<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
------------ ----------
Commission file number: 0-26518
FITZGERALDS GAMING CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 88-0329170
(State or other jurisdiction of (IRS. Employer
incorporation or organization) Identification No.)
301 FREMONT STREET, LAS VEGAS NV 89101
(Address of principal executive offices)(Zip Code)
(702) 388-2224
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Cumulative Redeemable Preferred Stock, $.01 par value
Common Stock Purchase Warrants
Common Stock, $.01 par value
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 period than the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
As of March 15, 1997, there was no voting stock held by non-affiliates of
the Registrant. As of March 15, 1997, the number of outstanding shares of the
Registrant's Common Stock was 4,012,846.
DOCUMENTS INCORPORATED BY REFERENCE
None
Exhibit Index Located on Page 50
<PAGE> 2
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial statements are
attached:
Independent Auditors Report
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Income for years ended
December 31, 1996, 1995, and 1994
Consolidated Statements of Changes in Stockholders' Equity
(Deficiency) for the Years ended December 31, 1996,
1995, and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
Explanatory Note:
This amendment is being filed to correct several typographical errors and make
certain other corrections to the financial statements filed with the Company's
Form 10-K for the year ended December 31, 1996.
Page 47 of 57
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 on 15(d) 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, on April 1,
1997.
Fitzgeralds Gaming Corporation
By: /s/ FERNANDO BENSUASKI
-------------------------------------
Fernando Bensuaski
Executive Vice President
Chief Financial Officer
and Secretary
Page 48 of 57
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Philip D. Griffith and Fernando
Bensuaski, and each of them, his or her own attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any
amendments to this Report on Form 10-K and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ PHILIP D. GRIFFITH President, Chief Executive April 1, 1997
- -------------------------------- Officer, and Director (Principal
Philip D. Griffith Executive Officer)
/s/ FERNANDO BENSUASKI Executive Vice President, Chief April 1, 1997
- -------------------------------- Financial Officer, and Secretary
Fernando Bensuaski (Principal Financial and
Accounting Officer)
/s/ MICHAEL A. FICARO Director April 1, 1997
- --------------------------------
Michael A. Ficaro
/s/ PATRICIA W. BECKER Director April 1, 1997
- --------------------------------
Patricia W. Becker
</TABLE>
Page 49 of 57
<PAGE> 5
FITZGERALDS GAMING CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F - 2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1996 and 1995 F - 3
Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 F - 5
Statements of Stockholders' Equity (Deficiency) for
the Years Ended December 31, 1996, 1995 and 1994 F - 6
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 F - 7
Notes to Consolidated Financial Statements F - 9
</TABLE>
F-1
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
Fitzgeralds Gaming Corporation:
We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended December 31, 1996. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Las Vegas, Nevada
March 14, 1997
F-2
<PAGE> 7
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,349,497 $ 19,843,824
Restricted cash -- 471,569
Accounts receivable, net of
allowance for doubtful
accounts of $253,942 and $343,230 2,056,841 2,669,840
Accounts and notes receivable -
related parties 2,209,188 337,121
Inventories 1,545,661 1,027,848
Prepaid expenses:
Gaming taxes 1,374,319 1,483,244
Insurance 326,621 146,501
Other 1,367,699 1,475,984
-------------- --------------
Total current assets 22,229,826 27,455,931
-------------- --------------
PROPERTY AND
EQUIPMENT, net 151,883,083 103,802,669
-------------- --------------
OTHER ASSETS:
Restricted cash - construction 2,254,323 49,100,000
Restricted investment 1,000,000 1,000,000
Long-term accounts and notes
receivable - related parties,
net of current portion 10,753 1,902,396
Advances receivable -- 2,500,000
Investment in Fremont Street
Experience 2,038,813 2,786,384
Investment in 101 Main Street 2,975,362 --
Debt offering costs 7,013,894 7,357,754
Other assets 1,772,520 1,308,205
-------------- --------------
Total other assets 17,065,665 65,954,739
-------------- --------------
TOTAL $ 191,178,574 $ 197,213,339
============== ==============
</TABLE>
(Continued)
F-3
<PAGE> 8
FITZGERALDS GAMING CORPORATION
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 25,637,728 $ 10,498,434
Current portion of notes payable - related parties 2,111,892 727,671
Accounts payable 11,518,602 5,938,650
Accrued and other:
Payroll and related 3,290,264 3,768,024
Progressive jackpots 733,800 822,362
Outstanding chips and tokens 843,162 914,076
Interest 459,326 761,448
Offering costs 1,048,611 2,596,799
Other 3,619,451 1,996,281
Deferred tax liability -- 63,672
-------------- --------------
Total current liabilities 49,262,836 28,087,417
LONG-TERM DEBT, net of current portion 127,856,487 137,659,479
NOTES PAYABLE - RELATED
PARTIES, net of current portion 25,903 1,807,255
DEFERRED TAX LIABILITY -- 1,420,495
-------------- --------------
Total liabilities 177,145,226 168,974,646
-------------- --------------
MINORITY INTEREST 587,837 225,097
-------------- --------------
COMMITMENTS AND CONTINGENCIES
CUMULATIVE REDEEMABLE PREFERRED STOCK,
$.01 par value; $25 stated value; 800,000
shares authorized, issued and outstanding;
liquidation preference $20,000,000 stated
value plus accrued dividends of $3,288,873
and $92,983; recorded at liquidation preference
value, net of unamortized offering costs
and discount of $7,800,091 and $8,140,354 15,488,782 11,952,629
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.01 par value; 29,200,000 shares
authorized; 4,012,846 and 3,956,816 shares
issued and outstanding 40,128 39,568
Additional paid-in capital 23,785,603 24,455,175
Accumulated deficit (25,869,002) (8,433,776)
-------------- --------------
Total stockholders' equity (deficiency) (2,043,271) 16,060,967
-------------- --------------
TOTAL $ 191,178,574 $ 197,213,339
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 9
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING REVENUES:
Casino $ 111,284,884 $ 115,048,414 $ 109,193,746
Food and beverage 18,551,978 18,276,813 18,541,404
Rooms 15,875,829 13,116,906 12,517,234
Other 7,405,998 6,869,141 3,433,651
-------------- -------------- --------------
Total 153,118,689 153,311,274 143,686,035
Less promotional allowances 12,588,342 11,914,178 11,851,823
-------------- -------------- --------------
Net 140,530,347 141,397,096 131,834,212
-------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Casino 58,323,360 57,158,020 55,965,803
Food and beverage 13,330,471 12,496,888 12,227,653
Rooms 9,644,494 7,120,826 6,886,553
Other operating 1,543,516 1,821,157 1,758,714
Selling, general and administrative 44,920,756 41,021,687 38,470,954
Depreciation and amortization 8,896,951 8,010,498 8,270,674
Pre-opening expenses -- -- 4,856,039
Write down of Harolds Club assets
to estimated realizable value -- -- 1,401,262
-------------- -------------- --------------
Total 136,659,548 127,629,076 129,837,652
-------------- -------------- --------------
INCOME FROM OPERATIONS 3,870,799 13,768,020 1,996,560
OTHER INCOME (EXPENSE):
Interest income 1,822,964 292,567 185,312
Interest income - stockholders 237,524 28,218 528,987
Other income 131,221 116,483 28,225
Interest expense (20,208,230) (14,711,618) (10,751,158)
Interest expense - stockholders (38,899) (315,234) (219,484)
Gain on sale of assets 250,476 459,433 501,715
Equity in loss of unconsolidated affiliate (681,208) (846,761) --
Minority interest in (income) loss of subsidiaries (362,740) (220,051) 445,104
-------------- -------------- --------------
LOSS BEFORE TAXES (14,978,093) (1,428,943) (7,284,739)
INCOME TAX (PROVISION) BENEFIT 1,484,167 (2,825,746) 1,305,452
-------------- -------------- --------------
NET LOSS (13,493,926) (4,254,689) $ (5,979,287)
==============
PREFERRED STOCK DIVIDENDS (3,536,152) (98,497)
-------------- --------------
NET LOSS APPLICABLE TO COMMON
STOCK $ (17,030,078) $ (4,353,186)
============== ==============
NET LOSS PER COMMON SHARE $ (4.26) $ (1.09)
============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,998,877 3,989,655
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 10
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON ADDITIONAL EARNINGS STOCKHOLDERS'
STOCK PAID-IN (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT) (DEFICIENCY)
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1994 3,300,042 $ 33,000 $ 14,817,226 $ (736,786) $ 14,113,440
Net loss -- -- -- (5,979,287) (5,979,287)
Dividends -- -- -- (1,694,306) (1,694,306)
Issuance of stock -
Fitzgeralds Incorporated 79,731 797 349,203 -- 350,000
Issuance of stock -
Fitzgeralds South, Inc. 553,054 5,531 4,494,469 -- 4,500,000
Issuance of stock - Fitzgeralds
Las Vegas, Inc. and
Fitzgeralds Mississippi, Inc. -- -- 200 -- 200
Issuance of warrants -- -- 258,650 -- 258,650
Adjustment to purchase price
of treasury stock -- -- (461,678) -- (461,678)
Contributions from
stockholders/partners -- -- (3,000,440) 3,000,440 --
-------------- -------------- -------------- -------------- --------------
BALANCE,
DECEMBER 31, 1994 3,932,827 39,328 16,457,630 (5,409,939) 11,087,019
Net loss -- -- -- (4,254,689) (4,254,689)
Common stock dividends -- -- -- (1,018,292) (1,018,292)
Preferred stock dividends -- -- -- (98,497) (98,497)
Issuance of stock 23,989 240 (240) -- --
Issuance of warrants, net
of offering costs -- -- 10,463,717 -- 10,463,717
Issuance of stock options -- -- 215,042 -- 215,042
Purchase and retirement
of treasury stock -- -- (333,333) -- (333,333)
Contributions from
stockholders/partners -- -- (2,347,641) 2,347,641 --
-------------- -------------- -------------- -------------- --------------
BALANCE,
DECEMBER 31, 1995 3,956,816 39,568 24,455,175 (8,433,776) 16,060,967
Net loss -- -- -- (13,493,926) (13,493,926)
Common stock dividends -- -- -- (405,148) (405,148)
Preferred stock dividends -- -- -- (3,536,152) (3,536,152)
Issuance of stock 56,030 560 790 -- 1,350
Issuance of stock options -- -- 63,666 -- 63,666
Adjustment to purchase
price of treasury stock -- -- (734,028) -- (734,028)
-------------- -------------- -------------- -------------- --------------
BALANCE,
DECEMBER 31, 1996 4,012,846 $ 40,128 $ 23,785,603 $ (25,869,002) $ (2,043,271)
============== ============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 11
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,493,926) $ (4,254,689) $ (5,979,287)
Adjustments to reconcile net loss to net -- --
cash provided by operating activities: -- --
Depreciation and amortization 8,896,951 8,010,498 8,270,674
Amortization of note discount and offering costs 1,998,619 1,824,577 739,528
Gain on sale of assets (250,476) (459,433) (501,715)
Equity in loss of unconsolidated affiliate 681,208 846,761 --
Minority interest in income (loss) of subsidiaries 362,740 220,051 (445,104)
Write down of Harolds Club assets to estimated -- --
realizable value -- -- 1,401,262
Deferred income taxes (1,484,167) 2,825,796 (1,271,146)
Other non-cash expense 201,586 215,042 406,134
(Increase) decrease in accounts receivable, net 369,954 (1,059,536) 769,038
(Increase) decrease in accounts receivable - -- --
related parties (221,174) 218,362 167,711
(Increase) decrease in inventories (177,431) (171,798) (166,307)
(Increase) decrease in prepaid expenses (376,545) 219,080 (467,111)
Increase in other assets (464,318) (37,897) (663,587)
Increase in accounts payable 5,579,952 1,161,211 1,279,311
Increase (decrease) in accrued and -- --
other liabilities (864,374) (1,090,030) 4,198,922
-------------- -------------- --------------
Net cash provided by operating activities 758,599 8,467,995 7,738,323
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES: -- --
Proceeds from sale of assets 372,529 9,708,331 514,994
Repayments from related parties 86,664 219,466 2,529,359
Decrease in long-term deposits -- -- 4,345
Purchase of treasury stock -- (333,333) --
Acquisition of property and equipment (53,263,739) (9,830,127) (33,611,908)
Advances to related parties -- -- (91,600)
(Increase) Decrease in restricted cash - Construction 46,845,677 (49,100,000) --
Increase in restricted investment -- -- (1,000,000)
Increase in advances receivable -- (541,650) (1,958,350)
Distributions from 101 Main Street 594,000 -- --
Investment in Fremont Street Experience (1,002,999) (526,678) (1,123,200)
-------------- -------------- --------------
Net cash used in investing activities (6,367,868) (50,403,991) (34,736,360)
-------------- -------------- --------------
</TABLE>
(Continued)
F-7
<PAGE> 12
FITZGERALDS GAMING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 1995 Offering -- $ 135,014,840 --
Payment of 1995 Offering costs -- (9,983,915) --
Proceeds from issuance of stock 1,350 -- 4,850,000
Proceeds from issuance of warrants -- -- 258,650
Advances from related parties -- 868,195 1,245,957
Proceeds from issuance of debt 9,643,064 7,200,963 36,000,000
Repayment of long-term debt (10,222,261) (78,954,240) (8,447,810)
Payment of debt offering costs (275,625) -- (2,491,600)
Common stock dividends (405,148) (1,018,292) (761,999)
Repayments to related parties -- (3,113,317) --
(Increase) Decrease in restricted cash 471,569 (120,415) (351,154)
Other (98,009) -- 150
-------------- -------------- --------------
Net cash provided by (used in)
financing activities (885,058) 49,893,819 30,302,194
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH --
EQUIVALENTS (6,494,327) 7,957,823 3,304,157
-------------- --------------
CASH AND CASH EQUIVALENTS, --
BEGINNING OF YEAR 19,843,824 11,886,001 8,581,844
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, --
END OF YEAR $ 13,349,497 $ 19,843,824 $ 11,886,001
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE> 13
FITZGERALDS GAMING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS COMBINATION AND BASIS OF PRESENTATION
Fitzgeralds Gaming Corporation (the "Company") was formed in Nevada on
November 30, 1994 to acquire four entities controlled by two individuals
and their affiliates which conduct gaming, hotel and other related
operations in Reno and Las Vegas, Nevada and Tunica, Mississippi. Because
of the integrated nature of these operations, the Company is considered to
be engaged in one industry segment. A description of the four entities
follows:
FITZGERALDS SOUTH, INC. ("FSI"), a Nevada corporation formed in 1993,
is a holding company for: (1) Fitzgeralds Las Vegas, Inc. ("FLVI"), a
wholly owned subsidiary, which is a successor to Fitzgeralds Las Vegas
Limited Partnership ("FLVLP"), owns and operates the Fitzgeralds
Casino/Hotel in Las Vegas, Nevada (Fitzgeralds Las Vegas) and owns
Fitzgeralds Fremont Experience Corporation ("FFEC"), a wholly owned
subsidiary; (2) Fitzgeralds Mississippi, Inc. ("FMI") (formerly Polk
Landing Entertainment Corporation), a wholly owned subsidiary, which
is a Mississippi corporation and the owner and operator of Fitzgeralds
Casino in Tunica County, Mississippi ("Fitzgeralds Tunica").
FITZGERALDS RENO, INC. ("FRI") is a Nevada corporation which owns and
operates the hotel and gaming facilities in Reno, Nevada known as
Fitzgeralds Casino/Hotel ("Fitzgeralds Reno") and until its sale on
May 31, 1995, Harolds Club.
NEVADA CLUB, INC. ("NCI") is a Nevada corporation which owns and
operates the gaming, food and beverage facilities in Reno, Nevada
known as Nevada Club.
FITZGERALDS INCORPORATED ("FI") is a Nevada corporation formed in 1992
for the purpose of managing, owning and operating casinos and related
facilities outside the State of Nevada. FI is a holding company for:
(1) Fitzgeralds New York, Inc. ("FNYI"), formerly NYGM, Inc., an 85%
owned subsidiary and a New York corporation which was party to a
management agreement, and subsequently party to a settlement agreement
with the Oneida Indian Nation of New York (the "Oneida Nation")
regarding the management of a casino in Verona, New York; (2)
Fitzgeralds Arizona Management, Inc. ("FAMI"), an 85% owned subsidiary
and a Nevada corporation which is party to a Technical Services and
Casino Consulting Agreement and a Management Agreement with the
Yavapai-Apache Indian Nation to develop and manage a casino in Camp
Verde, Arizona which opened in May 1995; and (3) Fitzgeralds Black
Hawk, Inc. ("FBHI"), a wholly owned subsidiary and a Nevada
corporation which has a management contract to operate and manage, a
casino in Black Hawk, Colorado (Fitzgeralds Black Hawk) which opened
in May 1995, and which, effective February 16, 1996, received
regulatory approval to acquire a 22% interest in the equity of 101
Main Street Limited Liability Company ("101 Main Street"), the company
which owns Fitzgeralds Black Hawk in exchange for a $2,500,000 advance
receivable. FBHI holds an option to acquire the remaining 78% equity
of 101 Main Street.
F-9
<PAGE> 14
As part of a business combination, on December 31, 1994 the Company
acquired all of the outstanding stock of FSI and 98% of the outstanding
stock of FI through exchanges in which shares of common stock of the
Company were issued in exchange for the common stock of FSI and FI. The
Company acquired the remaining 2% of the outstanding stock of FI on
December 19, 1995. On February 26, 1995, the Company acquired all of the
outstanding stock of FRI and NCI through exchanges in which shares of
common stock of the Company were issued in exchange for common stock of FRI
and NCI.
The business combination has been accounted for as a combination of
entities under common control which is a method similar to a pooling of
interests. Therefore, the accompanying consolidated financial statements
reflect the assets and liabilities of the entities acquired at their
historical cost and consolidated operations for all years presented. All
intercompany balances and transactions have been eliminated in
consolidation.
All stockholders of the entities involved in the business combination
participated in the transaction except the minority stockholders of FMI,
FI, FNYI and FAMI. Therefore, a minority interest has been separately
disclosed in the consolidated financial statements to reflect at historical
cost the minority stockholders' ownership in these entities. The Company
acquired the minority interest in FMI and FI in December 1995.
Separate net operating revenues and net income (loss) of the consolidated
entities, net of intercompany eliminations, for the years ended December
31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Operating Revenues:
FGC $ -- $ -- $ --
FSI:
FLVI 43,482,777 42,652,710 43,936,644
FMI 48,747,813 46,465,895 28,438,465
FRI:
Harolds Club -- 1,520,244 14,042,858
Fitzgeralds (Reno) 37,076,390 40,212,715 38,166,565
NCI 6,432,276 7,036,701 7,011,773
FI 4,791,091 3,508,831 237,907
------------ ------------ ------------
Consolidated net operating revenues $140,530,347 $141,397,096 $131,834,212
============ ============ ============
Net Income (Loss):
FGC $ (410,264) $ (39,570) $ --
FSI:
FLVI (8,219,859) (1,721,655) (523,224)
FMI (9,462,003) (1,379,339) (3,441,331)
FRI:
Harolds Club -- (1,896,510) (5,011,095)
Fitzgeralds (Reno) 2,604,333 (428,503) 4,505,297
NCI (842,312) (328,470) (288,671)
FI 2,836,179 1,539,358 (1,220,263)
------------ ------------ ------------
Consolidated net loss $(13,493,926) $ (4,254,689) $ (5,979,287)
============ ============ ============
</TABLE>
F-10
<PAGE> 15
On December 19, 1995, the Company completed a public offering of $123
million of 13% Senior Secured Notes and $20 million of Cumulative
Redeemable Preferred Stock (the "1995 Offering"). See Notes 7 and 8.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of the Company conform to generally accepted
accounting principles. The following is a summary of the more significant
of such policies:
CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming
operations. The Company considers cash equivalents to include short-term
investments with maturities of ninety days or less. At December 31, 1996
and 1995, the Company had bank deposits in excess of federally insured
limits of approximately $8,308,000 and $3,740,000, respectively. At
December 31, 1996, cash and cash equivalents of $13,349,497 included
$1,980,000 which has been designated by the Company for construction
contingency.
RESTRICTED CASH - at December 31, 1995 represents cash and cash equivalents
of $471,569 held in a sinking fund related to the Company's commitment to
purchase the land on which Nevada Club's buildings and equipment reside,
which purchase was completed in 1996.
INVENTORIES - consisting principally of food and beverages and operating
supplies, are stated at the lower of first-in, first-out cost or market.
The estimated cost of normal operating quantities (base stock) of china,
silverware, glassware, linen, uniforms and utensils has been recorded as an
asset and is not being depreciated. Costs of base stock replacements are
expensed as incurred. Other assets in the accompanying consolidated balance
sheets includes $868,168 and $786,870 of base stock inventories at December
31, 1996 and 1995.
PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization
are computed using the straight-line method over the estimated lives of the
assets. Costs of major improvements are capitalized; costs of normal
repairs and maintenance are charged to expenses as incurred. Gains or
losses on disposals are recognized.
CAPITALIZED INTEREST - Interest costs totaling $1,814,195, $7,340 and
$964,224 were capitalized into property and equipment for the years ended
December 31, 1996, 1995 and 1994, respectively.
RESTRICTED CASH - CONSTRUCTION - represents cash and cash equivalents to
fund expansion projects at Fitzgeralds Las Vegas and Fitzgeralds Tunica
held in collateral accounts pursuant to disbursement agreements of the 1995
Offering.
RESTRICTED INVESTMENT - represents U.S. Treasury Notes of $1,000,000 held
in an escrow account for the benefit of certain land lessors related to
Fitzgeralds Casino/Hotel in Las Vegas.
ADVANCES RECEIVABLE - at December 31, 1995 represents funds advanced to 101
Main Street. Such advances were converted to an investment in 101 Main
Street on February 16, 1996 (see Note 6).
F-11
<PAGE> 16
INVESTMENT IN FREMONT STREET EXPERIENCE - The Company's investment in a
limited liability corporation to construct certain improvements in downtown
Las Vegas is accounted for using the equity method.
INVESTMENT IN 101 MAIN STREET - The Company's 22% interest in a limited
liability company which operates Fitzgeralds Black Hawk is accounted for
using the equity method.
DEBT OFFERING COSTS - Costs associated with the issuance of debt are
deferred and amortized over the life of the related indebtedness using the
effective interest method. Debt offering costs at December 31, 1996 and
1995 are presented net of accumulated amortization of $636,190 and $16,705,
respectively. Unamortized debt offering costs of $629,264 related to debt
retired from the proceeds of the 1995 Offering were expensed in December
1995.
CASINO REVENUE - is the net win from gaming activities, which is the
difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of
rooms, food and beverage provided to customers without charge;
corresponding charges have been deducted from revenue in the accompanying
consolidated statements of operations as promotional allowances in the
determination of net operating revenues. The estimated costs of providing
the complimentary services are charged to the casino department and are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Hotel $ 1,635,213 $ 1,109,155 $ 1,374,421
Food and beverage 9,543,492 8,828,648 8,072,366
Other 102,951 91,037 64,402
------------- ------------- -------------
Total $ 11,281,656 $ 10,028,840 $ 9,511,189
============= ============= =============
</TABLE>
INDIRECT EXPENSES - Certain indirect expenses of operating departments such
as depreciation and amortization are shown separately in the accompanying
consolidated statements of operations and are not allocated to departmental
operating costs and expenses.
PRE-OPENING EXPENSES - All pre-opening expenses relating to Fitzgeralds
Tunica were deferred and expensed upon the opening of Fitzgeralds Tunica on
June 6, 1994. All advertising expenses were expensed as incurred.
FEDERAL INCOME TAXES - The Company, except for FSI, FI and FMI, was not
subject to federal income taxes prior to the business combination because
it consisted of two S corporations and a partnership. Therefore, taxable
income and losses of the Company were generally reportable on the income
tax returns of the respective owners.
Pursuant to the business combination, the S corporation elections and
partnership status of the subsidiaries have been terminated. FLVI changed
its tax status and adopted SFAS No. 109, Accounting for Income Taxes, on
January 1, 1995 and FRI and NCI changed their tax status and adopted the
provisions of this statement on February 27, 1995. FSI, FI and FMI had
previously adopted SFAS No. 109. SFAS No. 109 requires recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial statements
or tax returns. Deferred
F-12
<PAGE> 17
income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carry forwards.
FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks)
financial reporting period which maintains a December 31 year-end. This
method of reporting results in 13 weeks in each quarterly accounting
period. The first and fourth accounting periods will have a fluctuating
number of days restricted cash resulting from the maintenance of a
December 31 year-end, whereas the second and third periods will have the
same number of days each year.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on
current information, that the carrying value of the Company's cash and cash
equivalents, accounts, notes and advances receivable, and accounts payable
approximates fair value because of the short maturity of those instruments.
The Company estimates the fair value of its senior secured notes payable
approximates $86.1 million based on analysts' reports, quotes, and recent
trades of the securities. The Company estimates the fair value of its
preferred stock to approximate book value as no sales or exchanges have
occurred and no market quotes for such securities exist. The Company
estimates the fair value of all other long-term debt and notes payable -
related parties approximates their carrying value because interest rates on
the debt approximate market rates.
IMPAIRMENT OF LONG-LIVED ASSETS - The Financial Accounting Standards Board
("FASB") issued SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of in March 1995. This
statement, which was adopted during the Company's fiscal year ended
December 31, 1996, requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The adoption of SFAS No. 121 did
not have a significant effect on the consolidated financial position or
results of operations of the Company.
STOCK BASED COMPENSATION - The FASB issued in October, 1995 SFAS No. 123,
Accounting for Awards of Stock-Based Compensation. This statement, which
was adopted during the Company's fiscal year ended December 31, 1996,
establishes financial accounting and reporting standards for stock-based
employee compensation plans and for transactions where equity securities
are issued for goods and services. This statement defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using
the intrinsic value based method of accounting prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees. Management's current
intention is to continue to follow APB Opinion No. 25.
F-13
<PAGE> 18
USE OF 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 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.
3. STATEMENTS OF CASH FLOWS INFORMATION
The following supplemental disclosures are provided as part of the
consolidated statements of cash flows for the years ended December 31,
1996, 1995 and 1994:
Cash paid for interest, net of amounts capitalized during the years ended
December 31, 1996, 1995 and 1994 was $22,363,448, $10,041,419, and
$9,731,844, respectively.
Long-term contracts payable of $3,762,425 in 1996, $2,624,160 in 1995 and
$12,208,782 in 1994 were incurred with the acquisition of new equipment.
During 1996 and 1995, accumulated deficit was increased by $3,536,153 and
$98,497 for preferred stock dividends consisting of $3,195,890 and $92,983
accrued dividends and $340,263 and $5,514 accretion of discount on
preferred stock.
During 1996 advances receivable of $2,500,000 were transferred to
investment in 101 Main Street (see Note 6).
During 1996 additional paid in capital decreased and the note payable to a
former stockholder increased by $636,020 (see Notes 7 and 15).
Notes payable of $2,077,363 and $225,000 in 1995 and 1994 were incurred for
the purchase of land.
In 1995, accrued offering costs of $2,596,799 were incurred in connection
with the 1995 Offering.
During 1995, $425,000 in other assets was reclassified to property and
equipment.
As part of the business combination, the Company issued 23,989 shares of
its common stock in 1995 to a minority stockholder of FI upon the
completion of the 1995 Offering resulting in an increase in common stock
and a decrease in additional paid-in capital of $240.
Notes receivable from stockholders of $932,306 were distributed as
dividends in 1994.
During 1994, certain assets of Harolds Club with a book value totaling
$10,301,262 were written down to their estimated realizable value of
$8,900,000 and reclassified from property and equipment to other assets
pursuant to an agreement to sell the assets.
F-14
<PAGE> 19
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
ESTIMATED
SERVICE
LIFE
1996 1995 (YEARS)
<S> <C> <C> <C>
Land used in casino operations $ 12,961,120 $ 12,986,064
Buildings and improvements 103,360,569 59,099,595 7-40
Site improvements 14,331,622 14,139,200 20
Barge and improvements 12,885,433 12,885,433 15
Furniture, fixtures and equipment 57,503,519 44,263,845 3-12
-------------- --------------
201,042,263 143,374,137
Less accumulated depreciation and
amortization (49,335,270) (44,182,071)
-------------- --------------
151,706,993 99,192,066
Construction in progress 176,090 4,610,603
============== ==============
Total $ 151,883,083 $ 103,802,669
============== ==============
</TABLE>
Substantially all property and equipment are pledged as collateral on
long-term debt. See Note 7.
5. INVESTMENT IN FREMONT STREET EXPERIENCE
In July 1993, FLVI (through its predecessor, FLVLP) invested in a limited
liability corporation owned by eight downtown Las Vegas casinos to
construct and participate in the Fremont Street Experience. The Fremont
Street Experience is an urban theater which includes a space frame
containing 2.1 million lights, a sky parade light show, sidewalk and street
improvements, a parking structure, and special events and festivals.
Initial capital for the project was funded by its joint venture partners
and local bond issuances. The project, which has been designed to draw both
locals and tourists who might not otherwise visit the downtown Las Vegas
area, opened on November 30, 1995.
FLVI had a total initial capital commitment of $3,000,000 for the project,
$1,876,800 contributed in 1993 and $1,123,200 contributed in 1994.
Substantially all funds for this investment were loaned to FLVI by
stockholders (see Note 10). The Company made additional contributions to
capital of $1,002,999 in 1996 and $526,678 in 1995. The Company had a
16.67% ownership interest in the joint venture and a 16.67% participation
in losses and profits except as described below. This ownership interest
increased to 17.65% on March 1, 1996 when one of the original investors
relinquished its interest in the limited liability company. The Company's
investment is recorded on the equity method. Under the equity method, the
original investment is recorded at cost and adjusted by the Company's share
of undistributed earnings or loss of the joint venture. The operating
agreement for the corporation provides that, upon a two-thirds vote of the
members, the members may be required to fund up to an aggregate of
$5,000,000 of operating deficits of the Fremont Street Experience per year,
of which the Company would be required to fund 17.65%, or $882,500.
F-15
<PAGE> 20
The Company anticipates that it will recover its investment in this project
through increased business as a result of the projected increase in
visitors to downtown Las Vegas. The Company will review its investment in
the joint venture on a quarterly basis for impairment to determine whether
events or circumstances indicate the carrying amount of the asset may not
be recoverable, in which case an impairment loss will be recorded.
Condensed financial information of the limited liability corporation as of
December 31, 1996 and 1995 and for the years then ended is summarized
below. The limited liability corporation had minimal operations during
1994.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current assets $ 2,102,692 $ 3,655,454
Non current assets 16,295,965 18,289,704
Current liabilities 848,586 1,655,707
Non current liabilities 1,358,723 --
Net assets 16,191,348 20,289,451
Revenues $ 2,508,049 $ 884,416
Operating loss (10,069,775) (5,080,565)
Net loss (10,069,775) (5,080,565)
</TABLE>
6. INVESTMENT IN 101 MAIN STREET
On October 21, 1994, the Company, through FBHI, entered into a Membership
Purchase Agreement, subsequently amended in March 1995, to purchase for
$2,500,000 a 22% interest in 101 Main Street, a company formed to
construct, develop and operate a casino in Gilpin County, Colorado. The
first floor of the casino opened on May 23, 1995.
FBHI had advanced the $2,500,000 purchase price at May 23, 1995 and the
amounts advanced were converted to an unsecured promissory note bearing
interest at a rate of 1% over the designated prime rate on that date and
were recorded as advances receivable at December 31, 1995.
Also on October 21, 1994, FBHI entered into a Management Agreement with 101
Main Street to manage the casino operations for a period of 10 years, at a
management fee equal to 8% of annualized earnings before interest, taxes,
depreciation and amortization, subject to the approval of the Colorado
Limited Gaming Commission.
In March 1995, FBHI entered into an Amendment to the Management Agreement
to provide for a fixed monthly management fee (a) until such time as FBHI
receives the approval of the Colorado Limited Gaming Commission to acquire
its 22% interest in 101 Main Street or (b) FBHI receives approval of the
Colorado Limited Gaming Commission to receive a percentage management fee
or (c) until the Membership Purchase Agreement is terminated. The approvals
discussed above were received on February 16, 1996 and the $2,500,000
advance was exchanged for the 22% interest. The Company's investment is
recorded using the equity method. FBHI has an option to acquire the
remaining 78% interest. The fixed management fee is fixed for 1 year,
originally at $75,000 per month and since November 1, 1995, at $37,500 per
month, and thereafter such amount as is mutually agreed in good faith. The
management fee reverted to the 8% fee discussed above effective February
26, 1996.
F-16
<PAGE> 21
Condensed financial information of 101 Main Street as of December 31, 1996
and for the year then ended is summarized below:
<TABLE>
<S> <C>
Current assets $ 2,264,357
Non current assets 21,531,466
Current liabilities 5,168,166
Non current liabilities 7,607,679
Net assets 11,019,978
Revenues $ 27,944,135
Operating income 7,777,331
Net income 6,084,598
</TABLE>
7. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Priority secured notes payable ("Priority Notes"); secured by a first
priority lien on substantially all of the assets of the subsidiaries
of the Company (other than FAMI, FNYI and NCI), due in semi-annual
installments of interest at 13% on June 30 and December 31; with a
final payment of principal and interest due on December 31, 1998
(net of unamortized discount of $871,535) $ 5,010,465 $ --
Senior secured notes payable; secured by a first priority lien on
substantially all of the assets of the subsidiaries of the Company
(other than FAMI, FNYI and NCI) except for certain excluded assets,
due in semi-annual installments of interest at 13% on June 30 and
December 31; with a final payment of principal and interest due on
December 31, 2002 (net of unamortized discount of $14,090,081 and
$15,469,214). The holders of these notes have subordinated their
collateral position to the Priority Notes. (See Notes 8 and 19) 108,909,919 107,530,786
Note payable to an individual to acquire Fitzgeralds Casino/Hotel (Reno)
(the "Fitzgeralds Reno Note); collateralized by deed of trust on
Fitzgeralds Reno land and buildings and a security agreement on
furniture, fixtures, and equipment; due in monthly installments of
$250,000, including interest at prime plus 1% (9.25% at December 31,
1996) not to exceed 13% nor be less than 9%; remaining unpaid
principal balance due December 2001; $886,000 principal in arrears at
December 31, 1996 18,067,287 18,499,520
</TABLE>
F-17
<PAGE> 22
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Note payable to repurchase outstanding common shares from a major
stockholder; collateralized by deeds of trust on Fitzgeralds Reno
land and buildings; subordinated to bank notes payable; due in
monthly installments of $98,648, including interest at the prime rate
plus 1% (9.25% at December 31, 1996), not to exceed 13% nor be less
than 9%; remaining principal balance due September 16, 2001 (See
Note 15) 5,707,015 5,105,013
Revolving credit and term note payable to a bank (the "Fitz Note");
collateralized by deed of trust on Fitzgeralds Reno land and
buildings, security agreement on furniture, fixtures and equipment,
and a personal guarantee by certain stockholders; due in monthly
principal installments of $50,000 plus interest at the bank's prime
rate plus 1% (9.25% at December 31, 1996) until November 1, 1997, at
which time all unpaid principal and interest is due 1,233,606 1,368,605
Note payable to a trust to acquire land used in casino operations;
collateralized by deed of trust on the land; due in monthly
installments of $32,681, including interest at 7.5%; remaining
principal and interest due December 6, 2000 1,351,620 2,077,363
Note payable to a bank to acquire the Nevada Club; collateralized by a
deed of trust on land and buildings, a security agreement on
furniture, fixtures and equipment and a personal guarantee by certain
stockholders; due in monthly installments of $55,055, including
interest at the bank's prime rate plus 1% (9.25% at December 31,
1996); principal balance due December 1998 3,047,088 3,444,158
Notes payable secured by gaming equipment; due in
aggregate monthly installments of $108,708, including
interest at 11.5%; remaining principal due August 1998 1,969,947 2,981,602
Contract payable secured by gaming equipment, due in
monthly principal installments of $133,333 plus
interest at 10.83%; remaining principal due March 1998 2,000,000 --
Contracts payable, collateralized by certain equipment,
due in maximum aggregate monthly installments of
$314,832, with varying maturity dates through 2001 4,702,490 4,098,723
Obligation for construction of water/sewer lines,
secured by an irrevocable letter of credit, due in
monthly installments of $11,735, including imputed
interest of 9.5% 328,034 442,674
</TABLE>
F-18
<PAGE> 23
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Other $ 1,166,744 $ 2,609,469
------------- ------------
Total long-term debt 153,494,215 148,157,913
Less current portion (25,637,728) (10,498,434)
------------- -------------
Long-term portion $ 127,856,487 $ 137,659,479
============= =============
</TABLE>
The scheduled maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOTES
DECEMBER 31, PAYABLE
<S> <C>
1997 $ 25,637,728
1998 11,705,800
1999 2,550,532
2000 1,312,985
2001 3,377,251
Thereafter 108,909,919
------------
Total $153,494,215
============
</TABLE>
The Company has agreed to remit to a bank 30% of its excess cash flows from
FRI on an annual basis. Such excess cash flows are generally defined as net
income less debt service, approved capital expenditures and approved
distributions to stockholders and related companies. Such amounts paid to
the bank will be first applied to principal amounts owed on the Fitz Note.
FRI did not generate excess cash flows, as defined, during 1996, 1995 or
1994.
The note payable to a bank to acquire the Nevada Club with a balance of
$3,047,088 as of December 31, 1996, has covenants placing restrictions on
Nevada Club and requiring that certain financial ratios be maintained. As
of December 31, 1996, NCI was not in compliance with certain of these
covenants. NCI continues to make scheduled principal and interest payments
on the notes. The Company is actively seeking a buyer for Nevada Club, and
upon its sale, these notes payable will be retired. The Company has
received a waiver from the bank for one year for non-compliance with the
covenants.
The Company has made interest-only payments on the Fitzgeralds Reno Note
since March 1996 based on a verbal agreement with the holder and is
approximately $886,000 in arrears on principal as of December 31, 1996. The
holder of the note has not placed the note into default or demanded payment
of either the principal in arrears or the entire principal balance.
However, neither has the note holder waived any rights under the note
agreement. As a result, the Company has classified the entire balance of
the Fitzgeralds Reno Note as current as of December 31, 1996. Should the
Fitzgeralds Reno Note be placed in default, certain cross default
provisions of other debt, including the 1995 Notes, would be triggered,
resulting in acceleration of amounts due under the debt agreements, which
the Company would not be able to pay without a refinancing of
substantially all long-term debt.
F-19
<PAGE> 24
As a result of improving cash flows at FRI, the Company is negotiating with
the holder of the Fitzgeralds Reno Note to resume principal payments and
defer principal payments in arrears to a future date. Additionally, the
Company is seeking to refinance the mortgage-secured indebtedness at FRI,
based on a preliminary offer from the holders of two mortgage notes to
discount the respective notes as an inducement for early pay-off. However,
no assurances can be given that the Company will be successful in
completing the refinancing.
On March 14, 1994, FSI issued $36 million of 13% senior secured notes due
1996. In connection with the issuance of these notes, FSI has issued
warrants to purchase 100,558 shares of its common stock. No value was
ascribed to the warrants. The warrants are exercisable at $.01 per share,
expire five years from the closing of the offering for these notes and are
subject to certain anti-dilution adjustments. Warrants to purchase 54,384
shares of common stock of FSI were also issued to the sales agent. These
warrants are exercisable at $32.18 per share and expire five years from the
closing of the offering. All warrants issued in connection with this note
offering are exercisable only for common shares of FSI. These notes were
repaid from a portion of the proceeds from the 1995 Offering (Note 8) at
which time the Company repurchased approximately 90% of the $.01 warrants.
8. THE 1995 OFFERING
On December 19, 1995, the Company completed a public offering of debt,
preferred stock and warrants (the "1995 Warrants"). The Company issued
123,000 Note Units each consisting of $1,000 principal amount of 13% Senior
Secured Notes due December 31, 2002 with Contingent Interest (the "1995
Notes") and 13.59368 1995 Warrants, each to purchase one share of the
Company's common stock at $.01 per share, and 800,000 Preferred Stock
Units, each consisting of one share of Cumulative Redeemable Preferred
Stock (the "Preferred Stock") and 1.25402 1995 Warrants. The 1995 Warrants
have each been assigned a value of $4.50.
A summary of the proceeds from the 1995 Offering is as follows:
<TABLE>
1995 PREFERRED 1995
NOTES STOCK WARRANTS TOTAL
<S> <C> <C> <C> <C>
Face amount $ 123,000,000 $ 20,000,000 $ -- $ 143,000,000
Less discount on notes (7,985,160) -- -- (7,985,160)
Less value assigned to
warrants (7,524,104) (4,514,463) 12,038,567 --
-------------- -------------- -------------- --------------
Proceeds 107,490,736 15,485,537 12,038,567 135,014,840
Less offering costs (7,374,459) (3,631,405) (1,574,850) (12,580,714)
-------------- -------------- -------------- --------------
Net proceeds $ 100,116,277 $ 11,854,132 $ 10,463,717 $ 122,434,126
============= ============== ============== ==============
</TABLE>
1995 NOTES
The 1995 Notes bear interest at a fixed rate of 13% per annum payable on
June 30 and December 31 of each year, commencing June 30, 1996. If neither
a Qualified Public Offering nor a Qualified Public Company Merger (as each
is defined) has been consummated prior to December 31, 1997, contingent
interest will be payable on the 1995 Notes. Such contingent interest will
be payable on each interest payment date thereafter in an aggregate amount
equal to 25% of the Company's consolidated EBITDA (earnings before
interest, taxes, depreciation and amortization) for the six-month periods
ending on or about the March 31 and September 30 prior to each interest
payment date, up to a limit of $50 million of the Company's consolidated
EBITDA during any two consecutive semiannual periods ending on or
F-20
<PAGE> 25
about September 30. Under certain circumstances, the Company, at its option
may defer payment of all or a portion of any installment of contingent
interest.
The 1995 Notes are secured by a first priority lien on substantially all of
the assets of the subsidiaries of the Company (other than FAMI, FNYI, and
NCI), except certain excluded assets. See Notes 7 and 19.
The 1995 Notes are redeemable at the option of the Company in whole (but
not in part) at any time after the issue date at 100% of the principal
amount thereof, increasing ratably to 102% of the principal amount thereof
on or after December 31, 1998, and in whole or in part at any time on or
after December 31, 1999 at 104.33% of the principal amount thereof,
declining ratably to 100% of the principal amount thereof on or after
December 31, 2001, plus, in each case, accrued and unpaid interest to the
redemption date. The 1995 Notes are also redeemable as may be required by
applicable gaming laws and regulations.
If a Change of Control (as defined) occurs, each holder of 1995 Notes will
have the right to require the Company to repurchase all or any part of such
holder's 1995 Notes, at a cash price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the purchase date.
The Indenture governing the 1995 Notes (the "Indenture") contains covenants
which, among other things, restrict the Company's ability to (i) make
certain payments to, or investments in, third parties (ii) incur additional
indebtedness (iii) enter into transactions with affiliates and (iv) sell
assets or subsidiary stock. At December 31, 1996, the Company was in
compliance with these provisions.
PREFERRED STOCK
The Preferred Stock has a liquidation preference of $20 million dollars
($25 per share), plus accrued and unpaid dividends. Cash dividends on the
Preferred Stock will be payable commencing March 31, 1996 out of funds
legally available therefor (when and if declared by the Company's Board of
Directors) in an amount equal to 15% of the liquidation preference.
Dividends if not paid (whether or not declared) will be cumulative from
December 19, 1995 and will be compounded quarterly. The Indenture restricts
the Company's ability to pay dividends on the Preferred Stock, and the
Company has no current intention to pay any dividends on the Preferred
Stock. The Preferred Stock may be redeemed by the Company at any time at a
redemption price equal to 100% of the liquidation preference plus accrued
and unpaid dividends on the date of redemption subject to restrictions in
the Indenture. The Company will be obligated to redeem all of the Preferred
Stock on December 31, 2005 at a redemption price equal to 100% of the
liquidation preference plus accrued and unpaid dividends on the date of
redemption. In the event that the Company consummates a Qualified Public
Offering (as defined), it will be required to offer to repurchase 35% of
the Preferred Stock at a price equal to 100% of the liquidation preference
on the date of repurchase.
1995 WARRANTS
The 1995 Warrants are exercisable for an aggregate of 2,675,237 shares of
the Company's common stock at $.01 per share, are subject to anti-dilution
adjustments, and expire December 19, 1998. 7.87496 of the 1995 Warrants
included in each Note Unit and 0.69187 of the 1995 Warrants included in
each Preferred Stock Unit became separately transferable from the Note
Units and the Preferred Stock Units, as applicable, on June 30, 1996, and
became exercisable on June 30, 1996. The remaining 5.71872 of the 1995
Warrants included in each Note Unit (the "Restricted Note Warrants") and
the remaining 0.56215 of the 1995 Warrants included in each Preferred Stock
Unit (the "Restricted
F-21
<PAGE> 26
Preferred Stock Warrants") will not be separately transferable from the
1995 Notes or Preferred Stock, as applicable, with which they were issued,
and will not be exercisable, prior to December 31, 1997.
If, prior to December 31, 1997, any redemption or repurchase of shares of
the Preferred Stock is effected with net proceeds from a Qualified Public
Offering or in connection with a Qualified Public Company Merger (as each
is defined), then the Company may redeem or cancel the Restricted Preferred
Stock Warrants originally issued with each share of Preferred Stock
redeemed, for no additional consideration. In addition, if the Company
consummates a Qualified Public Offering or a Qualified Public Company
Merger prior to December 31, 1997, it may cancel all of the Restricted Note
Warrants originally issued with the Note Units, for no consideration.
9. COMMITMENTS
Future minimum rental payments under operating leases with noncancelable
lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1997 $ 1,485,962
1998 1,414,744
1999 1,289,830
2000 1,114,645
2001 962,282
Thereafter 6,725,114
------------
Total $ 12,992,577
</TABLE> ============
Such operating lease commitments primarily relate to equipment, signs,
warehouses and ground leases on which the Company's buildings and equipment
reside. Rent expense for the years ended December 31, 1996, 1995 and 1994
was $1,989,321, $2,034,061 and $1,917,666.
On May 31, 1995, the Company sold Harolds Club and the buyer assumed the
lease commitments for Harolds Club. The Company is contingently liable for
the lease obligations in the event that the buyer of Harolds Club does not
make the required lease payments. As of December 31, 1996, lease
obligations in the aggregate amount of approximately $591,000 were unpaid
and the remaining Harolds Club lease obligations are as follows:
F-22
<PAGE> 27
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
<S> <C>
1997 $ 607,454
1998 571,454
1999 324,996
2000 324,996
2001 324,996
Thereafter 3,879,077
------------
Total $ 6,032,973
============
</TABLE>
Although the buyer agreed to provide the Company with a deed of trust on
certain of the Harolds Club real estate sold as collateral in the event of
default on the lease payments, such deed of trust had not been received as
of December 31, 1996, and the Company does not anticipate receiving the
deed of trust in light of the fact that all of the buyer's assets,
including the Harolds Club real estate has been placed under the control of
a bankruptcy trustee.
The current owner of Harolds Club has not met its obligations with respect
to the land leases and the lessors have demanded payment from the current
lessor, FRI and from another, unrelated guarantor. On or about August 2,
1996, each of the five land lessors filed separate actions in the Second
Judicial District Court (Washoe County), State of Nevada, seeking payment
from FRI and the other guarantor of an aggregate of approximately $319,280
in unpaid lease payments plus interest, attorneys' fees and costs. On
October 31, 1996, four of the land lessors entered into a stipulation with
each of the named defendants pursuant to which the parties agreed to stay
all action in the suits until April 15, 1997 in order to, among other
things, allow the current owners an opportunity to find a buyer for the
property and to allow FRI time to attempt to preserve the right to operate
non-restricted gaming in the property. On March 20, 1997, the Nevada Gaming
Commission approved the application filed by NCI to operate non-restricted
gaming at Harolds Club for a period not to exceed one year from the date of
approval. The Company intends to operate 21 slot machines at Harolds Club,
on behalf of its owner, and at no significant cost to the Company, for a
total of two hours per calendar quarter in order to preserve existing
grandfather's rights which would allow a new purchaser to operate a
non-restricted facility without building hotel rooms.
The one land lessor who failed to join in the stipulation has indicated an
intention to dismiss FRI and all other defendants except one, from its
lawsuit. However, that dismissal has not yet occurred. On October 31, 1996,
one of the named defendants filed a cross-claim against FRI and the other
defendants for indemnification and has threatened to make further claims
against FRI. FRI intends to vigorously defend this action as well as the
other four actions should Harolds Club not be sold by April 15, 1997.
On October 13, 1994, the Mississippi Gaming Commission formally adopted an
infrastructure development regulation. This new regulation requires each
casino operator to have a minimum level of infrastructure in connection
with such operator's casino, which at a minimum consists of a 250 room
hotel and/or certain entertainment facilities so long as the cost of those
facilities is at least twenty-five percent (25%) of the total cost of the
barge placed in service as a casino. Specifically excluded are parking
garages, roads, sewage and other infrastructure items normally provided by
governmental entities. If an operator does not have such infrastructure
already in place, the requirements of the regulation must be approved at
the time of the next renewal of such operator's gaming license (which was
obtained by FMI in March 1996) or a plan showing how the operator intends
to comply with the regulation must be presented. It is the intent of the
Mississippi Gaming Commission that these be land-based facilities. FMI
undertook the development of its 121-acre site to include a hotel and
entertainment facility during December 1995. On July 23, 1996 FMI opened
100 rooms in the hotel, and the hotel was fully opened by October 5, 1996.
The Company believes that this expansion fully satisfies the infrastructure
development regulation adopted by the Mississippi Gaming Commission.
10. RELATED PARTY TRANSACTIONS
Accounts and notes receivable - related parties consist of the following at
December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Unsecured notes receivable from stockholders with interest only payments
due annually through June 30, 1997, at which time the entire
principal amount is due and payable. The notes bear interest at 6.69% $ 1,167,853 $ 1,167,853
Unsecured note receivable from a former stockholder whose common shares
in FRI and NCI were repurchased in 1992. (See Note 15). Interest only
payments are due annually through June 30, 1997, at which time the
principal amount is due and payable. The note bears interest at
6.69%. Net of allowance for uncollectible portion of $510,439 639,402 639,402
Unsecured note receivable from a former stockholder whose common shares
in FRI and NCI were repurchased in 1992 (see Note 15). The note bears
interest at the prime rate plus 1% (9.25% at December
</TABLE>
F-23
<PAGE> 28
<TABLE>
<S> <C> <C>
31, 1996), not to exceed 13% nor be less than 9%. The note is 1996 1995
payable in monthly installments of $19,184 including interest ------------ -----------
through April 1997 216,865 303,529
Accrued interest receivable on notes 81,725 122,200
Other advances 114,097 6,533
------------ -----------
Total 2,219,941 2,239,517
Less current portion (2,209,188) (337,121)
------------ -----------
Long-term portion $ 10,753 $ 1,902,396
============ ===========
</TABLE>
During 1994, the Company distributed $932,306 of the unsecured notes
receivable from stockholders to those stockholders as dividends.
Other advances represent advances made to affiliated companies. The amounts
do not bear interest and there are no stated repayment terms. A portion of
the amount is classified as non-current as significant repayments are not
expected in 1997.
Notes payable - related parties consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Unsecured notes payable to stockholders; interest
at 6.24%; payable on demand $ 304,637 $ 667,820
Subordinated notes payable (including $632,221 to a former stockholder)
issued pursuant to the buy-out of the former general partners of
FLVLP interest which occurred on November 1, 1992. The notes are
unsecured and bear interest at the rate of 7.22% with interest
payments due annually on the anniversary date of the note, with all
principal and accrued interest payable in full on November 1, 1997 1,807,255 1,807,255
Other 25,903 59,851
----------- -----------
2,137,795 2,534,926
Less current portion (2,111,892) (727,671)
----------- -----------
Long-term portion $ 25,903 $ 1,807,255
=========== ===========
</TABLE>
Accrued interest payable on notes payable - related parties, included in
accrued interest payable, was $4,191 and $44,719 at December 31, 1996 and
1995.
F-24
<PAGE> 29
11. ONEIDA NATION AGREEMENT
In April 1993, the Company, through FNYI, entered into a Technical
Assistance and Management Agreement (the "Agreement") with the Oneida
Nation to provide loans and technical services to facilitate the opening
of, and to manage for five years a casino gaming operation in Verona, New
York. The Agreement was submitted for approval to the National Indian
Gaming Commission (the "Commission"). The original terms of the Agreement
obligated FNYI to provide $12 million of financing to the Oneida Nation and
entitled FNYI to receive repayment of such financing as well as a
management fee ranging from 7% to 9% from the net distributable profits of
the gaming facility.
In July 1993, the financing obligation of the Agreement was canceled and
replaced by a loan agreement between Phil Griffith and the Oneida Nation.
Pursuant to this new agreement, Mr. Griffith became obligated to repay FI
$2,500,000 advanced by FI to the Oneida Nation through June 30, 1993, and
to advance up to an additional $5,500,000 to the Oneida Nation. FI advanced
additional funds to Mr. Griffith and had received repayments of all
advances at December 31, 1995.
Prior to the final approval of the Agreement by the Commission, the Oneida
Nation elected in early 1994 to self-manage the facility. In consideration
of the work performed prior and subsequent to the opening of the casino,
FNYI entered into a settlement agreement on March 30, 1995 pursuant to
which it is entitled to receive from the Oneida Nation $6.4 million,
payable in 48 monthly payments of $133,333, commencing retroactively as of
August 1, 1994. The retroactive payments totaling $933,333 were received on
March 31, 1995 and subsequent monthly payments have been made.
12. ARIZONA AGREEMENT
On March 1, 1994, the Company, through FAMI, entered into a Technical
Services and Casino Consulting Agreement (the "Technical Agreement") with
the Yavapai-Apache Nation (the "Yavapai") to provide advisory and
consulting services in connection with the opening of a casino operation on
the Yavapai-Apache Nation Reservation in Arizona. Under the terms of the
Technical Agreement, as amended on October 20, 1994, FAMI will be paid
$25,000 to $150,000 per month, direct travel and related expenses, and a
fee of $250,000 upon the opening of the permanent casino facility and a fee
of $700,000 payable $100,000 per month.
On April 25, 1994, FAMI entered into a Management Agreement (the
"Management Agreement") with the Yavapai to manage the casino operations
for a term of five years. The Management Agreement was approved by the
Commission on May 22, 1995 and the Casino opened on May 23, 1995. The terms
of the Management Agreement obligate FAMI to provide, or arrange for third
parties to provide, up to $7.3 million of financing for the construction,
development, equipping of, and working capital for, the Casino. As of the
opening date, FAMI had advanced $677,000 for such purposes and had arranged
financing and equipment leases which, in the aggregate, fully satisfied
such obligations. The advances are treated as loans bearing interest at 12%
per annum and are repayable over 12 months or less under certain
circumstances. FAMI is also entitled to a management fee ranging from 10%
to 19% of the net revenues of the gaming facility (less credits ranging
from $95,000 in the first year to $270,000 in the fifth year of
operations). FAMI paid $300,000 to the Yavapai upon execution of the
Management Agreement and another $100,000 upon the approval of the
Management Agreement by the Commission.
The Yavapai are guaranteed to receive a minimum monthly payment of $500,000
from the operation of the casino. Should casino operations fail to produce
net receipts sufficient to pay the guaranteed
F-25
<PAGE> 30
minimum, FAMI and FI are obligated to provide the necessary funds. Should
FAMI or FI be required to make the guaranteed minimum payment for three
consecutive months, FAMI may terminate the Agreement. Through December 31,
1996, the Company has not been required to make any payments.
On or about February 23, 1996, FAMI initiated a claim for arbitration
against the Yavapai relating to a dispute between the parties under the
FAMI Technical Agreement. The dispute concerns the Company's entitlement to
bonus payments as a result of the operations of the Cliff Castle. The
Company contends that it is entitled to $100,000 bonus payments for the
months of September, October, November, December 1995, and January 1996
because the casino generated Net Revenues and/or Yavapai share of Net
Revenues in excess of $1.0 million for each of the aforementioned months
triggering the right to the monthly bonus. The Company has not reflected
such bonus payments in its consolidated financial statements for 1995 or
1996. Pursuant to an arbitration proceeding held during July 1996, it was
determined that FAMI was not entitled to such bonus payments.
13. PROFIT SHARING PLAN
The Company has contributory profit-sharing plans for eligible employees.
The Company's contribution to the plans for any year, as determined by the
Board of Directors, is discretionary. Contributions to the plan are
allocated among eligible participants in the proportion of their salaries
to the total salaries of all participants. Plan contributions, excluding
matching contributions described below, were $0, $301,585 and $256,498 for
the years ended December 31, 1996, 1995 and 1994.
Effective January 1, 1989, the Company amended the plans to include a
401(k) savings plan whereby eligible employees may contribute up to 15% of
their salary, which is matched by the Company at 25 cents per employee
dollar contributed, up to a maximum of 6% of their salary. The Company's
matching contributions were $390,237, $197,006 and $194,048 for the years
ended December 31, 1996, 1995 and 1994.
Each employee age 21 or older completing 1,000 or more hours of service
during the twelve-month period preceding the entry dates, January 1 or
July 1, is eligible to participate in the plans.
In addition, the Company contributes to multi-employer defined contribution
pension plans under various union agreements. Contributions, based on wages
paid to covered employees, were $322,405, $314,963 and $324,856 for the
years ended December 31, 1996, 1995 and 1994. As of December 31, 1996, the
Company's share of unfunded pension liabilities, if any, is unknown.
14. CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course of
business, the Company is a party to financial instruments with
off-balance-sheet risk such as guarantees, which are not reflected in the
accompanying consolidated balance sheets.
The Company has an irrevocable letter of credit with a bank in the amount
of $266,000. Such letter, which expires on November 1, 1997, may be drawn
upon by the State of Nevada Insurance Division in the event that FRI, NCI,
or FLVI fails to pay to its employees workmen's compensation benefits under
a self-insurance program. No amounts were drawn at December 31, 1996 and
management does not expect any material losses to result from these
off-balance-sheet instruments.
F-26
<PAGE> 31
LEGAL MATTERS - The Company is party to various legal actions and
administrative proceedings and subject to various claims arising in the
course of business. The Company believes that the disposition of these
matters will not have a material adverse effect on the consolidated
financial position or results of operations of the Company.
The current bankruptcy of an adjacent casino property involves the jointly
developed access road to Fitzgeralds Tunica. In the opinion of management
of the Company, the Company's continued access to the property is not in
jeopardy and the ultimate outcome of this matter will not have a material
adverse effect on the results of operations or the financial position of
the Company.
See also Note 15 below for a discussion concerning a dispute over the
valuation of Harolds Club affecting the price payable by FRI to a former
stockholder for repurchased shares.
15. STOCKHOLDERS' EQUITY
STOCK REPURCHASE
On December 21, 1990, FRI entered into an agreement to repurchase certain
of its outstanding common shares from a major stockholder. Such agreement
also provided for the repurchase of similar ownership interests of such
stockholder in NCI and a third entity.
The price paid for the ownership interests of the stockholder in all three
companies is $7,150,636. Such purchase price was allocated (per the terms
of the agreement) $1 to NCI, $1 to the other entity, and the remainder to
FRI. In connection therewith, FRI (1) paid $100,000 in cash, (2) issued
notes payable totaling $5,262,485 (see Note 5), (3) increased due to
related parties by $1,100,000, (4) exchanged a note receivable from the
stockholder and related accrued interest of $300,172, and (5) exchanged
land and a building with a net book value of $387,979.
The purchase price may be adjusted for the stockholder's prorata share
(prior to this agreement) of (1) the net sales proceeds of certain real
properties (or their appraised net value at March 16, 1994), (2) the net
sales proceeds of Harolds Club and Nevada Club (or their appraised net
value at March 16, 1994), and, (3) future net operating results of FRI and
NCI for a period until the earlier of the sale of Harolds Club and Nevada
Club, the full repayment of the promissory note or the elapsing of 9.5
years from March 16, 1992. Any adjustments in purchase price will be
effected by adjusting the amount of the promissory note. During 1992, an
additional promissory note of $735,983 (included in $5,262,485 above) was
signed to reflect the stockholder's prorata share of the net sales proceeds
of a surface parking lot.
The purchase price and notes payable to the stockholder were reduced by
$56,061 in 1993 for an adjustment to tax liability of the stockholder for
the repurchase of his shares.
The appraisals discussed above were performed and resulted on March 16,
1994 in an increase in the purchase price and the note payable to the
stockholder in the amount of $461,678.
The purchase price was increased by $98,007 in 1995 for an adjustment to
the tax liability of the stockholder for repurchase of his shares.
As a result of the court order discussed below, the purchase price was
increased by $636,020, interest expense was increased by $137,920 and the
note payable to the stockholder was increased by $773,940 in 1996.
LEGAL PROCEEDINGS
In November 1994, the stockholder filed a complaint in the Second Judicial
District Court in Washoe County, Nevada (the "Court"), alleging that the
stockholder is entitled to additional consideration based on certain
valuations of Harolds Club and for damages for his failure to be released
from certain bank guarantees. Harolds Club was sold in May 1995, which
released the stockholder from his bank guarantees.
F-27
<PAGE> 32
On September 13, 1996, the Court ordered an increase in the purchase price
and the promissory note of $636,020 retroactive to March 16, 1994 which
resulted in an additional increase in the promissory note and an increase
in interest expense of $137,920. The court has not yet formalized its order
into a final judgment. In response to both parties' motion for costs and
attorney's fees, on January 15, 1997 the Court entered an order requiring
each party to pay its own costs and attorneys fees. The parties are engaged
in ongoing discussions to find a solution to the disputes involving the FRI
Note and the Metzker Note. If a resolution cannot be reached, FRI intends
to appeal the Court's judgment. If FRI does not appeal or does not prevail
on appeal, the monthly payments due under the note will be adjusted on a
pro-rata basis and will become payable retroactively to May 1994.
CONTRIBUTIONS FROM STOCKHOLDERS/PARTNERS
Pursuant to the business combination, the S corporation elections and
partnership status of certain subsidiaries have been terminated. Therefore,
undistributed earnings (losses) of these subsidiaries have been transferred
to additional paid-in capital at the end of 1994 and 1995 in the
consolidated statements of stockholders' equity.
ISSUANCES OF STOCK
During 1994, 79,731 shares of common stock were issued to the president of
the Company in exchange for cash of $350,000 contributed to FI.
During 1994, 553,054 common shares were issued in exchange for cash of
$4,500,000 contributed to FSI.
ISSUANCES OF WARRANTS
The Company has outstanding common stock warrants issued in connection with
its 1995 Offering. See Note 8.
FSI has outstanding common stock purchase warrants issued in connection
with its 13% Notes. See Note 7.
During 1994, the Company sold for $133,650 in cash, warrants to purchase a
total of 29,097 shares of common stock at $.05 per share. In addition, in
1994 the Company received $125,000 in cash in payment for 26,942 common
shares to be issued upon completion of the Company's 1995 offering. Such
shares were issued during 1996.
ACQUISITION OF FI STOCK
As part of the business combination, the Company issued 23,989 shares of
its common stock in 1995 to a minority stockholder of FI upon the
completion of the 1995 Offering.
STOCK OPTIONS
In February 1995, the Company granted options to purchase 87,140 shares of
common stock of the Company at $1.00 per share to certain employees of the
Company. 50% of the options granted vested on June 30, 1995. The remaining
50% of the options vested on June 30, 1996. The stock option plan requires
the approval of the Nevada Gaming Control Board and Gaming Commission. No
options had been exercised as of December 31, 1996.
F-28
<PAGE> 33
The Company has established a Stock Option Incentive Plan (the "Option
Plan"), which permits the granting of options to officers, directors and
key employees to purchase the Company's common stock at not less than the
fair value at the time the options were granted. The maximum number of
common shares available for issuance under the Option Plan is 600,000. No
person eligible to receive options under the Option Plan may receive
options for the purchase of more than an aggregate of 100,000 shares. The
Option Plan provides for the grant of options to purchase common stock
either that are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
that are not intended to so qualify ("Non-qualified options"). All
officers, directors, and key employees are eligible to receive options
under the Option Plan, except that only employees are eligible to receive
incentive stock options.
In December 1995, the Company granted options under the Option Plan to
purchase 75,000 shares to each of two officers and 50,000 shares to each of
two additional officers. In addition, approximately 193,000 options were
granted under the Option Plan to Company employees concurrently with the
closing of the 1995 Offering. In connection with the election of two
non-employee directors concurrently with the 1995 Offering, the Company
granted options to purchase 5,000 shares to each of such non-employee
directors. During 1996, 6,000 options were granted under the Option Plan
and 82,510 options were forfeited. These options are exercisable at $4.50
per share, with the options vesting ratably over three years. With the
exception of 50,000 options which expired in 1996, all options will expire
on December 31, 1999.
The Option Plan is administered by the Board of Directors or, in its
discretion, by a committee of the Board of Directors appointed for that
purpose (the "Committee"), which, subject to the terms of the Option Plan,
has the authority in its sole discretion to determine: (a) the individuals
to whom options shall be granted; (b) the time or times at which options
may be exercised; (c) the number of shares subject to each option, the
option price and the duration of each option granted; and (d) all of the
other terms an conditions of options granted under the Option Plan.
The exercise price of options granted under the Option Plan must be at
least equal to the fair market value of the shares on the date of grant
(110% of fair market value in the case of participants who own shares
possessing more than 10% of the combined voting power of the Company) and
may not have a term in excess of 10 years from the date of grant (five
years in the case of participants who are more than 10% stockholders). No
optionee may receive in any year incentive stock options, whether under the
Option Plan or any other plan of the Company or any of its subsidiaries, to
purchase common stock if the aggregate fair market value (determined at the
time the incentive stock option is granted) of the stock for which the
incentive stock options are exercisable for the first time by such optionee
during any calendar year exceeds $100,000.
Options granted under the Option Plan are not transferable other than by
will or the laws of descent and distribution. Unless otherwise determined
by the Board of Directors or the Committee in connection with the grant of
any non-qualified stock options, all stock options granted under the Option
Plan will expire 90 days after the date of the optionee's termination of
employment or other relationship with the Company for any reason other than
death or permanent disability and one year after the optionee's termination
of employment or other relationship by reason of death or permanent
disability (but not, in either case, later than the scheduled expiration
date). The termination of employment or other relationship of an optionee
will not accelerate or otherwise affect the number of shares with respect
to which a stock option may be exercised, which are limited to that number
of shares which could have been purchased pursuant to the option had the
option been exercised by the optionee on the date of such termination of
employment or other relationship. In the case of death, options are
permitted to be exercised by the person or persons to whom the rights under
the options pass by will or by the laws of descent or distribution. No
option is exercisable if such exercise would create a right of recovery for
"short swing" profits under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), unless such restriction is expressly
waived by the holder of the options.
If the number of outstanding shares of common stock is increased or
decreased, or if such shares are exchanged for a different number or kind
of shares through reorganization, merger, recapitalization,
reclassification, stock dividend, stock split, combination of shares or
other similar transaction, the aggregate number of shares available for
issuance under the Option Plan, the number of shares subject to outstanding
options, the per share exercise price of outstanding options and the
aggregate number of shares with respect to which options may be granted to
a single participant will be appropriately adjusted by the Board of
Directors or the Committee. No grant of options is permitted to be made
under the Option Plan more than 10 years after its date of adoption. The
Board of Directors has the authority to terminate or to amend the Option
Plan, subject to the approval of the Company's stockholders under certain
circumstances, provided that such action does not impair the rights of any
holder of outstanding options without the consent of such holder.
A summary of the status of the Company's stock option plans as of December
31, 1996 and 1995 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------- -------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 526,561 $ 4.01 - $ -
Granted 6,000 $ 4.50 540,140 $ 3.94
Exercised - $ - - $ -
Forfeited (82,510) $ 4.22 (13,579) $ 1.00
Outstanding at end of year 450,051 $ 3.98 526,561 $ 4.01
Options exercisable at year-end 192,593 $ 3.28 36,781 $ 1.00
</TABLE>
As of December 31, 1996, the 450,051 options outstanding under the plans
have exercise prices of either $1.00 and $4.50 and a weighted-average
remaining contractual life of 2.80 years.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. The compensation cost that has been charged
against income for its plans was $63,666 and $215,042 for 1996 and 1995,
respectively. Had compensation cost for the Company's two stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No.
123, the Company's pro forma net loss and loss per common share would have
been the amounts indicated below:
<TABLE>
<S> <C> <C> <C>
Net loss As reported $(13,493,926) $(4,254,689)
Proforma $(13,599,207) $(4,243,296)
Loss per common share As reported $ (4.26) $ (1.09)
Proforma $ (4.29) $ (1.09)
</TABLE>
The fair value of each option grant for the pro forma disclosure was
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions used for grants in 1996 and 1995;
risk-free interest rates of 5.91 percent and 5.45 percent, respectively,
with expected lives of three years and four years, respectively. The
weighted-average fair value of options granted during 1996 and 1995 were
$0.71 and $1.32, respectively.
REVERSE STOCK SPLIT
In August 1995, the Company authorized an increase in the number of
authorized shares of capital stock to 30,000,000 shares and a 1 for
4.6396341 reverse stock split. Subsequent to approval by the Nevada Gaming
Control Board and Gaming Commission the increase in the number of
authorized shares and the reverse stock split were effected on September
20, 1995, and 29,200,000 shares of common stock and 800,000 shares of
preferred stock were authorized. The consolidated financial statements have
been retroactively adjusted to reflect common stock transactions of the
Company in terms of the capital structure of Fitzgeralds Gaming
Corporation, the parent company, and to give retroactive effect to the
reverse stock split.
TREASURY STOCK PURCHASE AND RETIREMENT
Prior to the business combination, FMI purchased and retired certain of its
shares held by a minority stockholder in exchange for a note payable in the
amount of $333,333. The note was repaid with a portion of the proceeds from
the 1995 Offering.
16. MINORITY INTEREST
Minority interest represents FNYI's and FAMI's minority stockholders' 15%
share of the common equity and net income (loss) of FNYI and FAMI,
respectively, and FMI's minority stockholders' 20% share of the common
equity and net loss of FMI.
The minority stockholders of FMI purchased their 20% interest for
$2,000,000 consisting of $25,000 cash and non-recourse promissory notes
payable to FMI of $1,975,000 which were partially secured by a deed of
trust on certain real estate.
In May 1995, the Company entered into an agreement with the 20% minority
stockholders of FMI, pursuant to which the Company acquired such minority
interests effective with the closing of the 1995 Offering. Upon execution
of the agreement, the minority interest was placed in escrow and the
Company reimbursed a minority stockholder of FMI for $75,000 of expenses
incurred in connection with the organization of FMI. At the closing of the
1995 Offering, the promissory notes from the minority stockholders of FMI
were returned to such stockholders. Following approval of the proposed
transfer of the minority interests by the Mississippi Gaming Authorities, a
deed of trust held as partial security for such notes was released.
Additionally, the Company paid the minority stockholders $100,000 upon the
closing of the 1995 Offering.
F-29
<PAGE> 34
At the time the minority interest in FMI was acquired, the minority
interest had a debit book balance of $425,000. That amount plus the
$100,000 purchase price was allocated to property and equipment of FMI
under the purchase method of accounting.
17. HAROLDS CLUB
On November 29, 1994, the Company entered into a Purchase and Sale
Agreement to sell certain assets of Harolds Club, primarily land, buildings
and improvements, and casino name, with a book value of approximately
$10,301,000. The Company retained the remaining assets of Harolds Club,
consisting primarily of cash and gaming and other machinery and equipment,
to be used at other properties, and will remain responsible for all
liabilities of Harolds Club through the closing date of the sale and is
contingently liable for lease obligations in the event that the buyer of
Harolds Club does not make the required lease payments (see Note 9). At
December 31, 1994, the Company recorded an allowance against the book value
of the assets held for sale of $1,401,262 to write such assets down to
estimated realizable value as evidenced by the sales price of the agreement
described above. On March 31, 1995, the Company ceased operating Harolds
Club pending completion of the Purchase and Sale Agreement. Deposits
totaling $1,150,000 had been placed in the escrow account through April 20,
1995 to extend the closing date of the sale to May 31, 1995.
On May 31, 1995 the sale of Harolds Club was completed and the Company
received the $8,900,000 sales proceeds. Debt of the Company totaling
approximately $8,237,000 was paid out of the proceeds.
18. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been reflected
in the financial statements or tax returns. Deferred income taxes reflect
the net effect of (a) temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes, and (b) operating loss and tax credit
carryforwards.
The income tax (provision) benefit recognized in the consolidated financial
statements consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current provision $ -- $ -- $ (36,177)
Deferred (provision) benefit 1,484,167 (2,825,746) 1,341,629
------------ ------------ ------------
Total $ 1,484,167 $ (2,825,746) $ 1,305,452
============ ============ ============
</TABLE>
F-30
<PAGE> 35
A reconciliation of the income tax (provision) benefit with amounts
determined by applying the statutory U.S. Federal income tax rate to
consolidated income (loss) before taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tax benefit at U.S. statutory rate $ 5,242,297 $ 502,060 $ 2,628,147
Entities which had elected S corporation
status or were partnerships -- (501,497) (444,086)
Deferred liabilities recorded upon the change
to a taxable status by entities which had
elected S Corporation status or were
partnerships -- (3,002,235) --
(Increase) decrease in valuation allowance (3,567,514) 303,922 (869,337)
Other (190,617) (127,996) (9,272)
----------- ----------- -----------
$ 1,484,167 $(2,825,746) $ 1,305,452
=========== =========== ===========
</TABLE>
The tax items comprising the Company's net deferred tax liability as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT TOTAL
<S> <C> <C> <C>
Deferred tax assets:
Start-up costs $ -- $ 1,409,066 $ 1,409,066
Accrued and other liabilities 844,448 -- 844,448
Bad debt reserve 267,534 -- 267,534
FICA credits not utilized -- 212,795 212,795
NOL carryforward -- 12,806,098 12,806,098
Other -- 93,567 93,567
----------- ------------ ------------
1,111,982 14,521,526 15,633,508
----------- ------------ ------------
Deferred tax liabilities:
Differences from flow through entity -- 149,320 149,320
Difference between book and
tax basis of property -- 8,498,185 8,498,185
Prepaid expenses 865,598 -- 865,598
----------- ------------ ------------
865,598 8,647,505 9,513,103
----------- ------------ ------------
246,384 5,874,021 6,120,405
Less: valuation allowance (246,384) (5,874,021) (6,120,405)
----------- ------------ ------------
Net deferred tax liability $ -- $ -- $ --
=========== ============ ============
</TABLE>
F-31
<PAGE> 36
The tax items comprising the Company's net deferred tax liability as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT TOTAL
<S> <C> <C> <C>
Deferred tax assets:
Start-up costs $ -- $ 1,975,183 $ 1,975,183
Accrued and other liabilities 675,225 -- 675,225
Bad debt reserve 301,891 -- 301,891
NOL carryforward -- 3,765,535 3,765,535
----------- ----------- -----------
977,116 5,740,718 6,717,834
----------- ----------- -----------
Deferred tax liabilities:
Difference between book and
tax basis of property -- 6,379,980 6,379,980
Prepaid expenses 921,080 -- 921,080
Other -- 84,184 84,184
----------- ----------- -----------
921,080 6,464,164 7,385,244
----------- ----------- -----------
56,036 (723,446) (667,410)
Less: valuation allowance (119,708) (697,049) (816,757)
----------- ----------- -----------
Net deferred tax liability $ (63,672) $(1,420,495) $(1,484,167)
=========== =========== ===========
</TABLE>
As of December 31, 1996, the Company had consolidated net operating loss
carryforwards of approximately $27 million which are available to offset
future taxable income through 2011. Of these carryforwards, $3.7 million
are available only to offset future taxable income of FMI. The availability
of the loss carryforwards may be further limited in the event of a
significant change in ownership of the entities.
CHANGE IN TAX STATUS - The provision for income taxes for the year ended
December 31, 1995 has been increased by $3,002,235 as a result of recording
deferred tax liabilities upon the change to a taxable status by certain
subsidiaries of the Company in connection with the business combination.
19. GUARANTEE OF 1995 NOTES AND PRIORITY NOTES
The Company's obligations under the 1995 Notes and the Priority Notes are
fully and unconditionally guaranteed, jointly and severally, by all
subsidiaries of the Company on the issue date (other than FAMI, FNYI, and
NCI). This guarantee is secured by a first priority lien on substantially
all assets of the guarantor subsidiaries (other than FRI) other than
certain excluded assets, as defined. Such excluded assets include, among
other things, (a) the leased portions of Fitzgeralds Las Vegas, unless
certain consents are obtained; (b) the assets of FRI, including Fitzgeralds
Reno; (c) stock of unrestricted subsidiaries (as defined); (d) cash and
cash equivalents, other than those required to be deposited in certain
restricted accounts, revenues from hotel room rentals; (e) existing
equipment subject to financing and any newly acquired or leased assets
financed with certain permitted or non-recourse indebtedness; (f) the
agreement evidencing the receivable from the Oneida Nation; (g) the
management and consulting agreements with respect to the Cliff Castle
Casino; (h) gaming licenses; and (I) the license agreement with Holiday
Inn. Pursuant to the Indenture governing the 1995 Notes, the excluded
assets (other than those in clause (e)) may not be subjected to liens in
favor of third parties.
F-32
<PAGE> 37
Condensed consolidating financial statement information for Fitzgeralds
Gaming Corporation, the Guarantor Subsidiaries, the Excluded Assets, the
Non-Guarantor Subsidiaries and Eliminating Entries (which consist
principally of the elimination of intercompany loan and investment
accounts) follows.
F-33
<PAGE> 38
<TABLE>
<CAPTION>
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
ASSETS CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ - $ - $12,920,340 $ 429,157 $ - $ 13,349,497
Accounts and notes receivable, net 38,198 1,359,755 2,470,821 397,255 - 4,266,029
Inventories - 1,048,859 461,360 35,442 - 1,545,661
Prepaid and other current assets 171,810 1,892,658 784,121 220,100 - 3,068,639
------------ ------------ ----------- ---------- ------------- ------------
Total current assets 210,008 4,301,222 16,636,642 1,081,954 - 22,229,826
------------ ------------ ----------- ---------- ------------- ------------
PROPERTY AND EQUIPMENT, net 81,178 118,459,014 30,947,784 4,299,254 (1,904,147)(c) 151,883,083
------------ ------------ ----------- ---------- ------------- ------------
OTHER ASSETS:
Long-term accounts and notes
receivable, net of current portion 128,588,039 7,643,800 4,151,057 2,082,720 (142,454,863)(a) 10,753
Other assets (1,924,100) 9,331,830 261,910 568,924 8,816,348 (b) 17,054,912
------------ ------------ ----------- ---------- ------------- ------------
Total other assets 126,663,939 16,975,630 4,412,967 2,651,644 (133,638,515) 17,065,665
------------ ------------ ----------- ---------- ------------- ------------
TOTAL $126,955,125 $130,735,866 $51,997,393 $8,032,852 $(135,542,662) $191,178,574
============ ============ =========== ========== ============= ============
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 120,415 $ 5,659,167 $21,551,187 $ 418,851 $ - $ 27,749,620
Accounts payable, accrued and other 3,145,683 14,673,045 4,782,085 704,309 (1,791,806)(d) 21,513,216
------------ ------------ ----------- ---------- ------------- ------------
Total current liabilities 3,266,098 20,332,212 26,333,272 1,123,060 (1,791,806) 49,262,836
------------ ------------ ----------- ---------- ------------- ------------
LONG TERM DEBT, net of current portion 114,922,596 136,461,703 11,831,285 7,121,669 (142,454,863)(a) 127,882,390
------------ ------------ ----------- ---------- ------------- ------------
Total liabilities 118,188,693 156,793,915 38,164,557 8,244,729 (144,346,669) 177,145,226
------------ ------------ ----------- ---------- ------------- ------------
MINORITY INTEREST - - - 587,837 - 587,837
CUMULATIVE REDEEMABLE PREFERRED STOCK 15,488,782 - - - - 15,488,782
STOCKHOLDERS' EQUITY (DEFICIENCY) (6,722,351) (17,058,049) 13,832,836 (799,714) 8,704,007 (e) (2,043,271)
------------ ------------ ----------- ---------- ------------- ------------
TOTAL $126,955,125 $139,735,866 $51,997,393 $8,032,852 $(135,542,662) $191,178,574
============ ============ =========== ========== ============= ============
</TABLE>
(a) To eliminate intercompany accounts and notes receivable and payable.
(b) To eliminate investment in subsidiaries.
(c) To eliminate intercompany gain on sale of assets.
(d) To eliminate intercompany deferred interest income.
(e) To eliminate investment in subsidiaries, intercompany gain on sale of
assets and intercompany deferred interest income.
F-34
<PAGE> 39
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
FITZGERALDS
GAMING GUARANTOR EXCLUDED
ASSETS CORPORATION SUBSIDIARIES ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ -- $ 18,091,562
Accounts and notes receivable, net -- 1,155,811 979,189
Inventories -- 763,602 235,753
Prepaid and other current assets 22,000 1,847,530 1,563,681
-------------- -------------- --------------
Total current assets 22,000 3,766,943 20,870,185
-------------- -------------- --------------
PROPERTY AND EQUIPMENT, net -- 69,094,819 32,122,248
-------------- -------------- --------------
OTHER ASSETS:
Long-term accounts and notes
receivable, net of current portion 116,347,578 2,561,905 5,409,274
Other assets 12,624,423 58,138,519 271,752
-------------- -------------- --------------
Total other assets 128,972,001 60,700,424 5,681,026
-------------- -------------- --------------
TOTAL $ 128,994,001 $ 133,562,186 $ 58,673,459
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 3,906,200 $ 6,741,356
Accounts payable, accrued and other 3,147,028 8,782,265 4,267,093
-------------- -------------- --------------
Total current liabilities 3,147,028 12,688,465 11,008,449
-------------- -------------- --------------
LONG TERM DEBT, net of current portion 107,530,786 120,563,157 28,320,439
DEFERRED TAX LIABILITY -- -- 3,094,835
-------------- -------------- --------------
Total liabilities 110,677,814 133,251,622 42,423,723
-------------- -------------- --------------
MINORITY INTEREST -- -- --
CUMULATIVE REDEEMABLE PREFERRED STOCK 11,952,629 -- --
STOCKHOLDERS' EQUITY 6,363,558 310,564 16,249,736
-------------- -------------- --------------
TOTAL $ 128,994,001 $ 133,562,186 $ 58,673,459
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NON
GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,752,262 -- $ 19,843,824
Accounts and notes receivable, net 871,961 -- 3,006,961
Inventories 28,493 -- 1,027,848
Prepaid and other current assets 264,050 (119,963)(d) 3,577,298
-------------- -------------- --------------
Total current assets 2,916,766 (119,963) 27,455,931
-------------- -------------- --------------
PROPERTY AND EQUIPMENT, net 4,489,749 (1,904,147)(c) 103,802,669
-------------- -------------- --------------
OTHER ASSETS:
Long-term accounts and notes
receivable, net of current portion 706,393 (123,122,754)(a) 1,902,396
Other assets 451,415 (7,433,766)(b) 64,052,343
-------------- -------------- --------------
Total other assets 1,157,808 (130,556,520) 65,954,739
-------------- -------------- --------------
TOTAL $ 8,564,323 $ (132,580,630) $ 197,213,339
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 578,549 $ -- $ 11,226,105
Accounts payable, accrued and other 784,889 (119,963)(d) 16,861,312
-------------- -------------- --------------
Total current liabilities 1,363,438 (119,963) 28,087,417
-------------- -------------- --------------
LONG TERM DEBT, net of current portion 6,175,106 (123,122,754)(a) 139,466,734
DEFERRED TAX LIABILITY -- (1,674,340)(d) 1,420,495
-------------- -------------- --------------
Total liabilities 7,538,544 (124,917,057) 168,974,646
-------------- -------------- --------------
MINORITY INTEREST 225,097 -- 225,097
CUMULATIVE REDEEMABLE PREFERRED STOCK -- -- 11,952,629
STOCKHOLDERS' EQUITY 800,682 (7,663,573)(b) 16,060,967
-------------- -------------- --------------
TOTAL $ 8,564,323 $ (132,580,630) $ 197,213,339
============== ============== ==============
</TABLE>
(a) To eliminate intercompany accounts and notes receivable and payable.
(b) To eliminate investment in subsidiaries and reclassify deferred tax assets.
(c) To eliminate intercompany gain on sale of assets.
(d) To reclassify deferred tax assets and liabilities.
F-35
<PAGE> 40
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ - 73,380,708 $20,380,175 $ 5,524,001 $ - $111,284,884
Food and beverage - 12,051,750 4,991,981 1,508,247 - 18,551,978
Rooms - 10,849,429 5,026,400 - - 15,875,829
Other - 2,764,789 983,476 6,258,163 (601,430)(d) 7,405,998
------------ ------------ ----------- ------------ ------------ ------------
Total - 101,047,676 41,382,032 11,290,811 (601,430) 153,118,689
Less promotional allowances - 8,202,222 3,749,037 637,083 - 12,588,342
------------ ------------ ----------- ------------ ------------ ------------
Net - 92,845,454 37,632,995 10,653,328 (601,430) 140,530,347
------------ ------------ ----------- ------------ ------------ ------------
OPERATING COSTS AND
EXPENSES:
Casino - 39,994,989 14,502,541 3,910,240 (84,410)(d) 58,323,360
Food and beverage - 8,828,750 2,425,602 1,076,119 - 13,330,471
Rooms - 7,792,686 1,851,808 - - 9,644,494
Other operating 16 1,337,345 216,155 - - 1,543,516
Selling, general and
administrative 4,965,042 30,287,509 13,041,387 2,103,578 (5,476,760)(g) 44,920,756
Depreciation and amortization 13,071 6,373,534 2,277,840 282,506 - 8,896,951
------------ ------------ ----------- ------------ ------------ ------------
Total 4,978,129 94,604,813 35,315,333 7,322,443 (5,561,170) 136,650,548
------------ ------------ ----------- ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (4,978,129) (1,759,359) 2,317,662 3,330,885 4,959,740 3,870,799
OTHER INCOME (EXPENSE):
Interest and other income 20,814,691 1,764,649 451,453 110,923 (20,950,007)(h) 2,191,700
Interest expense (18,033,588) (16,178,645) (3,232,511) (584,458) 17,782,073 (e) (20,247,129)
Gain on sale of assets - 127,370 92,857 30,249 - 250,476
Interest in income (loss)
of subsidiaries (13,083,662) 3,345,460 - - 9,738,202 (f) -
Equity in loss of
unconsolidated affiliate - (681,208) - - - (681,208)
Minority interest in income
of subsidiaries - - - (362,740) - (362,740)
------------ ------------ ----------- ------------ ------------ ------------
INCOME (LOSS) BEFORE TAXES (15,280,688) (13,381,733) (370,539) 2,524,859 11,530,008 (14,978,093)
INCOME TAX (PROVISION)
BENEFIT (5,044) (1,463,950) 2,974,872 (21,711) - 1,484,167
------------ ------------ ----------- ------------ ------------ ------------
NET INCOME (LOSS) $(15,285,732) $(14,845,683) $ 2,604,333 $ 2,503,148 $ 11,530,008 $(13,493,926)
============ ============ =========== ============ ============ ============
</TABLE>
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest expense.
(f) To eliminate interest in loss of subsidiaries.
(g) To eliminate intercompany rental expense and intercompany management
fee expense.
(h) To eliminate intercompany interest income, intercompany management fee
income and intercompany deferred interest income.
<PAGE> 41
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
FITZGERALDS
GAMING GUARANTOR EXCLUDED
CORPORATION SUBSIDIARIES ASSETS
<S> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 75,308,493 $ 32,232,241
Food and beverage -- 10,957,875 5,512,901
Rooms -- 6,989,510 6,127,396
Other -- 3,020,701 785,946
-------------- -------------- --------------
Total -- 96,276,579 44,658,484
Less promotional allowances -- 6,723,700 4,376,155
-------------- -------------- --------------
Net -- 89,552,879 40,282,329
-------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Casino -- 36,655,063 15,333,814
Food and beverage -- 7,454,233 3,805,535
Rooms -- 5,276,164 1,844,662
Other operating -- 1,439,955 371,579
Selling, general and administrative 94,872 25,435,797 11,918,155
Depreciation and amortization -- 5,385,063 2,011,942
-------------- -------------- --------------
Total 94,872 81,646,275 35,285,687
-------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS (94,872) 7,906,604 4,996,642
OTHER INCOME (EXPENSE):
Interest and other income 576,366 319,795 482,840
Interest expense (545,338) (11,804,488) (2,607,465)
Gain on sale of assets -- 1,978,769 219,380
Interest in income (loss) of subsidiaries (2,782,270) 1,323,332 --
Equity in loss of unconsolidated
affiliate -- (846,761) --
Minority interest in income
of subsidiaries -- -- --
-------------- -------------- --------------
INCOME (LOSS) BEFORE TAXES (2,846,114) (1,122,749) 3,091,397
INCOME TAX (PROVISION) BENEFIT 24,274 1,465,260 (3,519,900)
-------------- -------------- --------------
NET INCOME (LOSS) $ (2,821,840) $ 342,511 $ (428,503)
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
NON
GUARANTOR ELIMINATING CONSOLIDATED
SUBSIDIARIES ENTRIES TOTAL
OPERATING REVENUES:
<S> <C> <C> <C>
Casino $ 7,507,680 $ -- $ 115,048,414
Food and beverage 1,806,037 -- 18,276,813
Rooms -- -- 13,116,906
Other 3,158,608 (96,114)(d) 6,869,141
-------------- -------------- --------------
Total 12,472,325 (96,114) 153,311,274
Less promotional allowances 814,323 -- 11,914,178
-------------- -------------- --------------
Net 11,658,002 (96,114) 141,397,096
-------------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Casino 5,227,830 (58,687)(d) 57,158,020
Food and beverage 1,237,120 -- 12,496,888
Rooms -- -- 7,120,826
Other operating 9,623 -- 1,821,157
Selling, general and administrative 3,610,290 (37,427)(d) 41,021,687
Depreciation and amortization 613,493 -- 8,010,498
-------------- -------------- --------------
Total 10,698,356 (96,114) 127,629,076
-------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS 959,646 -- 13,768,020
OTHER INCOME (EXPENSE):
Interest and other income 106,677 (1,048,410)(e) 437,268
Interest expense (1,117,971) 1,048,410 (e) (15,026,852)
Gain on sale of assets 165,431 (1,904,147)(e) 459,433
Interest in income (loss) of subsidiaries -- 1,458,938 (f) --
Equity in loss of unconsolidated
affiliate -- -- (846,761)
Minority interest in income
of subsidiaries (220,051) -- (220,051)
-------------- -------------- --------------
INCOME (LOSS) BEFORE TAXES (106,268) (445,209) (1,428,943)
INCOME TAX (PROVISION) BENEFIT (795,380) -- (2,825,746)
-------------- -------------- --------------
NET INCOME (LOSS) $ (901,648) $ (445,209) $ (4,254,689)
============== ============== ==============
</TABLE>
(c) To eliminate intercompany gain on sale of assets.
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest income and expense.
(f) To eliminate interest in (income) loss of subsidiaries.
F-37
<PAGE> 42
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Casino $ -- $ 59,729,258 $ 30,485,188 $ 18,979,300 $ -- $ 109,193,746
Food and beverage -- 9,770,389 5,187,694 3,583,321 -- 18,541,404
Rooms -- 6,342,993 6,174,241 -- -- 12,517,234
Other -- 2,276,744 594,268 582,659 (20,020)(d) 3,433,651
------------- ------------- ------------- ------------- ------------ --------------
Total -- 78,119,384 42,441,391 23,145,280 (20,020) 143,686,035
Less promotional allowances -- 5,731,368 4,254,806 1,865,649 -- 11,851,823
------------- ------------- ------------- ------------- ------------ --------------
Net -- 72,388,016 38,186,585 21,279,631 (20,020) 131,834,212
------------- ------------- ------------- ------------- ------------ --------------
OPERATING COSTS AND
EXPENSES:
Casino -- 29,812,250 14,190,884 11,982,689 (20,020)(d) 55,965,803
Food and beverage -- 6,898,261 3,332,310 1,997,082 -- 12,227,653
Rooms -- 5,147,597 1,738,956 -- -- 6,886,553
Other operating -- 1,437,396 278,799 42,519 -- 1,758,714
Selling, general and administrative -- 19,222,071 10,300,283 8,948,600 -- 38,470,954
Depreciation and amortization -- 4,875,312 1,999,584 1,395,778 -- 8,270,674
Pre-opening expenses -- 4,856,039 -- -- -- 4,856,039
Write down of Harolds Club assets -- -- -- -- --
to estimated realizable value -- -- -- 1,401,262 -- 1,401,262
------------- ------------- ------------- ------------- ------------ --------------
Total -- 72,248,926 31,840,816 25,767,930 (20,020) 129,837,652
------------- ------------- ------------- ------------- ------------ --------------
INCOME (LOSS) FROM
OPERATIONS -- 139,090 6,345,769 (4,488,299) -- 1,996,560
OTHER INCOME (EXPENSE):
Interest and other income -- 308,679 378,603 326,339 (271,097)(e) 742,524
Interest expense -- (7,438,742) (2,257,104) (1,545,893) 271,097 (e) (10,970,642)
Gain on sale of assets -- 62,400 38,029 401,286 -- 501,715
Interest in loss of subsidiaries (5,979,287) -- -- -- 5,979,287 (f) --
Minority interest in (income) loss -- -- -- -- --
of subsidiaries -- 450,000 -- (4,896) -- 445,104
------------- ------------- ------------- ------------- ------------ --------------
INCOME (LOSS) BEFORE TAXES (5,979,287) (6,478,573) 4,505,297 (5,311,463) 5,979,287 (7,284,739)
-- -- -- -- --
INCOME TAX BENEFIT -- 1,305,452 -- -- -- 1,305,452
------------- ------------- ------------- ------------- ------------ --------------
NET INCOME (LOSS) $ (5,979,287) $ (5,173,121) $ 4,505,297 $ (5,311,463) $ 5,979,287 $ (5,979,287)
============= ============= ============= ============= ============ ==============
</TABLE>
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest income and expense.
(f) To eliminate interest in loss of subsidiaries.
F-38
<PAGE> 43
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES $(11,572,491) $ 6,265,026 $ 2,739,732 $ 3,326,332 $ - $ 758,599
------------ ------------ ----------- ----------- ------------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets - 143,941 190,857 37,731 - 372,529
Repayments from related parties - - 86,664 - - 86,664
Acquisition of property and
equipment (94,249) (52,266,449) (898,548) (4,493) - (53,263,739)
Advances to related parties - - - - - -
Decrease in restricted cash - 46,845,677 - - - 46,845,677
Distributions from 101 Main Street - 594,000 - - - 594,000
Dividends received - 3,698,396 - - (3,698,396)(a) -
Investment in Fremont
Street Experience - (1,002,999) - - - (1,002,999)
------------ ------------ ----------- ----------- ----------- ------------
Net cash provided by (used in)
investing activities (94,249) (1,987,434) (621,027) 33,238 (3,698,396) (6,367,868)
------------ ------------ ----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock 1,350 - - - - 1,350
Payment of debt issue costs (275,625) - - - - (275,625)
Proceeds from issuance of debt 5,654,211 3,988,853 - - - 9,643,064
Repayment of long-term debt (523,332) (5,743,515) (3,376,283) (579,131) - (10,222,261)
Dividends - - - (4,103,544) (3,698,396)(a) (405,148)
Decrease in restricted cash - - 471,569 - - 471,569
Other - - (98,007) - - (98,007)
------------ ------------ ----------- ----------- ----------- ------------
Net cash provided by (used in)
financing activities 4,856,604 (1,754,662) (3,002,721) (4,682,675) 3,698,396 (885,058)
------------ ------------ ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (6,810,136) 2,522,930 (884,016) (1,323,105) - (6,494,327)
RECLASSIFICATION TO
EXCLUDED ASSETS (2,887,273)(b) (8,764,179)(b) 11,651,452(b) - - -
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 9,697,409 6,241,249 2,152,904 1,752,262 - 19,843,824
------------ ------------ ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ - $ - $12,920,340 $ 429,157 $ - $ 13,349,497
============ ============ =========== =========== ============== ============
</TABLE>
(a) To eliminate intercompany dividends.
(b) To reclassify net increase (decrease) in cash to excluded assets.
F-39
<PAGE> 44
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES $ (708,178) $ 6,616,790 $ 3,586,770 $ (1,027,387) -- $ 8,467,995
-------------- ------------- ------------ ------------- -------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets $ -- 364,839 269,891 9,073,601 -- 9,708,331
Repayments from related parties -- 25,137 -- 219,466 (25,137) 219,466
Purchase of treasury stock -- (333,333) -- -- -- (333,333)
Acquisition of property and
equipment -- (6,957,830) (2,782,834) (89,463) -- (9,830,127)
Advances to related parties (114,874,329) -- -- -- 114,874,329 --
Increase in restricted cash -- (49,100,000) -- -- -- (49,100,000)
Increase in advances receivable -- (541,650) -- -- -- (541,650)
Dividends received -- 777,750 -- -- (777,750) --
Investment in Fremont
Street Experience -- (526,678) -- -- -- (526,678)
-------------- ------------- ------------ ------------- -------------- -------------
Net cash provided by (used in)
investing activities (114,874,329) (56,291,765) (2,512,943) 9,203,604 114,071,442 (50,403,991)
-------------- ------------- ------------ ------------- -------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from 1995 Offering 135,014,840 -- -- -- -- 135,014,840
Payment of 1995 Offering costs (9,983,915) -- -- -- -- (9,983,915)
Advances from related parties -- 114,874,329 868,195 -- (114,874,329) 868,195
Proceeds from issuance of debt -- 4,675,367 2,525,596 -- -- 7,200,963
Repayment of long-term debt -- (67,506,379) (2,578,226) (8,869,635) -- (78,954,240)
Dividends -- -- (914,792) (881,250) 777,750 (1,018,292)
Repayments to related parties -- (2,700,000) (225,562) (212,892) 25,137 (3,113,317)
Increase in restricted cash -- -- (120,415) -- -- (120,415)
-------------- ------------- ------------ ------------- -------------- -------------
Net cash provided by (used in)
financing activities 125,030,925 49,343,317 (445,204) (9,963,777) (114,071,442) 49,893,819
-------------- ------------- ------------ ------------- -------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 9,448,418 (331,658) 628,623 (1,787,560) -- 7,957,823
RECLASSIFICATION TO
EXCLUDED ASSETS (9,697,409) (6,241,249) 15,938,658 -- -- --
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 248,991 6,572,907 1,524,281 3,539,822 -- 11,886,001
-------------- ------------- ------------ ------------- -------------- -------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ -- -- $18,091,562 $ 1,752,262 $ -- $19,843,824
============== ============= ============ ============= ============== =============
</TABLE>
(a) To eliminate intercompany accounts and notes receivable and payable.
(b) To eliminate intercompany dividends.
(c) To reclassify net increase (decrease) in cash to excluded assets.
F-40
<PAGE> 45
FITZGERALDS GAMING CORPORATION
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
FITZGERALDS NON
GAMING GUARANTOR EXCLUDED GUARANTOR ELIMINATING CONSOLIDATED
CORPORATION SUBSIDIARIES ASSETS SUBSIDIARIES ENTRIES TOTAL
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ -- $ 2,386,200 $ 7,031,390 $ (1,679,267) $ -- $ 7,738,323
-------------- -------------- ------------- -------------- -------------- -------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets -- 62,400 38,456 414,138 -- 514,994
Repayments from related parties -- -- 109,085 2,420,274 -- 2,529,359
Decrease in long-term deposit -- -- -- 4,345 -- 4,345
Acquisition of property and equipment -- (33,126,974) (380,451) (104,483) -- (33,611,908)
Advances to related parties -- -- (91,600) -- -- (91,600)
Increase in restricted investment -- (1,000,000) -- -- -- (1,000,000)
Increase in advances receivable -- (1,958,350) -- -- -- (1,958,350)
Investment in Fremont Street Experience -- (1,123,200) -- -- -- (1,123,200)
-------------- -------------- ------------- -------------- -------------- -------------
Net cash provided by (used in) investing
activities -- (37,146,124) (324,510) 2,734,274 -- (34,736,360)
-------------- -------------- ------------- -------------- -------------- -------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of stock -- 4,850,000 -- -- -- 4,850,000
Proceeds from issuance of warrants 258,650 -- -- -- -- 258,650
Advances from (to) related parties (9,659) 3,800,421 (4,186,257) 1,641,452 -- 1,245,957
Proceeds from issuance of debt -- 36,000,000 -- -- -- 36,000,000
Repayment of long-term debt -- (3,225,577) (1,974,914) (3,247,319) -- (8,447,810)
Payment of debt offering costs -- (2,491,600) -- -- -- (2,491,600)
Dividends -- -- (761,999) -- -- (761,999)
Increase in restricted cash -- -- (351,154) -- -- (351,154)
Other -- -- -- 150 -- 150
-------------- -------------- ------------- -------------- -------------- -------------
Net cash provided by (used in)
financing activities 248,991 38,933,244 (7,274,324) (1,605,717) -- 30,302,194
-------------- -------------- ------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH 248,991 4,173,320 (567,444) (550,710) -- 3,304,157
RECLASSIFICATION TO EXCLUDED
ASSETS (248,991) (4,173,320) 4,422,311 -- -- --
CASH, BEGINNING OF YEAR -- -- 4,491,312 4,090,532 -- 8,581,844
-------------- -------------- ------------- -------------- -------------- -------------
CASH, END OF YEAR $ -- $ -- $ 8,346,179 $ 3,539,822 $ -- $ 11,886,001
============== ============== ============= ============== ============== =============
</TABLE>
(a) To reclassify net increase (decrease) in cash to excluded assets.
******
F-41
