit
10.1 to the Form 8-K Current Report of the Registrant dated
December 31, 1996, as amended.
10.17 Consulting and Noncompetition Agreement dated December 31,
1996 by and among Florida Gaming Centers, Inc. and Richard P.
Donovan is incorporated by reference to Exhibit 10.2 to the
Form 8-K Current Report of the Registrant dated December 31,
1996, as amended.
10.18 Consulting and Noncompetition Agreement dated December 31,
1996 by and among Florida Gaming Centers, and Roger M.
Wheeler, Jr. is incorporated by reference to Exhibit 10.3 to
the Form 8-K Current Report of the Registrant dated December
31, 1996, as amended.
10.19 Credit Line Agreement dated October 1, 1996 from Freedom
Financial Corporation to Florida Gaming Corporation is
incorporated by reference to Exhibit 10.19 to the Form 10-KSB
of the Registrant for the year ended December 31, 1996.
10.20 Mortgage dated December 31, 1996 by Florida Gaming Corporation
and Florida Gaming Centers, Inc. to Bank of Oklahoma, N.A. is
incorporated by reference to Exhibit 10.5 to the Form 8-K
Current Report of the Registrant dated December 31, 1996, as
amended.
10.21 Promissory Note dated September 12, 1996 from Florida Gaming
Corporation to Bank of Oklahoma, N.A. is incorporated by
reference to Exhibit 10.6 to the Form 8-K Current Report of
the Registrant dated December 31, 1996, as amended.
10.23 Deed to Secure Debt by Indenture dated March 19, 1997 between
Freedom Financial Corporation and Florida Gaming Corporation
is incorporated by reference to Exhibit 10.X to the Form
10-KSB of the Registrant for the year ended December 31, 1996.
10.24 Asset Purchase Agreement dated as of September 24, 1997, among
the Registrant, Freedom Financial Corporation and Interstate
Capital Corporation is incorporated by reference to Exhibit
2.1 to Form 8-K dated September 26, 1997.
47
<PAGE>
10.25 Addendum dated as of October 9, 1997, to Asset Purchase
Agreement dated as of September 24, 1997, among the
Registrant, Freedom Financial Corporation and Interstate
Capital Corporation is incorporated by reference to Exhibit
2.2 to Form 8-K dated October 10, 1997.
10.26 Second Addendum dated as of October 31, 1997, to Asset
Purchase Agreement dated as of September 24, 1997, among the
Registrant, Freedom Financial Corporation and Interstate
Capital Corporation is incorporated by reference to Exhibit
2.3 to Form 8-K dated November 26, 1997.
10.27 Agreement for Sale and Purchase of Property between Florida
Gaming Centers, Inc., City National Bank of Florida, Trustee,
and Monroe's Prestige Group,Inc. and Staack and Klemm, P.A.,
Escrow Agent is incorporated by reference to Exhibit 2.4 to
Form 8-K/A dated November 26, 1997.
10.36 Bank of Oklahoma Modification Agreement dated May 1, 1998 is
incorporated by reference to Exhibit 1 to Form 10-QSB dated
for the quarter ended March 31, 1998.
10.37 Amendment to Monroe Prestige Group Purchase Agreement dated
April 20, 1998 is incorporated by reference to Exhibit 2 to
Form 10-QSB for the quarter ended March 31, 1998.
10.38 Graham Road Mortgage Modification dated April 22, 1998 is
incorporated by reference to Exhibit 3.1 to Form 10-QSB for
the quarter ended March 31, 1998.
10.39 Graham Road Mortgage Note dated April 22, 1998 is incorporated
by reference to Exhibit 3.2 to Form 10-QSB for the quarter
ended March 31, 1998.
10.40 Directors and Officers Stock Option Plan adopted February 9,
1999 is incorporated by reference to Exhibit 10.40 to Form
10-KSB dated December 31, 1998.
10.41 Specimen form of Agreement cancelling options entered into as
of November 2, 1998 between the Registrant and W. Bennett
Collett, Robert L. Hurd, W. B. Collett, Jr., Timothy L.
Hensley, Roland M. Howell and George W. Galloway, Jr.
10.42 Amendment dated November 24, 1998 to Consulting and
Noncompetition Agreement between Florida Gaming Centers, Inc.
and Richard P. Donovan is incorporated by reference to Exhibit
10.42 to Form 10-KSB dated December 31, 1998.
48
<PAGE>
10.43 Amendment dated November 24, 1998 to Consulting and
Noncompetion Agreement between Florida Gaming Centers, Inc.
and Roger M. Wheeler, Jr. is incorporated by reference to
Exhibit 10.43 to Form 10-KSB dated December 31, 1998.
27. Financial Data Schedule is attached hereto.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any reports on Form 8-K during the quarter
ended December 31, 1999.
49
<PAGE>
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused the report to be signed on its behalf by
the undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
Date: March 30, 2000 By /s/ W. Bennett Collett
--------------------------------
W. Bennett Collett
Chairman and Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons of behalf of the Registrant in the
capacities and on the dates indicated.
/s/ W. Bennett Collett Chairman of the Board March 30, 2000
- - --------------------------- of Directors and
W. Bennett Collett Chief Executive Officer
(Principal Executive Officer)
/s/ Robert L. Hurd President and Director March 30, 2000
- - ---------------------------
Robert L. Hurd
/s/ W. Bennett Collett, Jr. Director, Executive March 30, 2000
- - ---------------------------- Vice President and
W. Bennett Collett, Jr. Secretary
/s/ Timothy L. Hensley Director March 30, 2000
- - ----------------------------
Timothy L. Hensley
/s/ George W. Galloway, Jr. Director March 30, 2000
- - ----------------------------
George W. Galloway, Jr.
/s/ Roland M. Howell Director March 30, 2000
- - -----------------------------
Roland M. Howell
<PAGE>
Audited Consolidated Financial Statements
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
<TABLE>
<S> <C>
Independent Auditors' Report ............................................... 1
Consolidated Financial Statements
Balance Sheets ........................................................... 2
Statements of Operations ................................................. 4
Statement of Changes in Stockholders' Equity ............................. 6
Statements of Cash Flows ................................................. 7
Notes to Consolidated Financial Statements ............................... 8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
and Shareholders
Florida Gaming Corporation and Subsidiaries
Miami, Florida
We have audited the accompanying consolidated balance sheets of Florida Gaming
Corporation and Subsidiaries (a Delaware Corporation) as of December 31, 1999
and 1998 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Florida Gaming
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ King & Company, PSC
Louisville, Kentucky
March 15, 2000
<PAGE>
CONSOLIDATED BALANCE SHEETS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,525,686 $1,136,190
Accounts receivable, including ITW 652,075 446,745
Inventory 98,929 105,206
------------ ------------
3,276,690 1,688,141
PROPERTY, PLANT AND EQUIPMENT--Notes C and J
Land 4,184,412 4,183,425
Buildings and improvements 8,151,324 8,109,491
Furniture, fixtures and equipment 1,827,004 1,802,618
------------ ------------
14,162,740 14,095,534
Less accumulated depreciation (2,310,449) (1,711,622)
------------ ------------
11,852,291 12,383,912
REAL ESTATE DEVELOPMENT--Note M 4,262,907 4,376,638
COMMERCIAL PROPERTY HELD FOR SALE--
Note J 3,757,825 6,301,138
OTHER ASSETS--Notes G and K 1,194,501 883,193
------------ ------------
$24,344,214 $25,633,022
============ ============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Unclaimed winnings $ 261,380 $ 363,445
Deposits on real estate sales 9,000 214,000
ITW payables 195,042 153,334
Accrued payroll and related expenses 232,884 562,750
Accounts payable and accrued expenses 4,669,472 4,862,971
Current portion of long-term debt--Note I 4,234,545 1,310,520
--------------- ---------------
9,602,323 7,467,020
LONG-TERM DEBT (less current portion)--Note I 1,882,354 6,703,347
STOCKHOLDERS' EQUITY--Notes B, D and H
Class A cumulative convertible preferred stock; 1,200,000 shares
authorized; 34,435 shares issued and outstanding; aggregate 1999
liquidation preference of $406,333 3,443 3,443
Series B cumulative convertible preferred stock; 5,000 shares
authorized; 95 and 195 shares issued and outstanding in 1999 and
1998, respectively; aggregate 1999 liquidation preference of
$125,400 10 20
Series C 8% cumulative convertible preferred stock, 5,000 shares
Authorized; -0- and 100 shares issued and outstanding in 1999 and
1998, respectively. -0- 10
Series E 8% cumulative convertible preferred stock, 2,000 shares
authorized; 1,950 issued; aggregate 1999 liquidation preference
of $2,164,500 195 195
Series F 8% cumulative convertible preferred stock, 2,500 shares
authorized; 2,000 issued and outstanding; aggregate 1999
liquidation preference of $2,000,000 200 200
Common stock, $.10 par value; 15,000,000 shares authorized;
6,066,816 and 5,782,250 issued and outstanding in 1999 and 1998,
respectively. 606,682 578,225
Capital in excess of par value 39,572,551 39,600,988
Accumulated deficit (27,323,544) (28,720,426)
--------------- ---------------
12,859,537 11,462,655
--------------- ---------------
$ 24,344,214 $ 25,633,022
=============== ===============
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
See notes to consolidated financial statements
4
CONSOLIDATED STATEMENTS OF OPERATIONS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
HANDLE
Live Jai-Alai $ 53,150,000 $ 34,502,831
ITW-Guest 54,414,000 58,535,618
ITW-Host 15,401,000 14,461,358
------------ ------------
Total Pari-Mutuel Handle $122,965,000 $107,499,807
============ ============
JAI-ALAI MUTUEL REVENUE $9,137,340 $ 12,165,716
Less Florida State pari-mutuel taxes incurred--Note E (1,533,498) (1,733,963)
Less simulcast guest commissions (2,053,546) (1,943,741)
INTER TRACK MUTUEL COMMISSIONS 4,741,670 5,257,576
---------- ----------
Net Pari-Mutuel Revenue 10,291,966 13,745,588
ADMISSION INCOME, net of State taxes incurred 233,854 332,317
PROGRAM REVENUE 364,171 497,375
FOOD AND BEVERAGE 1,145,091 1,824,506
CARD ROOM REVENUE 234,957 475,645
OTHER 595,259 688,738
---------- ----------
TOTAL OPERATING REVENUE 12,865,298 17,564,169
OPERATING EXPENSES
Advertising and promotions 662,500 851,971
Operating and mutuels payroll and related costs 3,179,741 4,052,354
Player payroll and related costs 3,886,435 5,197,910
Food and beverage costs 978,033 1,589,853
Repairs and maintenance 337,423 423,666
Totalizator/teleview rent--Note H 370,260 784,736
Programs 293,444 452,918
Card room payroll and related costs 106,465 203,019
Other card room operating costs 44,619 112,197
Depreciation and amortization 733,017 922,403
Utilities 637,782 887,531
Miscellaneous, net 243,000 1,710,293
---------- ----------
TOTAL OPERATING EXPENSES 11,472,719 17,188,851
</TABLE>
(CONTINUED)
See notes to consolidated financial statements
4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS--CONTINUED
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE
Executive payroll and related costs $478,917 $526,596
Directors' fees--Note G 18,000 17,000
Management consulting--Note G 746,189 524,400
Telephone and travel 520,595 535,946
Professional fees 550,151 529,073
Interest expense 881,453 780,952
Property taxes 492,673 688,542
---------- -----------
3,687,978 3,602,509
---------- -----------
LOSS FROM OPERATIONS (2,295,399) (3,227,191)
OTHER INCOME (EXPENSE)
Gain on sale of Tara lots--Note M 414,102 263,481
Gain on sale of other real estate--Note J 924,702 1,055,912
Interest and dividend income 97,265 56,068
State tax credits on handle and admission--Note E 1,144,043 -0-
Gain (loss) on operation of Summer Jai Alai--Note K 976,261 (186,768)
Other (net) 295,908 (57,348)
----------- -----------
3,852,281 1,131,345
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 1,556,882 (2,095,846)
Income Tax Expense--Note E -0- -0-
---------- -----------
NET INCOME (LOSS) $1,556,882 $(2,095,846)
========== ===========
BASIC INCOME (LOSS) PER COMMON SHARE--Note A $.20 $(.36)
DILUTED INCOME (LOSS) PER COMMON SHARE--Note A $.16 $(.36)
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
For the two years ended December 31, 1999
<TABLE>
<CAPTION>
Class A Series B Series C
Preferred Stock Preferred Stock Preferred Stock
Par Value $.10 Par Value $.10 Par Value $.10
--------------------- ------------------------ ----------------------
Shares Amount Shares Amount Shares Amount
--------------------- ------------- ---------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 34,435 $3,443 445 $ 45 150 $ 15
Stock redemption--Note B and J (100) (10)
Conversion of preferred stock
to common stock--Note B (150) (15) (50) (5)
Dividends on Series F preferred
stock
Net loss for the year
--------------------- ------------- ---------- ----------------------
BALANCES AT
DECEMBER 31, 1998 34,435 3,443 195 20 100 10
Conversion of preferred stock
to common stock--Note B (100) (10) (100) (10)
Dividends on Series F preferred
stock
Net income for the year
--------------------- ------------- ---------- ----------------------
BALANCES AT
DECEMBER 31, 1999 34,435 $3,443 95 $10 -0- $-0-
===================== ============= ========== ======================
<CAPTION>
Series E Series F Series G
Preferred Stock Preferred Stock Preferred Stock Common Stock
Par Value $.10 Par Value $.10 Par Value $.10 Par Value $.10
--------------------- --------------------- ---------------------- --------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
--------------------- ---------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1998 2,000 $200 2,084 $208 3,000 $300 5,620,060 $562,006
Stock redemption--Note B and J (84) (8) (3,000) (300)
Conversion of preferred stock
to common stock--Note B (50) (5) 162,190 16,219
Dividends on Series F preferred
stock
Net loss for the year
---------- ---------- --------------------- ---------------------- --------------------------
BALANCES AT
DECEMBER 31, 1998 1,950 195 2,000 200 -0- -0- 5,782,250 578,225
Conversion of preferred stock
to common stock--Note B 284,566 28,457
Dividends on Series F preferred
stock
Net income for the year
---------- ---------- --------------------- ---------------------- -------------------------- --
BALANCES AT
DECEMBER 31, 1999 1,950 $195 2,000 $200 -0- $-0- 6,066,816 $606,682
===================== ============= ========== ============================================ ===
<CAPTION>
Capital in
Excess of Accumulated
Par Value Deficit
----------------------------
<S> <C> <C>
Balances at January 1, 1998 $43,184,670 $(26,437,219)
Stock redemption--Note B and J (3,567,487)
Conversion of preferred stock
to common stock--Note B (16,195)
Dividends on Series F preferred
stock (187,361)
Net loss for the year (2,095,846)
-----------------------------
BALANCES AT
DECEMBER 31, 1998 39,600,988 (28,720,426)
Conversion of preferred stock
to common stock--Note B (28,437)
Dividends on Series F preferred
stock (160,000)
Net income for the year 1,556,882
-----------------------------
BALANCES AT
DECEMBER 31, 1999 $39,572,551 $(27,323,544)
===========================
</TABLE>
See notes to consolidated financials
6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $1,556,882 $(2,095,846)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 733,017 922,403
Provisions for loss on gaming activities -0- 186,768
Decrease in inventory 6,277 37,051
Increase in accounts receivable (205,330) (26,686)
Decrease in real estate development 113,731 -0-
Decrease in unclaimed winnings (102,065) (369,743)
Decrease in accounts payable and accrued expenses (328,349) (1,762,163)
Realized gain on sale of real estate- - Note J (924,702) (1,055,912)
Increase (decrease) in deposits on real estate sales (205,000) 214,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 644,461 (3,950,128)
INVESTING ACTIVITIES
Purchases of property and equipment (67,206) (225,264)
Decrease (increase) in other assets (69,366) 422,893
Investments in gaming ventures (264,032) (177,345)
Decrease in miscellaneous receivables -0- 233,034
Loans to affiliated company (112,100) -0-
Proceeds from the sale of real estate- - Note J 3,314,707 8,655,730
----------- -----------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 2,802,003 8,909,048
FINANCING ACTIVITIES
Redemption of preferred stock -0- (3,583,588)
Net long-term debt repaid (1,896,968) (1,281,252)
Dividends paid (160,000) -0-
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (2,056,968) (4,864,840)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,389,496 94,080
Cash and cash equivalents at beginning of period 1,136,190 1,042,110
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,525,686 $1,136,190
=========== ===========
SUPPLEMENTAL DISCLOSURES
Issuance of common stock pursuant to-
-Conversion of preferred stock $28,457 $16,219
Interest paid $862,978 $891,862
</TABLE>
See notes to consolidated financial statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Company Background: Florida Gaming Corporation (the Company) operates live Jai
Alai frontons in Ft. Pierce, Miami and Ocala, Florida through its Florida Gaming
Centers, Inc. subsidiary (Centers). The Company also conducts intertrack
wagering (ITW) on jai alai, horse racing and dog racing from its Ocala Jai Alai
and Ft. Pierce facilities. The Company also operates Tara Club Estates, Inc.
("Tara"), a residential real estate development and commercial project located
near Atlanta in Walton County, Georgia. (See Note M) These financial statements
include the accounts of the Company and its subsidiaries. Significant
intercompany transactions have been eliminated.
Approximately 47.4% 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
through a continuing proxy granted pursuant to a Consent Order between the
Company, a subsidiary of the Bank of Oklahoma and the Florida Department of
Business and Professional Regulation.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
Property, Plant and Equipment: Property, plant and equipment are stated at cost.
Depreciation is provided using the straight-line and accelerated methods over
the estimated useful life of the related assets.
Long-lived assets: The Company's investment in its residential and commercial
property is carried at cost. The Company evaluates the carrying value of its
long-lived assets under FAS 121 annually.
Inventory: The Company's inventory, comprising food and beverage products and
souvenirs, is stated at the lower of cost or market.
Other comprehensive income: During 1998, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 130, Reporting Comprehensive
Income. The Company had no "other comprehensive income" during either year
presented. Accordingly, Comprehensive income is equal to net income in both
1999 and 1998.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Pari-mutuel Wagering: Revenue is derived from acceptance of wagers under a
pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW
events. On-site wagers are accumulated in pools with a portion being returned to
winning bettors, a portion paid to the State of Florida, and a portion retained
by the Company. ITW wagers are also accepted and forwarded to the "host"
facility after retention of the Company's commissions. The Company's liability
to host tracks for ITW collections totaled $195,042 and $158,546 at December 31,
1999 and 1998, respectively. Unclaimed winnings (outs) totaled $261,380 and
$244,054 at December 31, 1999 and 1998, respectively.
Income Taxes: The Company utilizes the asset and liability approach to
accounting for income taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for temporary differences
between the financial reporting and the tax bases of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
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.
The weighted average number of shares outstanding used in the calculation of
basic net income (loss) per common share was 5,915,941 and 5,735,266 for 1999
and 1998, respectively. Diluted loss per common share is not presented for 1998
since the amount is antidilutive.
Options and warrants to purchase 1,040,000 and 150,000 shares of the Company's
common stock were outstanding on December 31, 1999 and 1998, respectively. None
of these shares, net of forfeitures would have been included in the computation
of diluted income per common shares for 1999 and 1998, respectively, because the
weighted average market price was less than the exercise price of those options.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
Stock Options: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted market
price of the stock over the option price on the grant date (measurement date).
The Company's stock option plans require the issuance of all options at a price
equal to or greater than the market price of the stock on the grant date. Stock
options issued for non-compensation purposes are accounted for at fair value
pursuant to FASB 123 (See Note D).
Real Estate Development: The Company's Tara Subsidiary accounts for the cost of
lots sold by dividing the acquisition cost and development costs by the number
of lots developed.
Reclassification: Certain 1998 amounts have been reclassified to conform with
their 1999 presentation.
NOTE B--PREFERRED STOCK
Class A Preferred: The Company's Class A preferred stock provides annual
dividends, at the rate of $.90 per share payable in cash, property or common
stock, which are cumulative and have priority over dividends on the common
stock. The 1998 dividend is payable on April 15, 2000. The Company did not
declare the required dividend 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, 1999 and 1998, no
shares were converted. The Class A preferred is redeemable at the option to the
Company at $10.60 per share. In the event of dissolution, the holders of Class A
preferred shall be entitled to receive $10.00 per share, plus accrued dividends,
prior to any distribution to holders of common stock.
Class B Preferred: The Company's Series B convertible preferred stock provides
annual cumulative dividends at the rate of 8% to 10% of the consideration paid
for the stock. Such dividends are payable in shares of the Company's common
stock. The consideration received by the Company upon initial issuance of each
share of the Series B stock was $1,000. Holders of Series B shares may convert
all or any of such Series B shares to the Company's common stock using a ratio
based on the consideration paid for the stock and 80% of the market value of the
common stock. On December 15, 1995, the Board of Directors reserved 600,000
shares of the Company's common stock for issuance upon conversion of the Series
B preferred stock. Upon liquidation, the holders of Series B preferred shares
shall be entitled to be paid $1,000 per share plus 8% to 10% accrued dividends
before any distribution to holders of common stock. During 1998, 100 Series B
shares were redeemed by the Company (See Note J) and 150 were converted to
common stock. During 1999, an additional 100 shares were converted to common
stock. No Series B dividends have ever been declared or paid.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE B--PREFERRED STOCK--CONTINUED
Series C Preferred: The Company is authorized to issue 5,000 shares of Series C
8% Cumulative Convertible Preferred Stock, $.10 par value (the "Series C
Preferred Stock"), which provides annual dividends at the rate of 8% of the
share's Stated Value. The Stated Value per share equals $1,000 (as adjusted for
any stock dividends, combination or split). At the discretion of the Company's
Board of Directors, such dividends may be paid in shares of the Series C
Preferred Stock.
Holders of Series C Preferred Stock may convert all or any of such shares to the
Company's Common Stock (the "Series C Conversion Shares") beginning 90 days
after the issuance of the Series C Preferred Stock. If not converted earlier by
the holder, the Series C Preferred Stock shall be converted automatically on
December 31, 1998. In general, the number of Series C Conversion Shares issuable
on conversion of each share of Series C Preferred Stock shall equal the
consideration paid for such share together with accrued and unpaid dividends on
such share, if any, divided by the lesser of (i) $7.50 or (ii) 80% of the
closing bid price of the Common Stock on the five trading days before
conversion. A holder of Series C Conversion Shares may not sell more than 33% of
such shares between 90 and 120 days of his purchase of Series C Preferred Stock
converted into such shares and 67% of such shares between 121 and 150 days of
his purchase; a holder may generally sell all of his Series C Conversion Shares
151 days after his purchase.
All shares of Series C Preferred Stock have been sold in offshore transactions
exempt from registration pursuant to Regulation S promulgated under the
Securities Act. The Series C Conversion Shares must be resold in transactions
exempt under Regulation S or another applicable exemption under the Securities
Act, pursuant to the registration of the Series C Conversion Shares by the
Company.
Upon liquidation, the holders of Series C Preferred Shares shall be entitled to
be paid $1,000 per share plus 8% accrued dividends before any distribution to
holders of Common Stock. The Company has the right to redeem the shares of
Series C Preferred Stock if a holder of such shares exercises the right of
conversion at a time when the conversion price is below $5.00. The redemption
price to be paid by the Company is 125% of the Stated Value of such shares
together with all accrued and unpaid dividends thereon.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE B--PREFERRED STOCK--CONTINUED
During 1998, 50 Series C shares were redeemed by the Company. Also during
1998 and early 1999 the holder of the Series C shares tendered its Notice of
Conversion seeking to be issued 302,024 shares of common stock upon
conversion of its Preferred Stock. The Company issued 179,445 common shares
pursuant to this Conversion. Reference is made to Note H for a discussion of
related litigation.
Series D Preferred: The Company is also authorized to issue up to 5,000 shares
of Series D 8% Cumulative Convertible Preferred Stock (the "Series D Preferred
Stock"), which provides annual dividends at the rate of 8% of the shares' Stated
Value. The Stated Value per share equals $1,000 (as adjusted for any stock
dividends, combination or split).
There were no Series D shares outstanding at December 31, 1999 and 1998.
Series E Preferred: The Company is authorized to issue 2,000 shares of Series E
8% cumulative convertible preferred stock, $.10 par value (the "Series E
Preferred Stock"), which provides annual dividends at the rate of 8% of the
share's stated value, payable upon conversion of the Series E preferred stock
into common stock. The stated value per share equals $1,000 (as adjusted for any
stock dividends, combination or splits).
Holders of Series E Preferred Stock may convert all or any such shares to the
Company's common stock (the "Series E Conversion Shares") beginning 120 days
after the issuance of the Series E Preferred Stock. If not converted earlier by
the holder, the Series E Preferred Stock shall be converted automatically two
years from the date of issuance. In general, the number of Series E Conversion
Shares issuable on conversion of each share of Series E Preferred Stock shall
equal the consideration paid for such share together with accrued and unpaid
dividends on such share, if any, divided by the lesser of (i) $7.50 and (ii) 80%
of the average of the closing bid price of the common stock on the five trading
days before conversion. A holder of Series E Conversion Shares may not sell more
than 25% of such shares between 120 and 150 days of his
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE B--PREFERRED STOCK--CONTINUED
purchase of Series E Preferred Stock converted into each share, 50% of such
shares between 151 and 180 days of his purchase of Series E Preferred Stock
converted into such shares and 75% of such shares between 181 and 210 of his
purchase of Series E Preferred Stock converted into each share; holders may
generally sell all of their Series E Conversion Shares 211 days after their
purchase.
Upon liquidation, the holders of Series E Preferred Shares shall be entitled to
be paid $950 per share plus accrued dividends before any distribution to holders
of common stock.
During 1998, 50 shares of the Series E preferred stock were redeemed by the
Company. No Series E dividends have ever been declared or paid.
Series F Preferred: The Company is also authorized to issue up to 2,500 shares
of Series F 8% Cumulative Convertible Preferred Stock (the "Series F Preferred
Stock"), which provides annual dividends at the rate of 8% of the shares' stated
value. The stated value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board of
Directors, such dividends may be paid in shares of the Series F Preferred Stock.
Holders of Series F Preferred Stock may convert all or any of such shares to the
Company's common stock at any time. Each share of Series F Preferred Stock shall
be converted into 296.6689 shares of common stock (the "Conversion Stock"). The
number of shares of Conversion Stock into which each share of Series F Preferred
Stock shall be converted shall be proportionately adjusted for any increase or
decrease in the number of shares of common stock or Series F Preferred Stock.
Upon liquidation, the holders of Series F Preferred Shares shall be entitled to
be paid $1,000 per share plus accrued dividends before any distribution to
holders of common stock.
The Series F shares are all held by related parties of the Company. There
remains 2,000 series F shares outstanding at December 31, 1998.
Series G Preferred: The Company is also authorized to issue up to 5,000 shares
of Series G 5% Convertible Preferred Stock (the "Series G Preferred Stock"),
which provides semi-annual dividends at the rate of 5% of the shares' stated
value. The stated value per share equals $1,000 (as adjusted for any stock
dividends, combination or split). At the discretion of the Company's Board of
Directors, such dividends may be paid in shares of the Series G Preferred Stock.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE B--PREFERRED STOCK--CONTINUED
Holders of Series G Preferred Stock may convert all or any of such shares to the
Company's common stock at any time following the 180th day following the first
date of issuance. If not converted earlier by the holder, the Series G Preferred
Stock shall be converted automatically on September 30, 2002. In general, the
number of Series G Conversion Shares issuable on conversion of each share of
Series G Preferred Stock shall equal the consideration paid for such share
together with accrued and unpaid dividend on such share, if any, divided by the
lesser of (i) 105% of the average of the reported closing price of the Company's
common stock during the fifteen consecutive trading days immediately preceding
the issuance date or (ii) 80% of the closing bid price of the common stock on
the five trading days before conversion.
Upon issuance, Series G Convertible Preferred Stock shall have all of the same
voting rights as issued and outstanding common stock of the Company. Upon
liquidation, the holders of Series G Convertible Preferred Shares shall be
entitled to be paid $1,000 per share plus accrued dividends before any
distribution to holders of common stock.
During 1998, the Company redeemed all of its outstanding Series G shares through
the payment of $1,560,000 in cash and $2,000,000 in notes payable. (See Notes I
and J)
The Class A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, the
Series F Preferred Stock and the Series G Preferred Stock are all equal in rank
with respect to the payment of dividends and the distribution of assets upon
liquidation of the Company.
NOTE C--WJA CONTRACT
On September 12, 1996, the Company acquired notes (the "WJA Notes") of WJA
Realty Limited Partnership ("WJA"), with balances aggregating about $20,000,000
from the Bank of Oklahoma, N.A., Tulsa, Oklahoma. The WJA Notes were secured by,
among other collateral, real estate and improvements consisting of three
jai-alai and ITW facilities located in Miami, Tampa and Ocala, Florida (the "WJA
Frontons"). Consideration for the WJA Notes was a combination of $2,000,000 in
cash, a $6,000,000 promissory note bearing interest at the prime rate, 703,297
shares of the Company's Common Stock and a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into a purchase agreement with WJA
and Florida Gaming Centers, Inc. a wholly-owned subsidiary of the Company
("Centers"), pursuant to which Centers agreed to acquire the WJA Frontons.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE C--WJA CONTRACT--CONTINUED
Consideration for the acquisition included (i) the cancellation of WJA Notes
and related obligations from the Bank of Oklahoma, (ii) the retention by WJA
of the 200,000 shares of common stock owned by WJA, (iii) the assumption of
all liabilities of WJA arising in the ordinary course of business (subject to
certain limitations), including a $500,000 promissory note owed to
Wheeler-Phoenix, payable over a ten year period in equal installments, with
annual interest of 6% (See Note I) and (iv) a profit sharing arrangement
based on FGC's net profits before income taxes, wherein WJA will receive 20%
of FGC's cumulative net profits for ten years (1997 through 2007), subject to
a cumulative $1,000,000 per year cap. Other aspects of the 20% provision may
affect the profit payout. Additionally, should FGC dispose of any of its
significant assets or operations, WJA may be entitled to 10% of FGC's gain
(net of related costs and expenses) on disposition. Although no net operating
profit payments were due through 1999 on a cumulative basis, the Company may
be required to pay a disposition payment relating to the sale of the Tampa
and Miami properties. The Company has accrued its estimate of the required
disposition payment for both properties. (See Note J).
Two principals of WJA, also entered into consulting arrangements with the
Subsidiary. One principal entered into a ten-year consulting agreement with the
Subsidiary, with annual compensation of $100,000 during the first five years of
the agreement and annual compensation of $50,000 during the second five years of
the agreement. The other principal entered into a five-year consulting agreement
with the Subsidiary, with annual compensation of $240,000, plus certain
benefits. These two individuals were also granted stock options on the Company's
stock with a fair value of $150,298. (See Note D) During 1997, the Company
discontinued the required payments under the above consulting agreements.
On November 24, 1998, amendments to the consulting and noncompetition were
executed, and settlements reached requiring payments to both principals of all
amounts past due, based on the modified agreement. The revised agreement
requires annual compensation of $72,000 for the first five years and $48,600
annually during the second five years of the agreement for one principal, and
annual compensation of $120,000, plus certain benefits over a ten year period
for the other principal.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE D--STOCK OPTIONS
No options to purchase stock of the Company were granted or exercised during
1998. On November 2, 1998, options to purchase 975,000 shares for prices ranging
from $4.125 to $7.50 per share were cancelled.
On February 9, 1999, the Board of Directors rescinded the Company's Directors
Stock Option Plan, which was adopted in 1994, and the Company's Directors
Continuing Stock Option Plan, which was adopted in 1997. On the same date, the
Board of Directors adopted a new Directors and Officers Stock Option Plan and on
February 11, 1999 options were granted to each director to purchase 60,000
shares (360,000 in total), of Common Stock for $1.125 per share, which was the
last sales price of the Common Stock in the over-the-counter market on February
10, 1999. In addition, options to purchase 630,000 shares of Common Stock for
$1.125 each were granted to certain corporate officers and employees. The above
options are exercisable, in whole or in part, from time to time, anytime after
August 26, 1999 and before August 11, 2004.
Under a Stock Purchase Agreement, dated March 31, 1993 Florida Gaming granted
Freedom options to purchase 2,030,000 shares of Common Stock at an exercise
price of $1.25 per share, exercisable at any time prior to the fifth anniversary
of the closing. Freedom exercised options to purchase 1,125,000 shares of the
Company's common stock in 1994 and 1997. Its remaining option to acquire 905,000
shares expired on March 31, 1998.
Warrants for the purchase of 150,000 shares of the Company's common stock were
also issued during 1997 to an organization utilized by the Company to locate
capital funding sources to purchase its preferred stock. The exercise price is
110% of the quoted price of the Company's stock at date of grant or $4.18 per
share. These warrants vested immediately and expire in five years. The warrants
had a fair value of $1.49 each at the date of issue.
Consistent with APB 25, no compensation cost was recognized during 1999 for
stock options issued to employees and directors. There were no stock options
granted in 1998. Had the Company accounted for stock options issued during 1999
using the fair value method (FASB 123), the Company's 1999 compensation expense
would have been increased by $442,672. Additionally, 1999 basic earnings per
share would have decreased by $.07 and 1999 diluted earnings per share would
have decreased by $.05.
The fair value of stock options granted in connection with the Company's
acquisition of the three Jai Alai facilities described in Note C was
$150,298. Such amount is included in the basis of the assets acquired and in
capital in excess of par value in the accompanying 1999 and 1998 balance
sheets.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE D--STOCK OPTIONS--CONTINUED
The fair value of options and warrants is determined using the Black-Scholes
option pricing model consistent with FASB 123. The assumptions used during 1998
and 1999 to value the Company's stock options were as follows:
<TABLE>
<S> <C>
Risk-free rate of return 6.000%
Expected forfeitures None
Expected volatility 30.00%
Expected dividends None
</TABLE>
NOTE E--TAXES ON INCOME, HANDLE AND ADMISSIONS
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 2014. However, $9,000,000 of the
Company's NOL carryforwards which can be utilized to offset future taxable
income are limited to approximately $95,000 per fiscal year under Section 382 of
the IRC because Freedom's stock purchase discussed in Note D was considered a
change in ownership under the "deemed exercise rule" of IRC Section 382. As a
result, only the net operating losses attributable to the period after the
"change in ownership" (approximately $5,500,000) are not subject to the Section
382 limitation.
The Company's 1999 income tax expense at statutory rates would have been
approximately $512,000 had the above NOL carryforwards not been available to
offset the Company's 1999 taxable income. Approximately $1,500,000 of the
Company's NOL carryforwards were utilized.
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 (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
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE E--TAXES ON INCOME, HANDLE AND ADMISSIONS
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. An analysis of the tax credits is as follows:
Miami Jai Alai
<TABLE>
<CAPTION>
Cumulative
Statutory Tax Credit
Operating Loss Taxes Tax Credits Carried
Year Incurred Used Forward
- - --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
1997 $(580,041) $1,606,051 -0- $1,606,051
1998 $(831,326) $1,330,864 $ (509,714) $2,427,201
1999 $(646,894) $1,219,042 $(1,144,043) $2,502,200
</TABLE>
The Tampa Jai Alai Permit retains tax credits carried forward totaling
$1,362,265. The Company's Ocala and Ft. Pierce facilities have not incurred
Statutory operating losses and therefore have not earned any state tax credits.
Each permit holder is required by State Law to file a periodic (30 day) report
summarizing its pari-mutuel handle and its admissions. Taxes are then remitted
to the state on the basis of these reports. In this connection, the Company has
made two interpretations pertaining to the operation of HB3663 which affect the
manner in which reports taxes due and credits earned. First, Management believes
the calculation of statutory operating losses should reflect taxes incurred but
not tax credits used in a given period. Second, management believes credits used
are the equivalent of taxes "paid" for determination of its tax rate on ITW
handle. The 30 day reports filed by the Company for its Miami permit from
December 1998 through February, 2000 were amended in March, 2000 to reflect
these interpretations. The State of Florida has not opined as to their
interpretations of these same issues.
The Miami Jai Alai unused tax credits carried forward at December 31, 1999 would
be reduced by $572,059 should the State of Florida take a contradictory position
to the Company's interpretation of the above matters.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE F--RETIREMENT PLAN
The Company provides defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans, which cover employees included in its
current Collective Bargaining Agreement and certain non-union employees, provide
for the deferral of salary and employer matching. The Company's costs for
matching employee contributions totalled $78,100 and $111,500 during 1999 and
1998, respectively.
NOTE G--RELATED PARTY TRANSACTIONS
Reference is made to Note I for details pertaining to the Company's credit
facility with Freedom Financial Corporation, a closely-held corporation owned
substantially by the Company's Chairman.
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom with the loan represented by a
promissory note (the "Company Note") bearing interest at the rate of 15% per
annum secured by a first lien on the shares of the Company's wholly-owned
subsidiaries, Florida Gaming Centers, Inc. ("Centers") and Tara Club Estates,
Inc. ("Tara") and by a second lien on substantially all of the Company's other
assets. The Note is guaranteed by Centers and Tara with their guaranties secured
by a second lien on substantially all of their respective assets. On November
24, 1998, The Company borrowed $1,135,000 from Freedom pursuant to the above
arrangement. During 1999 the Company reduced the principal balance on this
loan to $1,066,208 (See Note I).
Reference is made to Note K for details of the Company's transactions with
Summer Jai Alai. Reference is made to Note B for information pertaining to
Series F Preferred Stock held by related parties.
Additional information can be found in Note D pertaining to compensating stock
option arrangements between the Company and its Directors.
The Company makes payments of $38,000 per month to Freedom Financial
Corporation for the services of the Company's Chairman and President. No
written employment or consulting agreement exists between the Company and
Freedom.
Certain lots sold by the Company's Tara Subsidiary during 1999 were conveyed
to a partnership (Tara Construction) formed by the Company's Chairman. The
Chairman provided construction loan guarantees to various banks to induce
builders to construct homes on the lots in exchange for a revenue sharing
arrangement with the builders who participate in the program. In connection
with these lot sales, the Company extended credit totaling $112,100 at
December 31, 1999 to Tara Construction.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE H--COMMITMENTS AND CONTINGENCIES
Isle of Capri Casino, Inc.: On October 4, 1994, the Company entered into a
letter of intent (the "Letter of Intent") with Isle of Capri Casino, Inc.,
formerly known as Casino America, Inc. ("Isle of Capri") to form a joint
venture (the "Joint Venture") to build and operate a casino or a flea market
at its Ft. Pierce Fronton ("the Fronton"). Isle of Capri owns and operates
located in Colorado, Florida, Louisiana, Nevada, Iowa, Missouri and
Mississippi. If the Joint Venture is formed to build a flea market before
passage of an amendment to the Florida Constitution to permit casino gaming
at the Fronton, the Company will contribute its interest in the Fronton to
the Joint Venture with a credit to its joint venture capital account of
$5,000,000. 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. If casino gaming is not permitted in Florida by December 4, 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
payments over a ten year period with interest at 8% per annum. If casino
gaming is permitted at the Fronton by December 4, 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 would
fund its capital account on an as needed basis up to $22,500,000. All profits
and losses of the Joint Venture will be allocated between the partners based
upon capital accounts.
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, intertrack wagering and all other non-casino
related activities. Each corporation will receive a management fee based on
costs. The Letter of Intent provides that 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.
Freedom Financial Corporation has informed the Company that Isle of Capri
owns 27,707 shares of Freedom's 7% Series AA Mandatorily Redeemable Preferred
Stock (the "Series AA Stock"). The Series AA Stock is convertible into shares
of the Company's Common Stock owned by Freedom at prices ranging from $7.50
per share of Common Stock to $15.00 per share of Common Stock, depending upon
the timing of the conversion and possible passage of an amendment to the
Florida Constitution permitting casino gaming at the Fronton. The Series AA
Stock is convertible into a minimum of 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.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
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 $785,000, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1999, are as follows:
<TABLE>
<CAPTION>
Minimum
Year Annual Rental
<S> <C>
2000 $410,000
2001 410,000
---------------
$820,000
===============
</TABLE>
The Company also leases certain parking facilities adjacent to its Miami
Fronton. The lease, which provides the Company five annual renewal options,
requires monthly lease payments of $5,500 or $66,000 per year.
Other Commitments: Reference is made to Note C for details of other Company
commitments.
Collective Bargaining Agreement: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and bonuses based on
parimutuel handle, certain cesta allowances and retirement benefits. The
agreement continues from year to year unless timely notice of termination is
given by either party to the agreement.
Concentration of Credit: The Company maintains significant cash balances with
financial institutions in excess of the insurance provided by the Federal
Deposit Insurance Corporation (FDIC).
Payroll Tax Penalty: Because of its working capital deficiencies in early 1998,
the Company was unable to remit its 1998 payroll tax withholdings on a timely
basis. At December 31, 1999 and 1998, all payroll taxes due had been paid,
however, the delinquencies resulted in the assessment of penalties by the IRS
totaling approximately $360,000. The Company appealed the penalties and
negotiated a settlement with the IRS requiring the Company to pay $110,000 of
the assessment. The Company had accrued $200,000 for this expense in the
accompanying 1998 financial statements based on management's estimate of the
amount it anticipated paying as a result of the penalties. The $90,000
difference between estimate and actual was reversed against expense in 1999.
$65,000 of the agreed upon penalties remain to be paid at December 31, 1999.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE H--COMMITMENTS AND CONTINGENCIES--CONTINUED
Litigation: The Company is a defendant in a law suit filed during 1999 alleging
breach of contract and breach of the implied covenant of good faith and fair
dealing. The case concerns a dispute over the plaintiff's (Spector Entertainment
Group, Inc.) alleged rights under a satellite broadcast with Florida Gaming's
predecessor in interest, WJA Realty Limited Partnership. The Plaintiff seeks
damages in an unspecified amount. The Company believes the allegations lack
merit and intends to defend the action vigorously.
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 an amount from $345,000 to in excess of $2,000,000. The
Plaintiff (Orez, Ltd.), is a private investment company who purchased 150
shares of the Company's Series C Preferred Stock on December 19, 1996 for
$150,000. The stock was issued to Orez pursuant to the terms and conditions
of the Certificates of Designation. During 1998 and early 1999, Orez tendered
its Notice 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 13,782 additional common shares to Orez
in connection with this controversy.
The Company is a defendant in certain other suits which are deemed to be routine
litigation in the ordinary course of business. The Company believes that the
ultimate resolution of the suits will not have a material adverse impact on the
Company's financial position or its results of operations.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE I--LONG-TERM DEBT
The Company's long-term debt comprised the following at December 31, 1999 and
1998:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Current Long-Term Current Long-Term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Mortgage note dated June 17, 1994 secured by
real estate located in St. Lucie County; payable
in monthly installments of $425 including
interest at 8% per annum through June 17, 2004. $3,695 $15,499 $ 3,412 $ 19,194
Mortgage note dated January 3, 1995 secured by
real estate located in St. Lucie county; payable
in monthly installments of $1,980 including
interest at 9.5% per annum through December 3,
1999 with a balloon payment of $226,774, plus
interest, due on January 3, 2000. 226,774 -0- 2,104 226,774
Mortgage note dated January 3, 1995 secured by
real estate located in St. Lucie county; payable
in monthly installments of $2,079 including
interest at 9.5% per annum through December 3,
1999 with a balloon payment of $238,113, plus
interest due on January 3, 2000. 238,114 -0- 2,208 238,114
Mortgage note dated January 31, 1995 secured by
real estate located in St. Lucie county; payable
as follows: $2,655 monthly at 8% per annum
through February 1, 1996; $4,548 monthly at 9%
per annum from March 1, 1996 through February 1,
1998; $4,017 monthly at 9.5% or prime rate plus
2% (whichever is greater) per annum from March
1, 1998 through February 1, 2000; a balloon
payment of approximately $277,958, plus
interest, due on February 1, 2000. 279,754 -0- 17,796 279,754
Senior non-negotiable promissory note payable to
Millennium Partners LP dated October 1, 1998;
interest payments of $33,333 on the first day of
each month with final payment of remaining
principal and interest due on October 1, 2000.
Annual interest rate 20%. Each payment on note
shall be applied first to accrued but unpaid
interest and then to reduction of principal.
Note issued in connection with the Company's
redemption of its Series G Preferred stock (See
Notes B and J). 2,000,000 -0- -0- 2,000,000
</TABLE>
23
<PAGE>
NOTE I--LONG-TERM DEBT--CONTINUED
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Current Long-Term Current Long-Term
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Line of credit on the amount of $1,500,000 with
Freedom Financial Corporation dated November 10,
1999, secured by 2,000 shares of Tara Club
Estates, Inc. and 20,000 shares of Florida
Gaming Centers Capital Stock (respectively,
being all of the issued and outstanding capital
stock of said corporations). Interest rate is
15% annually. Line of credit matures upon demand
but if no demand is made then note and mortgages
will be due in one year. $1,066,208 -0- $1,135,000 -0-
Mortgage note dated September 4, 1998 secured by
real estate located in Ocala, Fort Pierce, and
Miami, Florida; also secured by security
agreement on furniture, fixtures, equipment,
receivables and intangibles in Ocala, and Miami,
Florida payable as follows: fifty-eight
installments in the amount each of $31,404.69 on
the last day of the month beginning on November
30, 1998 and thereafter until August 31, 2003
and a final installment in the amount of all
principal then outstanding plus interest on
September 4, 2003 at prime rate plus 2% per
annum. 275,000 $791,855 100,000 $2,702,011
Note payable to Wheeler-Phoenix, Inc., assumed
in connection with the acquisition of assets
described in Note C; principal payable in 10
annual installments plus interest at 6%. 145,000 300,000 50,000 400,000
Note payable dated July 7, 1993 secured by
investment real estate in Walton County,
Georgia; interest payable in monthly
installments at an adjusted monthly rate of
prime plus 1 point through September 23, 1999. -0- 775,000 -0- $837,500
---------- ------------ ---------- ------------
$4,234,545 $1,882,354 $1,310,520 $6,703,347
========== ============ ========== ============
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE I--LONG-TERM DEBT--CONTINUED
The approximate maturities of the Company's long-term debt for the five years
subsequent to December 31, 1999 are as follows: 2000--$4,234,545;
2001--$1,139,002; 2002--$394,335; 2003--$196,549; 2004--$52,468;
thereafter--$100,000.
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE J--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
Land $4,184,412 $4,183,425
Buildings and improvements 8,151,324 8,109,491
Equipment furniture and fixtures 1,741,094 1,716,708
Vehicles 85,910 85,910
Less accumulated depreciation (2,310,449) (1,711,622)
------------ ------------
$11,852,291 $12,383,912
============ ============
</TABLE>
On September 4, 1998, the Company's Tampa Jai Alai facility was sold for
$8,300,000, pursuant to an agreement dated January 1998, between the Company and
a real estate development company based in Tampa, Florida. The sale did not
include the Company's gaming permit which remains available for future use in
Hillsborough County, Florida. The Company also sold its North Miami Beach
training facility for $487,500 during 1998. The combined gain on the sale of
these two properties was $1,055,912. Such amount is reflected as other income in
the accompanying 1998 Statement of Operations. The Company's costs associated
with the closing of Tampa Jai Alai operations including player and related costs
are included in the Company's operating expenses and are not reflected in the
gain on the sale of the Tampa real estate.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE J--PROPERTY, PLANT AND EQUIPMENT--CONTINUED
The proceeds of the sale were used as follows:
<TABLE>
<S> <C>
Bank of Oklahoma, 1st Mortgage Obligations $3,084,466
Delinquent 1996 and 1997 Real Estate Taxes 1,037,529
Delinquent Payroll Taxes 300,000
Brokerage Commissions and Other Expenses of Sale 355,883
Repurchase of Series "G" Convertible Preferred Stock 1,560,000
Repurchase of Series "B" Convertible Preferred Stock 128,000
Payoff of Unsecured Notes 160,000
Payoff of Mortgage on Ft. Pierce Property 280,000
Other Trade Payables 1,394,122
------------
$8,300,000
============
</TABLE>
The Company received an additional $125,000 for vacating the property by
November 1, 1998.
During 1999, the Company sold and leased back certain of its Miami commercial
property held for sale. The transaction is summarized as follows:
<TABLE>
<S> <C>
Sales Price $ 3,668,000
Expense of Sale (253,293)
---------------
Proceeds 3,414,707
Basis (2,490,005)
---------------
Gain on Sale $ 924,702
===============
</TABLE>
Reference is made to Note H for information pertaining to the Company's lease
on the above Miami property. The lease is annually renewable at the Company's
option. The Company incurred approximately $25,000 of other expenses
associated with the property transfer that are included as general and
administrative costs.
The Company's commercial property held for sale comprises the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Miami land -0- $2,490,005
Ft. Pierce land $1,834,516 1,834,516
Tara Club Estates 1,300,000 1,300,000
Other 623,309 676,617
--------------- --------------
$3,757,825 $6,301,138
=============== ==============
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE K--SUMMER JAI ALAI
The Company is a 21% partner in "The Summer Jai Alai Partnership" or "SJA"
and operates certain live Jai Alai dates annually on behalf of the
partnership. The partnership was formed in 1980 pursuant to an Operator's
Agreement and Fronton Lease. The 1996 summer season resulted in an operating
loss and the Company made demand upon its partners for their respective
shares of the losses and to fund a "money bank " and "operations bank" for
SJA's 1997 summer season. Neither request was honored and as a result, the
Company filed suit against the partnership to collect on the 1996 losses on
July 20, 1997. This lawsuit was amended on February 20, 1998 seeking damages
from the partners for breaching the Operator's Agreement and Fronton Lease.
Because the 1997 SJA summer season resulted in an additional loss, the
Company amended its complaint to include its partners' share of that loss. At
December 31, 1997, the Company had an account receivable from SJA of $468,372.
On June 11, 1998 Florida Gaming Centers, Inc., as a resolution to the dispute
and resulting litigation, entered into an agreement with its Summer Jai Alai
partners (Hollywood Greyhound, Flagler Greyhound and Biscayne Kennel Club or
their successors). This agreement set forth the liabilities, responsibilities
and consideration to continue the agreement and resolve the dispute as follows:
o Florida Gaming acquired the right to operate SJA's meets from May 1,
1998 through November 28, 1998 and the option to run during May and June of
1999 at its own risk and for its own benefit. Florida Gaming agreed to hold
its Summer partners harmless for any and all losses or liabilities that may
be incurred.
o If net profits from operating the 1998 Summer Season exceeded $250,000; the
Summer partners would be paid a total of $50,000 by Florida Gaming.
o All amounts owed to the State of Florida by SJA were to be
paid.
o All ITW amounts due to Flagler Greyhound were to be paid before September
30, 1998.
o All claims and counterclaims of Florida Gaming and the Summer Partners were
dismissed with the exception of the broadcast and reception of the
respective ITW signals, which were to be resolved or litigated at a later
date.
o The parties agreed to meet on or before December 31, 1998 to determine the
operational dates or parameters for the 1999 Summer Season.
28
<PAGE>
NOTE K--SUMMER JAI ALAI--CONTINUED
Pursuant to this final provision requiring the partners to determine the
parameters for the 1999 Summer Season, the partners, as a continuation of and
superseding any other open issues of the June 11, 1998 agreement, agreed as
follows:
o Florida Gaming maintained the right to operate Summer Jai Alai from May 1,
1999 through November 30, 1999 and May and June of 2000 at its own risk and
for its own benefit. Florida Gaming agreed to hold its Summer partners
harmless for any and all losses or liabilities that may be incurred.
o Florida Gaming was required to pay each of Hollywood, Flagler and Biscayne
the sum of $65,000 in three installments of $21,667, with the first payment
due upon execution of the agreement and subsequent payments on June 1, 1999
and July 20, 1999.
As a result of the above agreements, the Company cancelled its receivable
from SJA during 1998. $345,117 of the receivable was written off against the
SJA 1998 income of $158,349 resulting in a net loss on the Company's
investment of SJA of $186,768. The Company's recorded ivnestment in SJA at
December 31, 1998 totaled $101,157. During 1999 the Company made the required
$65,000 payments to its SJA partners. Further, SJA had net income of
$1,206,195 and distributed $908,349 to the Company. Accordingly, the
Company's recorded investment in SJA at December 31, 1999 totalled $490,017.
Such amount is carried as an Other Asset in the accompanying 1999 Balance
Sheet.
NOTE L--INDIAN GAMING VENTURE
During 1995, the Company entered into an arrangement with a Native American
Tribe (the Rincon Band) to explore possible opportunities for gaming
ventures. The arrangement generally provided the Company the right to receive
compensation from the Tribe's share of the potential gaming profits for
supplying the management services and/or financing (up to $5,000,000)
necessary for the construction and operation of the gaming facilities. The
Company's commitment to provide construction financing and working capital
was contingent upon the Tribes' procurement of the legal authority to operate
a gaming venture. In 1997 the Company charged off its initial investment in
these arrangements ($356,193) due to the uncertainty associated with the
completion of the contemplated transactions. Company management has been
informed that the necessary legal authority to operate the contemplated
gaming ventures was granted by a California voter referendum subsequent to
December 31, 1999. Accordingly, management intends to pursue its rights and
opportunities under the amended agreement.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE M--REAL ESTATE DEVELOPMENT
The Company owns certain improved properties and a residential real estate
development called Tara Club Estates (collectively, "Tara" or the "Properties"),
all of which are situated in Loganville, Walton county, Georgia. The Company is
developing the property for sale as a residential community with adjacent
commercial space.
During 1999 and 1998 the Company sold 17 and 15 lots, respectively. Total sales
and the related cost of the lots were as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- ---------------
<S> <C> <C>
Total sales $775,500 $557,900
Total cost of sales (361,398) (294,419)
--------------- ---------------
$414,102 $263,481
=============== ===============
</TABLE>
The Company's real estate development activities comprises a separate segment of
its operations. (See Note O)
NOTE N--SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," as
required for this annual report. Statement 131 requires companies to report
information about the revenues derived from the enterprise's segments, about the
geographical divisions in which the enterprise earns revenues and holds assets,
and about major customers.
The Company has defined its segments into two main areas. Florida Gaming Centers
(Centers) and Tara Club Estates (Tara). These segments are organized under the
supervision of the Florida Gaming executive management team and are evaluated
based on the following information presented: Revenues from gaming operations,
revenues from lot sales and operating profit contribution to the total
corporation. All inter-segment transactions are eliminated to arrive at the
total corporation revenue and operating profit. All income and expense items
below operating profit are not allocated to the segments and are not disclosed.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION AND SUBSIDIARIES
December 31, 1999 and 1998
NOTE N--SEGMENT INFORMATION--CONTINUED
The Florida Gaming Centers segment operates the Corporation's jai alai centers
in Miami, Ocala and Fort Pierce, Florida. Centers also operates the Company's
inter-track wagering operation in Florida. Tara Club Estates is a real estate
development in Loganville, Georgia. Tara develops residential building lots for
sales to builders and individuals. As permitted under Statement 131, certain
information not routinely used in the management of these segments, information
not allocated back to the segments or information that is impractical to report
is not shown. Items not disclosed are as follows: Interest income and expense,
Amortization Expense, Income Tax Expense or Benefit, Extraordinary Items,
Significant non-cash items and Long-lived assets.
Centers' gaming operations comprise approximately 95% of the Company's revenues.
Neither Centers nor Tara has any customers that individually represent a
significant portion of their business.
<TABLE>
<CAPTION>
Centers Tara
--------------- ---------------
<S> <C> <C>
1999 Segment Information by Group
Customer Revenues $13,841,559 $775,500
Operating Profit $1,319,138 $414,102
1998 Segment Information by Group
Customer Revenues $17,564,169 $557,900
Operating Profit (Loss) $(3,227,191) $263,481
</TABLE>
31
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FOUND IN ITEM 7 OF THE COMPANY'S 10-KSB THE
YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,526
<SECURITIES> 0
<RECEIVABLES> 652
<ALLOWANCES> 0
<INVENTORY> 99
<CURRENT-ASSETS> 3,277
<PP&E> 14,163
<DEPRECIATION> (2,310)
<TOTAL-ASSETS> 24,344
<CURRENT-LIABILITIES> 9,602
<BONDS> 0
4
0
<COMMON> 607
<OTHER-SE> 12,860
<TOTAL-LIABILITY-AND-EQUITY> 24,344
<SALES> 0
<TOTAL-REVENUES> 12,865
<CGS> 0
<TOTAL-COSTS> 14,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 881
<INCOME-PRETAX> 1,557
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,557
<EPS-BASIC> .20
<EPS-DILUTED> .16
</TABLE>
