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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
F O R M 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2000
Commission file number 0-9099
FLORIDA GAMING CORPORATION
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-1670533
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(State or other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
3500 NW 37TH Avenue, Miami, Florida 33142-0000
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (305) 633-6400
------------------
Former name, former address and former fiscal year, if changed
since last report N/A
---------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
6,189,395 shares of the issuer's Common Stock were outstanding
as of the latest practicable date, NOVEMBER 14 , 2000 .
----------------------------------
Transitional Small Business Disclosure Format:
YES NO X
--- ---
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FLORIDA GAMING
CORPORATION
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999 (audited).................... 3
Statements of Operations (unaudited) for Three Months and Nine Months ended September 30, 2000 and 1999 5
Statements of Cash Flows (unaudited) for the Nine Months ended September 30, 2000 and 1999.............. 6
Notes to Financial Statements (unaudited)............................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................................................... 15
PART II. OTHER INFORMATION............................................................................. 22
SIGNATURES.............................................................................................. 23
</TABLE>
2
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PART 1. FINANCIAL INFORMATION
Item 1.
FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------- -------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents (Note 2) $ 3,348,004 $ 2,525,686
Accounts Receivable & current portion of notes receivable 58,673 652,075
Inventory (Note 2) 29,558 98,929
Prepaid Expenses 375,001 0
------------- -------------
Total Current Assets 3,811,236 3,276,690
PROPERTY AND EQUIPMENT:
Land & Land Improvements 3,895,586 4,184,412
Buildings and Improvements 6,983,311 8,151,324
Furniture, fixtures and equipment 1,738,810 1,827,004
Construction in Progress 5,768 -
------------- -------------
12,623,475 14,162,740
Less Accumulated Depreciation (2,524,471) (2,310,449)
------------- -------------
10,099,004 11,852,291
REAL ESTATE DEVELOPMENT 4,436,107 4,262,907
COMMERCIAL PROPERTY HELD FOR SALE 3,757,825 3,757,825
OTHER ASSETS 1,340,566 1,194,501
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$23,444,738 $24,344,214
=========== ===========
</TABLE>
3
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FLORIDA GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES 2000 1999
----------- -------------- --------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable and accrued expenses $ 3,633,588 $ 5,367,778
Short-term borrowing and current portion of long-term debt 3,283,934 4,234,545
-------------- --------------
Total Current Liabilities 6,917,522 9,602,323
LONG TERM LIABILITIES
Long-term portion notes payable 1,508,312 1,882,354
STOCKHOLDERS' EQUITY (See Notes 2,4,5,6 and 7)
Class A convertible preferred stock, convertible to common
stock; $.10 par value, 1,200,000 shares authorized, 33,635 shares
issued and outstanding at September 30, 2000 and 34,435 3,363 3,443
issued and outstanding at December 31, 1999
Class B convertible preferred stock, convertible to common
stock; 95 shares authorized, 95 shares issued and
outstanding at September 30, 2000; 5,000 shares authorized,
95 shares issued and outstanding at December 31, 1999 10 10
Class E convertible preferred stock, convertible to common
stock; 2,000 shares authorized, 1950 shares issued and
outstanding at September 30, 2000 and December 31, 1999 195 195
Class F convertible preferred stock, convertible to common
stock; 2,500 shares authorized, 2000 shares issued and
outstanding at September 30, 2000 and December 31, 1999 200 200
Common Stock, $.10 par value, authorized 15,000,000 shares,
6,066,816 issued and outstanding at September 30,
2000 and December 31, 1999
606,682 606,682
Capital in excess of par value 39,572,551 39,572,551
Accumulated deficit (25,164,097) (27,323,544)
-------------- --------------
Total Stockholders equity 15,018,904 12,859,537
-------------- --------------
Total liabilities and stockholders equity $ 23,444,738 $ 24,344,214
============== ==============
</TABLE>
4
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FLORIDA GAMING CORPORATION
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
Sept.30, 2000 Sept.30,1999 Sept.30,2000 Sept.30,1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
HANDLE:
Live Jai-Alai Wagering $ 16,030,025 $ 16,949,464 $ 51,876,900 $ 53,556,537
Inter- Track Wagering (ITW) 12,599,349 14,060,501 41,024,296 42,052,263
------------ ------------ ------------ ------------
Total Pari-Mutuel Handle* $ 28,629,374 $ 31,009,965 $ 92,901,196 $ 95,608,800
============ ============ ============ ============
REVENUE:
Live Jai-Alai Mutuel Revenue, Net of
Pari-Mutuel taxes to State of Florida 193,309 218,709 4,357,235 4,281,820
Inter-Track Mutuel Commissions 984,027 1,092,152 3,544,829 3,680,726
------------ ------------ ------------ ------------
Net Pari-Mutuel Revenue 1,177,336 1,310,862 7,902,064 7,962,546
Real Estate Division Income -- 192,500 101,294 824,000
Cardroom Income 8,527 8,232 162,957 168,196
Admissions Income, net of taxes 40,134 42,530 167,420 185,821
Programs, Food,Beverage and Other 440,643 487,351 1,647,246 1,723,608
------------ ------------ ------------ ------------
Total Operating Revenue 1,666,640 2,041,474 9,980,981 10,864,171
============ ============ ============ ============
COSTS AND EXPENSE:
Operating 992,348 1,595,939 6,505,757 6,892,850
General and Administrative 1,215,413 855,120 4,369,417 4,497,575
Depreciation and Amortization 162,053 185,280 502,833 546,405
------------ ------------ ------------ ------------
Total Costs and Expense 2,369,815 2,636,339 11,378,007 11,936,830
------------ ------------ ------------ ------------
Net Income (Loss) From Operations $ (703,175) $ (594,865) $ (1,397,026) $ (1,072,659)
============ ============ ============ ============
OTHER INCOME (EXPENSE)
Interest Income 34,203 25,191 90,212 69,853
Pari-Mutuel Tax Credits 2,084 2,090 723,873 776,347
Contract Settlement 850,000 -- 850,000 --
Gain on Sale of Assets 1,034,007 -- 1,034,007 924,702
Federal & State Tax (32,703) -- (32,703) --
Summer Jai-Alai 627,080 706,969 1,166,492 1,102,083
Other Non-Operating Expense (94,945) -- (94,945) 160,967
------------ ------------ ------------ ------------
Net Income 1,716,551 139,384 2,339,910 1,961,293
============ ============ ============ ============
Basic Income per Common Share $ 0.27 $ 0.01 $ 0.36 $ 0.30
Diluted Income per Common Share $ 0.20 $ 0.01 $ 0.25 $ 0.21
Weighted Avg. Common Shares Outstanding 6,066,816 5,869,015 6,066,816 5,916,174
</TABLE>
* Summer Jai-Alai (SJA) was operated 100% by the Company for 1999 and 2000.
The handle figures include SJA.
5
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FLORIDA GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30 Sept. 30
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 2,339,910 $ 1,961,293
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 502,833 546,405
Gain on sale of assets (1,034,007) (924,702)
Equity in earnings of Summer Jai-Alai (754,302) (669,486)
Change in Accounts Receivable, net (229,926) 78,196
Change in Prepaid Expenses (234,794) (37,109)
Change in Other assets 2,659 (62,735)
Change in Inventories 69,371 44,850
Change in Accounts payable and accrued expenses (921,136) (1,973,274)
------------- -------------
Total adjustments (2,599,302) (2,997,855)
Net cash used in operating activities (259,392) (1,036,562)
Investing Activities:
Proceeds from sales of property 2,432,085 3,514,707
Capital Expenditure (38,357) (55,299)
Cash Distributions from Summer Jai-Alai 656,194 653,783
Decrease (Increase) in capitalized development (173,200) 231,559
------------- -------------
Net proceeds provided by investing activities 2,876,722 4,344,750
Financing Activities:
Net proceeds from borrowing (Repayment of Borrowings) (1,314,442) (1,823,780)
Dividends Paid (180,543) (120,000)
------------- -------------
Net cash used in financing activities (1,494,985) (1,943,780)
NET INCREASE IN CASH 1,122,345 1,364,408
------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,225,659 1,086,285
------------- -------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30TH $ 3,348,004 $ 2,450,693
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $611,812 $667,900
</TABLE>
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FLORIDA GAMING CORPORATION
September 30, 2000
(unaudited)
(1) BASIS OF PRESENTATION
The financial statements of Florida Gaming Corporation (the "Company") have been
prepared without audit for filing with the United States Securities and Exchange
Commission (the "Commission"). The accompanying unaudited financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for interim financial information.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Therefore, it is suggested that the accompanying financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-KSB.
Certain information and notes have been condensed or omitted pursuant to the
rules and regulations of the Commission. The financial information presented
herein, while not necessarily indicative of results to be expected for the year,
reflects all adjustments of a normal recurring nature, which, in the opinion of
the Company, are necessary to a fair statement of the results for the periods
indicated.
(2) SIGNIFICANT ACCOUNTING POLICIES
COMPANY BACKGROUND: Florida Gaming Corporation (the Company) operates live Jai
Alai games at frontons in Ft. Pierce and Miami, Florida. The Company also
conducts Inter-Track Wagering (ITW) on Jai Alai, horse racing and dog racing
from its Ft. Pierce Jai- Alai facility. On November 26, 1997, the Company
acquired Tara Club Estates ("Tara"), a residential and commercial real estate
development near Atlanta in Walton County, Georgia. The Company intends to
complete the development and market the property.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Approximately 35.6% of the Company's common stock is controlled by the Company's
Chairman either directly or beneficially through his ownership of Freedom
Financial Corporation ("Freedom"), a closely held investment company, and
pursuant to a voting arrangement for shares owned by the Bank of Oklahoma,
Tulsa, OK.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost.
Depreciation is provided using the straight-line and accelerated methods over
the estimated useful life of the related assets.
COMMERCIAL PROPERTY HELD FOR SALE: The Company's investment in land held for
resale totaling $3,757,824 at September 30, 2000. This includes land owned near
the Ft. Pierce Jai-Alai fronton in the amount of $1,834,516 and approximately 25
acres of commercial property held for sale adjoining the Tara residential
property in the amount of $1,923,308.
INVENTORY: The Company's inventory of food, beverage products and souvenirs, is
stated at the lower of cost or market.
PARI-MUTUEL WAGERING: Revenue is derived from commissions earned under a
pari-mutuel wagering system. The Company accepts wagers on on-site events and
off-site Inter-Track Wagering ("ITW") events. On-site wagers are accumulated in
pools with a portion being returned to winning bettors, a portion paid to the
State of Florida, and a portion retained by the Company. ITW wagers are also
accepted and forwarded to the "Host" facility net of commissions earned by the
Company.
INCOME TAXES: The Company utilizes the asset and liability approach in
accounting for income taxes. The objective of the asset and liability method is
to establish deferred tax assets and liabilities for temporary differences
between the financial reporting and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
7
<PAGE>
INCOME OR LOSS PER COMMON SHARE: During 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
Earning Per Share, ("SFAS 128"), which requires the computation and
disclosure of basic and diluted income (loss) per common share. Basic income
(loss) per common share is determined by reducing income (loss) by dividends
declared on preferred stock and dividends accumulating on cumulative
preferred shares and dividing by the weighted average number of shares of
common stock outstanding. Diluted income (loss) per common share is
determined by dividing income (loss) by the weighted average number of shares
of common stock outstanding plus the weighted average number of shares that
would be issued upon exercise of dilutive stock options, assuming proceeds
are used to repurchase shares pursuant to the treasury stock method plus the
weighted average number of shares that would be issued if holders of the
Company's preferred stock converted those shares to common stock using the
"if converted" method. Diluted loss per common share is not presented when
the resulting calculation is antidilutive relative to basic loss per common
share.
STOCK OPTIONS: The Company accounts for stock-based employee compensation
arrangements using the intrinsic value method provided in APB 25. Under this
method, the cost of compensation is measured by the excess of the quoted market
price of the stock over the option price on the grant date (measurement date).
The Company's stock option plans require the issuance of all options at a price
equal to or greater than the market price of the stock on the grant date. Stock
options issued for non-compensation purposes are accounted for at fair value
pursuant to FASB 123.
(3) INCOME TAXES
At December 31, 1999, the Company had tax net operating loss (NOL) carryforwards
of approximately $14,500,000 available to offset future taxable income. These
NOL carryforwards expire fifteen years from the year in which the losses were
incurred or at various intervals through fiscal 2015. However, $9,000,000 of the
Company's NOL carryforwards which can be utilized to offset future taxable
income are limited to approximately $95,000 per fiscal year under Section 382 of
the IRC because Company stock purchased by Freedom Financial Corporation was
considered a "change in ownership" under the "deemed exercised rule" of IRC
Section 382. As a result, only the net operating losses attributable to the
period after the "change in ownership" (approximately $5,500,000) are not
subject to the Section 382 limitation.
The Company has unused general business tax credits of approximately $137,000 to
offset any future tax liabilities of the Company. These credits expire at
various dates through the year 2001. Any deferred tax assets arising from
differences from taxable income and financial reporting income are deemed to be
offset by an allowance in an equal amount due to the uncertainty of future
taxable income.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida stipulating that jai alai permit holders incurring state taxes on
handle and admissions in an amount exceeding its operating earnings (before
deduction of certain expenses such as depreciation and interest) for the
prior year are entitled to credit such excess amounts against pari-mutuel
taxes due and payable. In 1997 Miami Jai Alai and Tampa Jai Alai incurred and
had available 1998 pari-mutuel tax credits of $1,606,051 and $935,521,
respectively. During 1998, Miami utilized credits of $509,714 over two
eligible months of operations. Tampa Jai Alai, which discontinued live
operations following its July 4, 1998 performances, utilized pari-mutuel tax
credits of $13,940 and incurred taxes of $439,684. Miami was entitled to
carry over the unused 1998 credits to 1999 and will have an additional credit
of $1,330,864 available for recovery, representing the full amount of taxes
incurred in 1998. Accordingly, total Miami tax credits carried forward to
1999 were $2,427,201. During 1999, Miami incurred taxes (on handle and
admission) of $1,219,042. These taxes were satisfied by the use of available
credits. For the nine months ending September 30, 2000, pari-mutuel tax
credits utilized were $723,873. Tax credits are used to satisfy the Company's
obligation to pay taxes incurred on handle and admission. Tax credits used,
depreciation expense and interest expense are all excluded from the statutory
calculation of operating earnings or loss in the determination of the amounts
of future tax credits.
(4) INCOME PER COMMON SHARE
The net income per common share for the quarter ended September 30, 2000 and
September 30, 1999 was calculated based upon reducing net income attributable
to common stock shareholders by dividends declared on preferred stock and
dividends accumulating on cumulative preferred shares divided by the
weighted average number of outstanding common shares. The weighted average
number of shares outstanding used in the calculation of basic net income per
common share for the quarter ended September 30, 2000 and September 30,
1999 was 6,066,816 and 5,869,015, respectively. Weighted average equivalent
shares on a fully diluted basis for the quarter ended September 30, 2000 and
September 30, 1999 were 8,526,006 and 6,029,207 shares, respectively,
consisting of options held by current and former directors, executive
officers and key employees under Qualified and Nonqualified Stock Option
Plans, warrants issued to brokers as fees, and conversion of preferred stock
and the 6,066,816 for weighted average common shares for quarter ended
September 30, 2000 and 5,869,015 for the quarter ended September 30, 1999.
The net income per common share for the nine months ended September 30, 2000
and September 30, 1999 was calculated based upon reducing net income
attributable to common stock shareholders by dividends declared on preferred
stock and dividends accumulating on cumulative preferred shares divided by
the weighted average number of outstanding common shares. The weighted
average number of shares outstanding used in the calculation of basic net
income per common share for the nine months ended September 30, 2000 and
September 30, 1999 was 6,066,816 and 5,916,174, respectively. Weighted
average equivalent shares on a fully diluted basis for the nine months ended
September 30, 2000 and September 30, 1999 were 9,251,226 and 9,034,101
shares, respectively, including options held by current and former directors,
executive officers and key employees under Qualified and Nonqualified Stock
Option Plans, warrants issued to brokers as fees, and conversion of preferred
stock and the 6,066,816 for weighted average common shares for the nine
months ended September 30, 2000 and 5,916,174 for the nine months ended
September 30, 1999.
8
<PAGE>
5) PREFERRED STOCK
CLASS A PREFERRED STOCK
The Company's Class A preferred stock provides annual dividends, at the rate of
$.90 per share payable in cash, property or common stock, which are cumulative
and have priority over dividends on the common stock. The Company paid the
dividend on the Class A Preferred Stock which was declared on September 21, 1998
on April 13, 2000 in cash, totaling $30,272. The Company paid the dividend on
the Class A Preferred Stock which were declared on June 30, 2000 on August 29,
2000 in cash, totaling $30,272. Each share of Class A preferred is convertible
into .225 shares of common stock at the holder's option. The Class A preferred
is redeemable at the option to the Company at $10.60 per share. In the event of
dissolution, the holders of Class A preferred shall be entitled to receive
$10.00 per share, plus accrued dividends, prior to any distribution to holders
of common stock.
CLASS B PREFERRED STOCK
The Company's Series B convertible preferred stock provides annual cumulative
dividends at the rate of 8% to 10% of the consideration paid for the stock. Such
dividends are payable in shares of the Company's common stock. The consideration
to be received by the Company upon initial issuance of each share of the Series
B stock is $1,000. Holders of Series B shares may convert all or any of such
Series B shares to the Company's common stock using a ratio based on the
consideration paid for the stock and 80% of the market value of the common
stock. On December 15, 1995, the Board of Directors reserved 600,000 shares of
the Company's common stock for issuance upon conversion of the Series B
preferred stock. Upon liquidation, the holders of Series B preferred shares
shall be entitled to be paid $1,000 per share plus 8% to 10% accrued dividends
before any distribution to holders of common stock. During the year ended
December 31, 1995, 2,400 Series B preferred shares were issued for $2,400,000 to
three unrelated parties. During the year ended December 31, 1996, the Company
issued 2,300 Series B preferred shares at $925 per share. During 1996, 2,707.5
Series B shares were converted to 473,588 shares of common stock. During 1997,
1547.5 Series B shares were converted to 295,951 shares of common stock. During
1998, 150 Series B shares were converted to 113,466 shares of common stock, and
100 shares were redeemed by the Company. On October 18, 1999, 100 Series B
shares were converted to 105,121 shares of common stock. No shares have been
converted during the first nine months of 2000. The Company is currently engaged
in an arbitration proceeding relative to the conversion of 50 shares of the
Class B Preferred Stock. See "Legal Proceedings."
CLASS E PREFERRED STOCK
The Company is authorized to issue 2,000 shares of Series E 8% cumulative
convertible preferred stock, $.10 par value (the "Series E Preferred Stock"),
which provides annual dividends at the rate of 8% of the share's stated value,
payable upon conversion of the Series E preferred stock into common stock. The
stated value per share equals $1,000 (as adjusted for any stock dividends,
combination or splits). Holders of Series E Preferred Stock may convert all or
any such shares to the Company's common stock (the "Series E Conversion Shares")
beginning 120 days after the issuance of the Series E Preferred Stock. If not
converted earlier by the holder, the Series E Preferred Stock shall be converted
automatically two years from the date of issuance. In general, the number of
Series E Conversion Shares issuable on conversion of each share of Series E
Preferred Stock shall equal the consideration paid for such share together with
accrued and unpaid dividends on such share, if any, divided by the lesser of (i)
$7.50 and (ii) 80% of the average of the closing bid price of the common stock
on the five trading days before conversion. A holder of Series E Conversion
Shares may not sell more than 25% of such shares between 120 and 150 days of his
purchase of Series E Preferred Stock converted into each share, 50% of such
shares between 151 and 180 days of his purchase of Series E Preferred Stock
converted into such shares and 75% of such shares between 181 and 210 of his
purchase of Series E Preferred Stock converted into each share; a holder may
generally sell all of his Series E Conversion Shares 211 days after his
purchase. Upon liquidation, the holders of Series E Preferred Shares shall be
entitled to be paid $950 per share plus accrued dividends before any
distribution to holders of common stock. During 1997, the Company issued 2,000
Series E shares at $1,000 per share. During 1998, 50 Series E shares were
converted to 25,176 shares of common stock. No shares have been converted in the
first nine months of 2000. The Company is currently in an arbitration proceeding
relative to the conversion of 1800 shares of the Class E Preferred Stock. See
"Legal Proceedings."
CLASS F PREFERRED STOCK
The Company is also authorized to issue up to 2,500 shares of Series F 8%
Cumulative Convertible Preferred Stock (the "Series F Preferred Stock"), which
provides annual dividends at the rate of 8% of the shares' stated value. The
stated value per share equals $1,000 (as adjusted for any stock dividends,
combination or split). At the discretion of the Company's Board of Directors,
such dividends may be paid in shares of the Series F Preferred Stock. Holders of
Series F Preferred Stock may convert all or any of such shares to the Company's
common stock at any time. Each share of Series F Preferred Stock shall be
converted into 296.6689 shares of common stock (the "Conversion Stock"). The
number of shares of Conversion Stock into which each share of Series F Preferred
Stock shall be converted shall be proportionately adjusted for any increase or
decrease in the number of shares of common stock or Series F Preferred Stock.
Upon liquidation, the holders of Series F Preferred Shares shall be entitled to
be paid $1,000 per share plus accrued dividends before any distribution to
holders of common stock. During 1997, the Company issued 2,084 Series F shares
at $1,000 per share. On June 22, 1998 the Company repurchased 84 shares from
Freedom Financial Corporation as part of the cancellation of a receivable.
9
<PAGE>
The Class A Preferred Stock, the Series B Preferred Stock, the Series E
Preferred Stock, and the Series F Preferred Stock are all equal in rank with
respect to the payment of dividends and with respect to the distribution of
assets upon liquidation of the Company.
(6) COMMITMENTS AND CONTINGENCIES
ISLE OF CAPRI CASINOS, INC.: On September 25, 1998, Casino America, Inc. changed
its name to "Isle of Capri Casinos, Inc." On October 4, 1994, the Company
entered into a letter of intent (the "Letter of Intent") with Isle of Capri
Casinos, Inc. ("Isle of Capri") to form a joint venture (the "Joint Venture") to
build and operate a casino at its Ft. Pierce Fronton ("the Fronton"). Isle of
Capri owns and operates riverboat and dockside casinos located in Mississippi
and Louisiana and a land based Casino in Colorado. If the Joint Venture to build
a flea market at the Fort Pierce facility is formed before passage of an
amendment to the Florida Constitution to permit casino gaming at the Fronton,
the Company will contribute its interest in the Fronton to the Joint Venture
with a credit to its joint venture capital account of $5,000,000. Isle of Capri
will contribute up to $2,500,000, as needed, to construct a 100,000 square foot
indoor facility suitable for a casino or flea market. The Company contends that
Isle of Capri is in default of the Letter of Intent since Isle of Capri failed
to contribute the $2,500,000 as needed, to construct a flea market facility. If
casino gaming is not permitted in Florida by 2000, Isle of Capri has a
continuing option to convert the money contributed to the Joint Venture to a
promissory note from the Joint Venture payable in equal annual payments over a
ten year period with interest at 8% per annum. If casino gaming is permitted at
the Fronton by 2000, the value of the assets contributed by the Company to the
Joint Venture will be adjusted to increase the Company's capital account up to
$22,500,000. Isle of Capri agreed to fund its capital account on an as needed
basis up to $22,500,000. All profits and losses of either Joint Venture will be
allocated between the partners based upon capital accounts. The Letter of Intent
provides that Isle of Capri will be the manager of the casino and all
casino-related improvements. The Company will manage the operation of the
jai-alai fronton, inter track wagering and all other non-casino related
activities. Each corporation will receive a management fee based on costs. The
Letter of Intent provides that Isle of Capri has the exclusive right to enter
into a Joint Venture with the Company for six years from September 25, 1998 and
Isle of Capri has a right of first refusal to enter into other potential gaming
opportunities in Florida with the Company for such period and during the term of
the Joint Venture. The formation of the Joint Venture is subject to certain
conditions, including the satisfactory completion of due diligence by Isle of
Capri, the receipt of all required regulatory approvals, the approval of each
partner's board of directors, the execution of a definitive joint venture
agreement, and the approval of the Company's stockholders, if required by law.
Either party may terminate discussions in connection with the Joint Venture and
neither party shall have any liability to the other, except as otherwise
specified in the Letter of Intent. The Company has taken the position that Isle
of Capri is in default on a continuing basis pursuant to the Letter of Intent
since Isle of Capri failed, when requested by the Company, to contribute its
share of capital ($2,500,000) to build a flea market at Fort Pierce.
Freedom Financial Corporation has informed the Company that Isle of Capri has
purchased 22,500 shares of Freedom's 7% Series AA Mandatory Redeemable Preferred
Stock (the "Series AA Stock"). The Series AA Stock is convertible into shares of
the Company's Common Stock owned by Freedom at prices ranging from $7.50 per
share of Common Stock to $15.00 per share of Common Stock, depending upon the
timing of the conversion and possible passage of an amendment to the Florida
Constitution permitting casino gaming at the Fronton. The Series AA Stock is
convertible into a minimum of 184,713 shares and a maximum of 369,427 shares of
the Common Stock. Isle of Capri is the sole holder of Series AA Stock.
REGISTRATION RIGHTS: The Company has committed upon certain terms and
conditions, to register for resale, certain shares held by other parties,
allowing those shares to be publicly traded. The Company intends to use
reasonable efforts to comply with these commitments.
LEASES: The Company rents totalizator (Autotote) and other equipment under
leases which expire at various dates through 2001. The totalizator leases
require a minimum annual rental plus contingent rentals based on a percentage of
the handle in excess of the minimum annual rental. Total totalizator and other
equipment rental expense under operating leases for the years ended December 31,
1999 and 1998 was approximately $467,000 and $784,736, respectively. The
remaining minimum lease commitments under all operating leases at December 31,
1999, including those obligations assumed in connection with the Company's
acquisition of certain WJA assets are as follows:
<TABLE>
<CAPTION>
Minimum
Year Annual Rental
---- -------------
<S> <C>
2000 $ 410,000
2001 410,000
----------
$ 820,000
==========
</TABLE>
On Feburary 17, 1999 The Company sold excess property, consisting of
approximately 13 acres, located near the Miami Jai-Alai facility in Miami, FL
for $3,668,000. The Company leased back from the purchaser approximately two (2)
acres of the property for overflow parking. The lease is for the term of five
(5) years at a rental of $5,508 per month.
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LITIGATION COSTS: In addition to legal fees incurred in the normal course of the
Company's business activities during 1999 the Company paid approximately
$300,000 respectively for settlement costs and legal fees associated with
various lawsuits. Such costs are included in General & Administrative expenses
in the accompanying Statements of Operations.
COLLECTIVE BARGAINING AGREEMENT: The Company is a party to a collective
bargaining agreement with the International Jai Alai Players Association U.A.W.
Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual
contracts with players and provides for minimum salaries and bonuses based on
parimutuel handle, certain cesta allowances and retirement benefits. The
agreement continues from year to year unless timely notice of termination is
given by either party to the agreement.
CONCENTRATION OF DEPOSITS: The Company maintains significant cash balances with
financial institutions in excess of the insurance provided by the Federal
Deposit Insurance Corporation (FDIC).
SUMMER JAI ALAI: The Company is a partner in "The Summer Jai Alai Partnership"
or "SJA" and operates live Jai Alai dates annually on behalf of the partnership.
The partnership was formed in 1980 and SJA simultaneously became a party to an
Operator's Agreement and Fronton Lease along with the Company. The 1996 summer
season resulted in an operating loss and the Company made demand upon its
partners for their respective shares of the losses and to fund a "money bank "
and "operations bank" for SJA's 1997 summer season. Neither request was honored
by the other SJA partners, and as a result, the Company filed suit against the
partnership in July 1997 to collect on the 1996 losses. This lawsuit was amended
on February 20, 1998 seeking damages from the partners for breaching the Summer
Jai-Alai Operating Agreement and Fronton Lease. At December 31, 1997, the
Company was carrying a balance due from its SJA partners of $468,372.
On June 11, 1998, the Company entered a settlement agreement with the other
members of SJA covering operational issues only and, among other things,
1. Continues the existence of the partnership;
2. Stated that the Summer Jai-Alai season (May 1, 1998 to November 28,1998)
would be operated by the Company at it's own risk and for its own benefit.
Provided, however, that if net profits for the 1998 Summer Season exceeded
$250,000, then, in that event, the other members of SJA will be paid a
total of $50,000 for the 1998 Summer Season;
3. Stated that the Company would pay one of the SJA partners about $110,000
for monies owed by the Company for ITW payments previously held by the
Company as a potential off-set of claims made in the suit;
4. Stated that the Company would have the right, subject to State Approval, to
operate the 1999 Summer Season for its own benefit, provided that the tax
credits available for the 1998 Summer Season have not been exhausted;
5. The parties agreed to meet on or before December 31, 1998 to determine the
operational dates or parameters for the 1999 Summer Season.
Effective July 1, 1998, legislation was passed by the state of Florida by which
Summer Jai-Alai Partnership was granted a tax credit of $922,000. SJA expects to
utilize the tax credits during the 1998 and 1999 SJA seasons. SJA credited the
Company's capital account for the amount due the Company at December 31, 1997.
The Company has reclassified its' receivable from SJA as an investment
consistent with SJA's treatment of the offsetting payable.
As a result of the December, 1998 meeting referred to above, the parties
negotiated a new agreement which continued the June 11, 1998 agreement with the
following modifications:
1. The Company maintains the right to operate Summer Jai-Alai
from May 1, 1999 through November 30, 1999 and May and June of
2000 at its own risk and for its own benefit. The Company
agreed to hold the other partners in SJA harmless for any and
all losses or liabilities that may be incurred;
2. In exchange for the aforementioned benefits, including the
benefits derived from the operation of the 1998 Summer Season,
the Company agreed to pay each of the other SJA Partners
(Hollywood, Flagler and Biscayne) the sum of $65,000 in three
installments of $21,667 each, with the first payment due upon
execution of the agreement and the subsequent two payments of
$21, 667 each on June 1, 1999 and July 20, 1999.
Management believes that the net income and cash flow from SJA operations will
offset these payments.
(7) ACQUISITION OF WJA ASSETS
On September 12, 1996, the Company acquired notes (the "WJA Notes") of WJA
Realty Limited Partnership ("WJA"), with balances aggregating about $20,000,000
from the Bank of Oklahoma, N.A., Tulsa, Oklahoma. The WJA Notes were secured by,
among other
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<PAGE>
collateral, real estate and improvements consisting of three jai-alai and ITW
facilities located in Miami, Tampa and Ocala, Florida (the "WJA Frontons").
Consideration for the WJA Notes was a combination of $2,000,000 in cash, a
$6,000,000 promissory note bearing interest at the prime rate, 703,297 shares of
the Company's Common Stock and a $1,000,000 non-interest bearing note.
On November 25, 1996, the Company entered into an agreement with WJA and Florida
Gaming Centers, Inc.("Centers") a wholly-owned subsidiary of the Company,
pursuant to which the Centers agreed to acquire the WJA Frontons for the
cancellation of the notes with balances aggregating about $20,000,000 and the
assumption of certain liabilities. (See details below) The acquisition was
consummated as of December 31, 1996 for accounting purposes. The WJA Frontons
acquired were combined with the Fort Pierce Fronton into a new subsidiary,
Centers.
The profit sharing arrangement is based on Centers net profits from Jai Alai
operations as defined, before income taxes. The Company will pay WJA 20% of the
defined cumulative net profits of Centers for each of the ten full calendar
years 1997 through 2006, subject to a cumulative $1,000,000 per year cap
described below. The cumulative $1,000,000 cap is equal to the product of
$1,000,000 multiplied by the number of years in the ten-year period completed,
minus the sum of all amounts previously paid under the 20% profit sharing
arrangement. In addition, Centers has net profits in any calendar year during
the ten-year period in excess of $5,000,000 and WJA does not receive a 20%
payment on the entire amount because of the cumulative $1,000,000 per year cap,
Centers shall pay WJA 5% of the portion of the net profits on which the 20%
payment is not made. No net profit payments will be due for any year after the
ten year period. If during the ten year period, Centers disposes of any of its
significant assets or operations, then WJA would be entitled to receive an
amount equal to ten percent of Centers net gain, if any, on the disposition.
Two principals of WJA, also entered into consulting arrangements with Centers.
One principal, Roger M. Wheeler, Jr. ("Wheeler"), entered into a ten-year
consulting agreement with Centers, with annual compensation of $100,000 during
the first five years of the agreement and annual compensation of $50,000 during
the third five years of the agreement. The other principal, Richard P. Donovan
("Donovan"), entered into a five-year consulting agreement with Centers, with
annual compensation of $240,000, plus certain benefits. These two individuals
were also granted stock options on the Company's stock with a fair value of
$150,298. Subsequent to December 31, 1997 a lawsuit was filed against the
Company seeking payment of amounts due under these agreements.
During 1997, the Company discontinued the required payments under the above
consulting agreements because of the continuing lack of performance by the
individuals pursuant to their obligations under the consulting agreements.
On March 6, 1998, Donovan filed suit in the Circuit Court of the 11th Circuit in
Florida, Dade County, against Centers. Donovan claimed that Centers breached the
Donovan Contract and requested judgment against Centers for compensatory
damages, including $1,053,000 due for consulting services through the term of
the agreement and $56,000 due for life insurance premiums for the term of the
agreement, together with prejudgment interest, attorneys' fees, costs and such
other relief as the Court deemed just and proper. The suit was dismissed in
December, 1998 pursuant to the stipulation of the parties following the entry
into an Amendment to the Donovan Contract dated November 24, 1998, which
provided for Centers to pay Donovan (i) $84,000 for past due consulting fees,
(ii) $10,000 per month for ninety-six months commencing January 1, 1999, and
(iii) $14,000 past due life insurance premiums and $14,000 per year for life
insurance premiums for seven years commencing in 1999. The Amendment also
provided Centers with an option exercisable at any time to purchase the balance
of the Donovan Contract for 50% of the balance owed on the amended contract, and
provided that Donovan shall be entitled to a consent judgment against the
Centers for the balance due on his amended contract in the event the Company is
in default for a period of 90 consecutive days.
On March 10, 1998, Wheeler and Wheeler-Phoenix, Inc. filed suit in the Circuit
Court of the 11th Circuit in Florida, Dade County, against Centers and the
Company. Wheeler claimed that Centers breached the Wheeler Contract. Wheeler
asserted that the Company guaranteed the performance of Centers. Wheeler
requested judgment in the amount of $675,000 due for consulting services through
the term of the agreement, together with prejudgment interest, attorneys' fees,
costs and such other relief as the Court deems just and proper. In addition,
Wheeler-Phoenix, Inc. alleged that Centers failed to make payments due under a
promissory note in the principal amount of $500,000. Wheeler-Phoenix requested
judgment in the amount of $500,000, together with prejudgment interest accrued
up to the time of judgment, attorneys' fees, costs and other relief as the court
deems just and proper. The suit was dismissed in December, 1998, following
Centers payment of $80,000 on the Wheeler-Phoenix note and pursuant to the
stipulation of the parties following the entry into an Amendment to the Wheeler
Contract dated November 24, 1998 which provided for Centers to pay Wheeler (i)
$75,000 in past due consulting fees, (ii) $6,000 per month for sixty months
commencing January 1999, and (iii) $4,050 per month for sixty months commencing
January 2004. The Amendment also provided Centers with an option exercisable at
any time to purchase the balance of the Wheeler Contract for 50% of the balance
owed on the amended contract, and provided that Wheeler shall be entitled to a
consent judgment against the Company for the balance due on his amended contract
in the event the Company is in default for a period of 90 consecutive days.
(8) SALE OF EXCESS PROPERTY IN MIAMI
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<PAGE>
On February 17, 1999, the Company sold excess property, consisting of
approximately 13 acres, located near the Miami Jai-Alai facility in Miami, FL
for $3,668,000. The sale was pursuant to an agreement between the Company and
Adrian Industrial Properties, LTD, a Miami based developer. The Company's direct
costs associated with the sale were about $450,000. The Company was required by
Bank of Oklahoma to pay $1,500,000 of the proceeds from the sale of the excess
property to pay the first mortgage obligation to the Bank of Oklahoma. The
Company had other costs of $899,199 related to carrying the property and
lease-back obligations. These costs were expensed over the period which the
Company owned the property.
The Company leased back from the purchaser approximately two (2) acres of the
property for overflow parking. The lease, including options, is for a term of
five (5) years at a rental of $5,508 per month.
(9) SALE OF OCALA JAI-ALAI
On July 31, 2000, the company sold the Ocala Jai-Alai for $2,500,000. The sale
was pursuant to an agreement dated March 27, 2000, between the Company and Lake
Fron, Inc. The Company received $2,250,000 in cash plus a note for $250,000
payable in five annual installments of $50,000 each plus interest at 8% per
annum. The property consisted of the Ocala Jai-Alai facility (approx. 63,000
square feet), and approximately 48 acres of land on State Road #318 near Ocala,
Florida, Marion County. The sales price was determined by arm lengths
negotiations with the Buyer.
The Company's direct costs associated with the closing of the transaction
totaled $135,670, including a $118,127 payment of the 1999 Real Estate
Taxes. The Company was required by Bank of Oklahoma to pay $750,000 for the
release on the first mortgage obligation. The Company dismissed the suit
against Ocala Breeders Sales Company as part of the above-described sales
agreement. The Company had other costs related to carrying the Ocala property
from the date of acquisition to the date of sale. These costs were expensed
over the period during which the Company owned the property.
(10) REAL ESTATE DEVELOPMENT
On November 26, 1997, Florida Gaming Corporation (the "Company") acquired
substantially all of the assets of Interstate Capital Corporation (ICC), a
wholly-owned subsidiary of Freedom Financial Corporation (Freedom). These assets
consisted of 23 acres of partially-improved commercial properties and a
residential real estate development containing about 250 single-family
residential lots, called Tara Club Estates (collectively, "Tara" or the
"Properties"), all of which are situated in Loganville, Walton County, Georgia.
The Company's real estate development activities comprise a separate segment
of it's operations. These Properties consist of over 100 fully-developed,
and 150 partially-developed, single-family residential home sites, a swim
and tennis club facility, and 23 acres of partially-developed commercial
property. As of September 30, 2000, approximately ninety-six (96) home sites
had been sold. The residential sites are presently selling at an average in
excess of $48,000 per site. Before the acquisition of the Properties by the
Company, thirty-nine homes, having a market value of approximately
$10,000,000 had been constructed and sold at an average price of $250,000
each. Property sales for the nine months ended September 30, 2000 were
$101,294 compared to $824,000 for the nine months ended September 30, 1999.
Lot costs attributable to these sales for the nine months ended September 30,
2000 were $42,300.
(11) RETIREMENT PLAN
The Company provides defined contribution retirement plans under Internal
Revenue Code Section 401(k). The plans, which cover employees included in its
current Collective Bargaining Agreement and certain non-union employees, provide
for the deferral of salary and employer matching.
13
<PAGE>
(12) RELATED PARTY TRANSACTIONS
On November 10, 1998, the Board of Directors of the Company authorized the
Company to borrow up to $1,500,000 from Freedom Financial Corporation
("Freedom"), an affiliate, with the loan to be represented by a promissory note
(the "Company Note") bearing interest at the rate 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 third 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 third
lien on substantially all of their respective assets. Freedom may partially fund
the Company Note out of the proceeds of a loan from a commercial bank (the
"Freedom Note"). The Freedom Note to the Commercial Bank, if incurred, will bear
interest at 13% per annum and must be personally guaranteed by W. Bennett
Collett, the Company's Chairman and Chief Executive Officer. The Freedom Note
will be secured by an assignment of the Company Note and the collateral securing
the Company Note. The Company Note and the Freedom Note will be due on demand or
one (1) year from date if no demand is made. Five points must be paid at the
closing of the Freedom Note and a like amount will be paid at the closing of the
Company Note to Freedom.
In lieu of salaries for the Chairman/CEO, and the President, the Company pays
annual management fees to Freedom of $456,000.
The Company leases various vehicle and pieces of heavy construction equipment
from Freedom at a cost of $14,500 a month. The Company has prepaid $87,000 in
equipment rental. The Company treats the lease payments as capitalized
development costs.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates two
jai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton," and
collectively, the "Frontons") located in South and Central Florida. The
Company's business consists primarily of its operations at the Frontons, which
include, among other things, live jai-alai, inter-track pari-mutuel wagering
("ITW") on jai-alai, thoroughbred racing, harness racing, and dog racing, poker,
dominoes, and the sale of food and alcoholic beverages. The Company also owns a
third gaming permit which was previously operated at the Tampa Jai-Alai Fronton
in Hillsborough County (Tampa) Florida.
The Company's Fort Pierce location provides audio, video and Inter-Track
Wagering ("ITW") on live inter-track and interstate broadcasting of horse
racing, dog racing and jai-alai from around the State of Florida as well as the
rest of the country. The Miami location receives limited ITW broadcasts, but
broadcasts its jai-alai performances to approximately thirty-seven (37) other
gaming facilities in Florida, and fourteen (14) facilities in Connecticut. ITW
provides significant additional revenue as well as providing additional
entertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of the
public against each other, as used in this report includes wagering on both live
Jai-Alai performances and ITW.
The Company's principal place of business and executive offices are located at
3500 NW 37th Avenue, Miami, Florida 33142. The Company was incorporated in
Delaware in 1976.
CARD ROOM DEVELOPMENT
Effective June 1, 1996, a new Florida pari-mutuel statute authorized card rooms
at licensed pari-mutuel facilities beginning in January, 1997. The card rooms
are administered and regulated by the Florida Department of Pari-Mutuel Wagering
("DPMW"). Games are limited to non-banked poker games and dominoes. Card room
authorization was also subject to approval by the county commission in which the
pari-mutuel facility is located. This same bill also authorized full-card
simulcasting of races from out of state tracks such as Belmont, Meadowlands,
Philadelphia Park, and Santa Anita. The Fronton in Fort Pierce is currently
carrying several of these signals. This legislation also reduced the pari-mutuel
tax on handle from 5% to 4.25% at the Fort Pierce fronton. The pari-mutuel tax
at Miami was reduced from 5% to 3.85%.
In late 1996, the county governments of Dade County and Hillsborough County,
Florida, passed legislation permitting card rooms to be operated by all
pari-mutuel facilities located in those counties. As a result, the Company
opened card rooms in Miami (on June 19th with 40 tables initially) and Tampa (on
May 22nd with 30 tables initially) during the third quarter of 1997. Pursuant to
Florida Statute 849.086 the Miami facility conducts low stakes ($10 per hand)
poker and dominoes at these facilities two hours prior to, during and two hours
following live jai-alai performances. A rake of $.25 per person is the
pari-mutuel's revenue from each hand dealt. Domino tables are rented at the rate
of $1.50 per half hour per player. Florida state taxes are paid at 10% of this
revenue and 4% of the revenues are paid to the Jai-Alai players.
JAI-ALAI INDUSTRY
The jai-alai industry live handle (money wagered) generally has declined in the
last several years, due to increased gaming competition such as Indian Gaming,
gambling cruise ships, and the state-wide lottery. Also, competition in the
sports/entertainment area has increased significantly with more professional
sports teams in the Company's market areas. Average state-wide on-track handle
per performance for the state of Florida fiscal years ended June 30, 1999, 1998,
was approximately $57,868, and $59,469, respectively. Aggregate handle,
state-wide, for the fiscal year ended June 30, 1999 decreased approximately $9.4
million or 10.2%. AGGREGATE HANDLE FOR THE COMPANY INCREASED FROM $86,627,522 IN
1998 TO $122,965,826 IN 1999, AN INCREASE OF 42%. The 1998 handle figure was
adjusted for the sale of Tampa, and the 1999 Company handle figures include
Summer Jai-Alai. There can be no assurance that the jai-alai industry will
improve significantly, if at all, in the future. Because the Company's jai-alai
business is tied directly to many, if not all, of the factors which influence
the jai-alai industry as a whole, a players strike or the enactment of
unfavorable legislation could have an adverse impact on the Company's
operations.
Inter-track wagering has grown significantly since its initiation in the State
of Florida in August 1990. The State-wide ITW handle for the State of Florida's
fiscal year ended June 30, 1991 was approximately $109 million. The state-wide
ITW handle for the State of Florida's fiscal years ended June 30, 1998 and 1999
increased to approximately $675 million and $737.5 million, respectively. ITW
handle at the Company's Frontons has also demonstrated strong growth in recent
years. The Company's handle increased from approximately $48.5 million for the
year ended December 31, 1998, to approximately $54.4 million for the year ended
December 31, 1999. The 1998 handle figure was adjusted for the sale of the Tampa
Jai-Alai and the 1999 handle includes the Summer Jai-Alai handle.
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<PAGE>
REAL ESTATE DEVELOPMENT
In late 1997, the Company entered into a new line of business -- residential and
commercial real estate development. The following paragraphs outline the
background and the Company's approach going forward plans as to management and
use of the real estate assets acquired. On November 26, 1997, the Company
acquired substantially all of the assets of Interstate Capital Corporation
("Interstate"), a wholly-owned subsidiary of Freedom Financial Corporation
("Freedom"). See Note 11 to the accompanying financial statements. The assets
consisted of 23 acres of partially improved commercial property and a
residential real estate development containing about 250 single-family
residential lots, known as Tara Club Estates (collectively, the "Properties"),
all of which are situated in Loganville, Walton County (near Atlanta), Georgia.
The Company's real estate development activities will comprise a separate
segment of its operations. The Company engaged the services of a professional
real estate management and marketing company in 1998 to assist with an
advertising and marketing program for the sale of the developed residential and
commercial lots.
These Properties consist of over 100 fully-developed, and 150
partially-developed, single-family residential home sites, a swim and tennis
club facility, and 23 acres of partially-developed commercial property. As of
September 30, 2000, approximately ninety-six (96) home sites had been sold. The
residential sites are presently selling at an average in excess of $48,000 per
site. Before the acquisition of the Properties by the Company, thirty-nine
homes, having a market value of approximately $10,000,000 had been constructed
and sold at an average price of $250,000 each. The Properties are located on
Georgia Highway 81, approximately one (1) mile south of U.S. Highway 78, inside
the Loganville, Georgia city limits. Located in western Walton County, Georgia,
the Properties are approximately 2.5 miles east of the Gwinnett County/Walton
line. Gwinnett County is inside the fifteen-county region which makes up
Metropolitan Atlanta. The population of the Atlanta area is now over four
million residents. Gwinnett County is located in the Northeast section of
Metropolitan Atlanta, and is one of the fastest growing counties in the United
States. The population of Gwinnett County has doubled in the last ten years.
During 1999 Walton Country was the fifth fastest growing county in the State of
Georgia.
JAI-ALAI TAX LEGISLATION
Major tax legislation which limits the amount of state handle and admission
taxes went into effect July 1, 1998.
The new law, (Section 2, Subsection (1b) of section 550.09511, Florida Statutes)
states, in part, that "Any jai-alai permit holder that incurred state taxes on
handle and admissions in an amount that exceeds its operating earnings in a
fiscal year that ends during or after the 1997-1998 state fiscal year, is
entitled to credit the excess amount of the taxes against state pari-mutuel
taxes due and payable after June 30, 1998, during its next ensuing meets."
The Company paid state taxes on handle and admissions in the amount of
$3,105,309 for the year ended December 31, 1997. Taxes paid to the state in
fiscal 1997 of approximately $1,724,881 ($.29 per share) are eligible for
recovery by the Company during the twelve-month period beginning July 1, 1998.
Effective July 1, 1998, tax relief legislation was enacted by the State of
Florida (HB3663) stipulating that jai alai permit holders incurring state taxes
on handle and admissions in an amount exceeding its operating earnings (before
deduction of certain expenses such as depreciation and interest) for the prior
year are entitled to credit such excess against pari-mutuel taxes due and
payable. In 1997 Miami Jai Alai (Miami) and Tampa Jai Alai incurred and had
available 1998 pari-mutuel tax credits of $1,606,051 and $935,521, respectively.
During 1998, Miami utilized credits of $509,714 over two eligible months of
operations. Tampa Jai Alai, which discontinued live operations following its
July 4, 1998 performances, utilized pari-mutuel tax credits of $13,940 and
incurred taxes of $439,684. Miami was entitled to carry over the unused 1998
credits to 1999 and had an additional credit of $1,330,864 available for
recovery, representing the full amount of taxes incurred in 1998. Accordingly,
total Miami tax credits carried forward were $2,427,201. During 1999, Miami
incurred taxes (on handle and admission) of $1,219,042. These taxes were
satisfied by the use of available credits. Further, Miami Jai Alai's 1999 loss
from operations totaled $(646,894) after deducting the state taxes incurred.
Accordingly, its unused credits total $2,502,200 at December 31, 1999. For
the nine months ended September 30, 2000, pari-mutuel tax credits utilized
were $723,873.
This legislation is expected to have a significant positive impact on the
Company's future earnings.
INDIAN GAMING VENTURE
RINCON, SAN LUISENO BAND OF MISSION INDIANS. In September, 1995, the Company
entered into a Loan Agreement and related agreements with the Rincon, San
Luiseno Band of Mission Indians ("Rincon Band") which, at that time, operated
the River Oaks Casino, located approximately 40 miles north of San Diego,
California. The Rincon Band, continues to own the River Oaks Casino, however,
gaming
16
<PAGE>
operations were suspended. The Rincon Band, which operated bingo and other
activities classified as Class II gaming, was seeking to operate electronic
gaming machines, a Class III gaming activity, if and when an injunction
prohibiting the operation of Class III gaming machines at River Oaks was lifted
by the United States District Court for the Southern District of California. The
Loan Agreement takes effect if and when Class III gaming machines are in legal
operation at the River Oaks Casino .
At the time the Loan Agreement was made with the Rincon Band (September 11,
1995), and during the period that the Company made working capital loans to the
Rincon Band (from 9-11-95 through 3-15-96), the Rincon Band was in on-going
litigation referred to above with the United States Government and the state of
California in their attempts to operate gaming machines similar to those in
operation at that time at two casinos operated by two other Native American
reservations in the same county, in which the Rincon Band reservation is
located, i.e. San Diego County, California. There was a three year pause from
(1996 to 1999) in the Rincon Band's progress to legally operate Class III gaming
at their River Oaks location.
The Loan Agreement between the Company and the Rincon Band remained in effect,
but in a dormant state, from June 1996, until March 7, 2000, when the voters of
California passed, very decisively, Proposition 1A authorizing various forms of
Class III gaming at the Rincon Band reservation and other Native American
reservations in California.
The Company has agreed, pursuant to the terms of the Loan Agreement, to loan up
to $5,000,000 to the Rincon Band to renovate, improve, equip and expand the
Tribe's gaming facilities. Under the loan Agreement, in lieu of interest, the
company will receive a royalty equal to 12.5% of the gross receipts of the
facility (excluding gaming machines) during the seven-year term of the Loan
Agreement ,plus 12 1/2% of the "drop" or "Handle" from the gaming machines
during the first five years of the term of the Loan Agreement and 11% of the
"drop" or "handle" from the gaming machines during the sixth and seventh years
of the Loan Agreement. Subject to applicable law governing Native American
gaming, the loan is secured by security interests granted to the Company in the
equipment, accounts receivable, revenues, and other property owned by the Rincon
Band, other than the land and real estate.
During the period from September 11, 1995, through March 15, 1996, the Company
made, pursuant to the Loan Agreement, working capital loans totaling $346,000 to
the Rincon Band.
On July 26, 2000 the Company received a cash payment of $850,000 as a "break-up"
payment in settlement of the Loan Agreement and all other issues between the
Company and the Rincon San Luiseno Band of Mission Indians.
RESULTS OF OPERATIONS - 3RD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED WITH 3RD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1999
During the quarter and nine months ended September 30, 2000, the Company's
operations reflects nine months' operation of live Jai-Alai performances at
the Miami facility. The Ft. Pierce Fronton conducted live jai-alai
performances January through April. A full schedule of inter-track wagering
was also conducted at Ft. Pierce. Miami offers limited ITW product due to
blackouts imposed as a result of its close proximity to other South Florida
pari-mutuels. The Miami facility, however, broadcasts its jai-alai
performances to thirty-seven (37) pari-mutuel wagering locations in Florida,
Connecticut and Rhode Island, and to approximately twenty five (25) locations
in Mexico, Central America, and Austria. The 1999 figures include the Ocala
Jai-Alai, which was sold on July 31, 2000. The 1999 figures have been
restated to reflect audit adjustments. AS A RESULT OF AN AMENDED AGREEMENT
WITH SUMMER JAI-ALAI PARTNERS, SUMMER JAI-ALAI (SJA) WAS OPERATED 100%
BY THE COMPANY FOR THE YEAR 1999 AND 2000. FOR COMPARISON PURPOSES, HANDLE,
REVENUES, ATTENDANCE, OPERATING EXPENSES, AND GENERAL & ADMINISTRATIVE
EXPENSES INCLUDE THE SJA FIGURES FOR 1999 AND 2000 SINCE SJA WAS OPERATED
100% BY THE COMPANY. ACCORDINGLY, THE NUMBERS IN THIS ANALYSIS MAY NOT
NECESSARILY AGREE WITH ACCOMPANYING FINANCIAL STATEMENTS.
HANDLE ANALYSIS
Total handle (amount of money wagered) for the quarter ended September 30, 2000
was $28,629,374 of which $16,030,025 was from live Jai-Alai wagering, and
$12,599,349 was from Inter-Track wagering. Total handle for the nine months
ended September 30, 2000 was $92,901,196 of which $51,876,900 was from live and
host Jai-Alai wagering and $41,024,296 was from guest Inter-Track wagering.
Total Handle (amount of money wagered) for the quarter ended September 30, 1999
was $31,009,965 of which $16,949,464 was from live Jai-Alai wagering and
$14,060,501 was from Inter-Track guest wagering. Total handle for the nine
months ended September 30, 1999 was $95,608,800 of which $53,556,537 was from
live Jai-Alai wagering and $42,052,263 was from Inter-Track wagering.
Total handle for the quarter ended September 30, 2000 ($28,629,374) a decrease
of $2,380,591 over the same period in 1999. The decrease consists of a decrease
in ITW handle of $1,461,152 and a decrease of $919,439 in live Jai-Alai handle.
Total handle for the nine months ended September 30, 2000 ($92,901,196) a
decrease over the same period in 1999 of $2,707,604. This decrease consists of a
decrease in live jai-alai wagering handle of $1,679,637 and a decrease in
inter-track wagering handle of $1,027,967.
17
<PAGE>
REVENUES FOR THE QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER ENDED
SEPTEMBER 30, 1999
Pari-mutuel revenues (net of state pari-mutuel taxes) for the quarter ended
September 30, 2000 were $3,781,542 compared to pari-mutuel revenues of
$3,672,738, for the same period in 1999, an increase of $108,804 or 3%.
Pari-Mutuel revenues for the quarter ended September 30, 2000 ($3,781,542)
consisted of $2,553,380 from live jai-alai wagering, and $1,228,162 from
inter-track wagering. Pari-Mutuel revenues for the quarter ended September 30,
1999 ($3,672,738) consisted of $2,369,016 from live jai-alai and $1,303,722 from
inter-track wagering.
Card Room Revenue for the quarter ended September 30, 2000 totaled $108,844,
compared to $105,073 for the quarter ended September 30, 1999.
Admissions income, net of state taxes, for the quarter ended September 30,
2000 were $64,657 compared to $74,286 for the period ended September 30,
1999. Food, beverage and other income for the quarter ended September 30,
2000 were $436,479 and $520,978, respectively. Attendance for live jai-alai
performances and ITW performances were approximately 166,555 and 177,921 for
the 3 (three) months ended September 30, 2000 and September 30, 1999,
respectively.
There were no property sales for the quarter ended September 30, 2000 compared
to $192,500 for the quarter ended September 30, 1999.
Total Operating Revenue for the quarter ended September 30, 2000 was $4,391,523
compared to $4,565,575 for the quarter ended September 30, 1999.
REVENUES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999
Pari-mutuel revenues (net of state pari-mutuel taxes) for the nine months ended
September 30, 2000 were $12,313,749 compared to pari-mutuel revenues of
$11,984,595, for the same period in 1999, an increase of $329,154. Pari-Mutuel
revenues for the nine months ended September 30, 2000 ($12,313,749) consisted of
$8,336,081 from live jai-alai, and $3,977,668 from inter-track wagering.
Card Room Revenue for the nine months ended September 30, 2000 totaled $332,043,
compared to $340,264 for the nine months ended September 30, 1999. Direct costs
totaled $233,045 for the nine months ended September 30, 2000 compared to
$243,168 for the same period in 1999.
Admissions income, net of state taxes, for the nine months ended September 30,
2000 were $211,020 compared to $240,314 for the period ended September 30, 1999.
Food, beverage and other income for the nine months ended September 30, 2000
were $1,671,120 and $1,782,448, respectively. Attendance for live jai-alai
performances and ITW performances were approximately 585,933 and 616,956 for the
nine months ended September 30, 2000 and September 30, 1999, respectively.
Real Estate sales have dropped significantly in the first nine months of 2000.
Property sales for the nine months ended September 30, 2000 were $101,294
compared to $824,000 for the nine months ended September 30, 1999. Lot costs
attributable to these sales for the nine months ended September 30, 2000 were
$42,300. Sales have decreased due to increased mortgage interest rates.
Total Operating Revenue for the nine months ended September 30, 2000 was
$14,629,225 compared to $15,171,620 for the nine months ended September 30,
1999, a decrease of $542,395 (4%).
GENERAL AND ADMINISTRATIVE EXPENSES
THE FOLLOWING ANALYSIS OF GENERAL AND ADMINISTRATIVE EXPENSES IN THIS PART OF
THE REPORT COMPARES FIGURES FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2000 AND SEPTEMBER 30, 1999. THE 1999 FIGURES HAVE BEEN RESTATED TO REFLECT
AUDIT ADJUSTMENTS.
The Company's general and administrative expenses were $1,606,918 and $5,080,945
for the three months and nine months ended September 30, 2000, respectively.
This compares to $1,648,323 and $5,179,742 for the three months and nine months
ended September 30, 1999, respectively.
GENERAL AND ADMINISTRATIVE FOR QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO
THE QUARTER ENDED SEPTEMBER 30, 1999 The Company's general and administrative
expenses and their comparison to the third quarter last year are as follows.
Executive salaries were $128,091 for the third quarter of 2000 compared to
$116,167 for the quarter ended September 30, 1999. Professional fees were
$93,587 compared to $149,368 for the same three month period in 1999.
Consulting fees decreased from $183,133 to $168,000 for 2000. In lieu of
salaries for the Chairman/CEO and the President, the Company pays monthly
management fees to Freedom of $38,000. Travel and entertainment expense
totaled $76,293 for the third quarter of 2000, compared to $66,963 for the
third quarter of 1999. Another significant cost included is approximately
$192,605 in payroll taxes. Employee benefits for the quarter increased
slightly to $169,992 from $166,269 for the same period in 1999. Property,
Licenses and other taxes decreased from $121,806 in 1999 to $110,241 in 2000.
Insurance increased slightly from $127,190 in 1999 to $131,613 for the third
quarter of 2000. Public company
18
<PAGE>
costs including shareholder relations/information and filing fees decreased
$11,641 to $6,002 for the quarter ended September 30, 2000 from $17,643 for the
quarter ended September 30, 1999. Interest expense totaled $208,102 and
$214,328, respectively, for the three month period ended September 30, 2000 and
September 30, 1999.
GENERAL AND ADMINISTRATIVE FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1999
Significant categories of general and administrative expenses and their
comparison for the nine month period in 2000 versus 1999 are as follows.
Executive salaries were $372,025 for the nine months ended September 30, 2000,
compared to $379,917 for the same period in 1999. Professional fees decreased
from $435,970 for the nine months ended September 30, 1999 to $410,633 for the
same period in 2000. Consulting fees decreased from $565,474 in 1999 to $504,000
in 2000. Travel and entertainment expense totaled $218,933 for the first nine
months of 2000, compared to $212,074 for the first nine months of 1999. Another
significant cost is $690,948 in payroll taxes for the nine months ended
September 30, 2000, compared to $622,683 in 1999. Employee benefits for the
first nine months of 2000, increased $26,411 from $488,951 to $515,362. Public
relations expense increased from $137,898 for nine months ended September 30,
1999 to $141,791 for the nine months ended September 30, 2000. Property,
Licenses and other taxes increased $2,347 from $387,807 in 1999 to $390,153 in
2000. Insurance expense increased slightly to $401,311 for the nine months ended
September 30, 2000 compared to $394,527 for 1999. Public company costs including
shareholder relations/information and filing fees decreased $17,984 to $26,967
from $44,951 in 1999. Interest expense totaled $611,812 and $667,900 for the
nine month period ended September 30, 2000 and September 30, 1999, respectively.
OPERATING EXPENSES
THE FOLLOWING ANALYSIS OF OPERATING EXPENSES COMPARES FIGURES FOR THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999. THE 1999 FIGURES
HAVE BEEN RESTATED TO REFLECT AUDIT ADJUSTMENTS.
The Company's operating expenses were $3,218,397 and $10,173,546 for the three
months and nine months ended September 2000, respectively. This compares to
$1,648,322 and $10,478,136 for the three months and nine months ended September
30, 1999, respectively.
OPERATING EXPENSES FOR QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 1999
The Company's operating expenses and their comparison to the third quarter last
year are as follows. Depreciation and amortization expense for the three months
ended September 30, 2000 was $162,053 compared to $185,280 for the same period
in 1999. Advertising increased $81,522 from $168,634 to $250,156 in 2000. Player
costs, which include salaries, benefits, and support staff, represent a
significant portion of operational expenses. Player costs for the quarter ended
September 30, 2000 and September 30, 1999, were $990,330 and $957,792
respectively. Rental and service costs for totalizator wagering equipment and
satellite receiving/television equipment also represent a significant portion of
operating expenses. These expenses totaled $341,497 for the three months ended
September 30, 2000, compared to $335,214 for three months ended September 30,
1999. The components of the 2000 total ($341,497) were $61,784 in ITW tote,
interface, and telephone charges; $93,884 in totalizator equipment rental;
$82,850 in satellite charges and $102,979 in camera/television rental. Utilities
expense totaled $184,198 and $185,017 respectively, for the three months periods
ended September 30, 2000 and September 30, 1999. Program costs were $77,964 and
$86,319, respectively, for the three month period ended September 30, 2000 and
1999. Payroll and associated costs for the bar, restaurant, souvenir and
concessions costs totaled $358,758 and $385,032 for the three month period ended
September 30, 2000 and September 30, 1999, respectively. Operating payrolls and
contract costs totaled $772,870 and $777,655, respectively for the three month
period ended September 30, 2000 and September 30, 1999. Operating payroll for
the quarter ended September 30, 2000 consisted of the following: $301,873 in
mutuels payroll; $195,454 in maintenance payroll; and $182,556 in security
payroll. Maintenance expense for the three months ended September 30, 2000,
totaled $87,318.
OPERATING EXPENSES FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1999
The Company's total operating expenses for the nine months ended September 30,
2000 and September 30, 1999 were $10,173,546 and $10,478,136 respectively.
Depreciation and amortization expense for the nine month period ended September
30, 2000 and September 30, 1999, was $502,833 and $546,405, respectively.
Advertising costs increased from $639,255 in 1999 to $734,266 in 2000. The
increase of $95,011 is largely attributable to increased advertising related to
Jai-Alai tournaments in Miami. Player costs, which include salaries, benefits,
and support staff, represent a significant portion of operational expenses.
Player costs for the nine months ended September 30, 2000 and September 30,
1999, were $3,218,830 and $3,152,499, respectively. Rental and service costs for
totalizator wagering equipment and satellite receiving/television equipment also
represent a significant portion of operating expenses. These expenses totaled
$1,025,317 for the nine months ended September 30, 2000, compared to $997,748
for nine months ended September 30, 1999. The components of the rental and
service costs in 1999 ($1,025,317) total were as follows: $212,082 in ITW tote,
interface, and telephone charges; $303,806 in totalizator equipment rental;
$176,850 in satellite charges and $332,579 in camera/television rental.
Utilities expense totaled $483,635 and $506,674, respectively, for the nine
month periods ended September 30, 2000 and September 30, 1999. Program costs
were $247,203 and $261,808 respectively, for the nine month periods ended
September 30, 2000 and 1999. Operating expenses, including payroll costs for the
bar, restaurant, souvenir and concessions costs were $1,240,164 and $1,196,235
for the nine month periods which ended September 30, 2000 and September 30,
1999, respectively. Operating payrolls and contract costs totaled $2,424,176 and
$2,379,005 for the nine month period ended September 30, 2000 and September 30,
1999, respectively. Operating payrolls and contract costs for the nine months
ended September 30,
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<PAGE>
2000 primarily consisted of the following: $944,319 in mutuels payroll; $620,119
in maintenance payroll; and $563,388 in security payroll. Maintenance expense
for the nine months ended September 30, 2000, totaled $286,295 compared to
$311,419 for the nine months ended September 30, 1999.
OTHER INCOME
The Company had net interest and other income of $2,419,726 and $3,736,936 for
the three and nine month periods ended September 30, 2000, respectively. Other
income totaled $734,250 and $3,033,952 for the three and nine month periods
ended September 30, 1999. Other Income ($2,419,726) for the quarter ended
September 30, 2000 included interest income of $34,203, pari-mutuel tax credits
of $2,084, Rincon Management Agreement Settlement of $850,000, the gain on the
sale of Ocala Jai-Alai at $1,034,007, and income from Summer Jai-Alai of
$627,080.
TAX LOSS CARRYFORWARDS
At December 31, 1999, the Company had approximately $16,000,000 in net operating
loss carryforwards. However, because of IRC section 382 limitations due to the
change of control that occurred in March, 1993, the bulk of these carryforwards
are limited to approximately $95,000 per year. Operating losses of approximately
$7,000,000 attributed to the period after the change of ownership are not
subject to the Section 382 limitation.
SUMMARY OF OPERATIONS
The Company had net income of $1,716,551 or $.27 per common share, for the three
months ended September 30, 2000, compared to net income of $139,384 or $.01 per
common share for the three month period ended September 30, 1999. The Company
had net income of $2,339,910 or $.36 per common share, for the nine months ended
September 30, 2000 compared to net income of $1,961,293 or $0.30 per common
share for the nine month period ended September 30, 1999. The 2000 Net Income
($2,339,910) includes a $1,034,007 gain on the sale of the Ocala Jai-Alai. The
1999 Net Income ($1,961,293) includes a non-recurring gain of $924,702 ($0.16
per common share) on the sale of excess commercial real estate in Miami.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at September 30, 2000 was $3,348,004. At
September 30, 2000, the Company had an increase in working capital of
approximately $3,219,347 from December 31, 1999.
During the nine months ended September 30, 2000, net cash used in the Company's
operating activities was $259,392. The Company's continuing operating expenses
consisted principally of office expenses, general and administrative expenses,
and costs associated with Jai-Alai and ITW operations. Principal revenues were
from net pari-mutuel wagering commissions on live Jai-Alai and ITW events.
During the nine months ended September 30, 2000, cash flow provided by investing
activities was $2,876,722. During the nine months ended September 30, 2000, cash
flow used in financing activities was $1,494,985.
On February 17, 1999, the Company sold excess real estate consisting of 12.99
acres, located near the Miami Jai-Alai facility in Miami, FL for $3,668,000.
The proceeds of the Miami Excess Real Estate Sale were used as follows:
<TABLE>
<S> <C>
(a) Payment to Bank of Oklahoma................... 1,500,000
(b) Brokerage Commissions......................... 91,700
(c) Real Estate Taxes............................. 88,737
(d) Title Charges................................. 23,042
(e) Recording and Transfer Fees................... 38,551
(f) Misc. settlement charges...................... 7,961
(g) Deposit-paid on various trade accounts payable 200,000
-------
Total $1,949,991
==========
</TABLE>
For further information regarding the sale, please refer to the Form 8-K dated
February 18, 1999.
20
<PAGE>
The Company incurred other costs related to carrying the Miami property and
lease-back obligations of approximately $899,199.. These other property-related
costs were expensed as operating costs over the period from January 1, 1998 to
February 17, 1999 - - - the period which the Company owned the property.
The balance of the cash received, $1,718,009 has been invested in short-term
cash equivalent funds.
As a result of these transactions, the Company's cash flow is currently adequate
to meet its debts and other obligations as they come due. The Company's
operating results have improved dramatically.
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
Company believes that the forward-looking statements are based upon reasonable
assumptions, there can be no assurance that the forward-looking statements will
prove to be accurate. Factors that could cause actual results to differ from the
results anticipated in the forward-looking statements include, but are not
limited to: economic conditions (both generally and more specifically in the
markets in which the Company operates); competition for the company's customers
from other providers of entertainment and gaming opportunities; government
legislation and regulation (which changes from time to time and over which the
Company has no control). The Company undertakes no obligation to republish
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events .
21
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Orez, Ltd. was named the Company as a defendant in a suit
challenging the number of common stock shares issued in the
Preferred Stock Series C conversion. On October 5, 2000, the
lawsuit was settled and Orez Ltd. received 122, 579 additional
shares of stock and $50,000 to partially defray costs of
litigation.
Legong Investments NV ("Legong") domiciled in the Netherlands
Antilles, is the holder of 50 shares of the Company's B
Convertible Preferred Stock and 1800 shares of the Company's
Series E 8% Convertible Preferred Stock. Legong has applied to
the Florida Department of Business and Professional
Regulation, Division of Pari-Mutuel Wagering for permission to
own 5% or more of the Company's shares of common stock. Legong
has also initiated an arbitration proceeding to resolve the
question of how many shares of the Company's common stock it
will receive upon conversion of the Preferred Stock into
Common Stock in accordance with the terms of the Preferred
Stock. Legong claims that it would be entitled to 2,439,880
shares of common stock plus damages in the amount of $366,000.
The Company claims that Legong would be entitled to 2,301,969
shares of common stock only. The Company will vigorously
contest any claim by Legong for damages.
The Company is a defendant in several suits which are deemed
to be routine litigation (mostly slip-and-fall suits) in the
ordinary course of business. The Company believes that the
ultimate resolution of the suits will not have a material
adverse impact on the Company's financial position or its
results of operations.
Item 2. CHANGES IN SECURITIES.
a) Not applicable.
b) Not applicable.
c) Not applicable.
d) Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None at date of filing.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS
Exhibit 27 - Financial Data Schedule.
b) REPORTS ON FORM 8-K.
None.
22
<PAGE>
FLORIDA GAMING CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FLORIDA GAMING CORPORATION
--------------------------
(Registrant)
Date: NOVEMBER 14, 2000
By: /s/ W.B. Collett
-------------------
W.B. Collett
Chairman of the Board and Chief
Executive Officer
(Principal Financial Officer)
23
