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| FGMG.OB > SEC Filings for FGMG.OB > Form 10QSB on 17-May-2004 | All Recent SEC Filings |
17-May-2004
Quarterly Report
GENERAL
Florida Gaming Corporation (the "Company") currently owns and operates twojai-alai and inter-track pari-mutuel wagering facilities (each, a "Fronton," andcollectively, the "Frontons") located in South and Central Florida. TheCompany's business consists primarily of its operations at the Frontons, whichinclude, among other things, live jai-alai, inter-track pari-mutuel wagering("ITW") on jai-alai, thoroughbred racing, harness racing, and dog racing,poker, and the sale of food and alcoholic beverages. The Company also owns athird gaming permit which was previously operated by the Company at the TampaJai-Alai Fronton in Hillsborough County (Tampa) Florida.
The Company's Fort Pierce location provides audio, video and Inter-TrackWagering ("ITW") on live inter-track and interstate broadcasting of horseracing, dog racing and jai-alai from the State of Florida as well as the rest ofthe country. The Miami location receives limited ITW broadcasts, but broadcastsits jai-alai performances via satellite to approximately thirty-seven (37) othergaming facilities in Florida, and fourteen (14) facilities in Connecticut. ITWprovides about 50% of the Company's revenue as well as providing additionalentertainment for customers.
The term "pari-mutuel wagering," which refers to the betting by members of thepublic against each other, as used in this report includes wagering on both liveJai-Alai performances and ITW.
The Company's principal place of business and executive offices is located at3500 NW 37th Avenue, Miami, Florida 33142. The Company was incorporated inDelaware in 1976.
CARD ROOM DEVELOPMENT
A new Florida pari-mutuel statute was enacted in June 1, 1996, which authorizedcard rooms at licensed pari-mutuel facilities in Florida beginning in January,1997. The card rooms are administered and regulated by the Florida Departmentof Pari-Mutuel Wagering ("DPMW"). Games are limited to non-banked poker games. Card room authorization was also subject to approval by the county commission inwhich the pari-mutuel facility is located.
In late 1996 the county governments of Dade and Hillsborough County, Florida,passed legislation permitting card rooms to be operated by all pari-mutuelfacilities located in those counties. The Company currently operates a cardroom at the Miami Jai-Alai facility.
As a result of legislation passed during the 2003 legislative session,significant changes were made which amends current provisions for the operationof card rooms at pari-mutuel facilities. The legislation, HB 1059, became laweffective midnight August 5, 2003. The most notable changes to the operation ofthe card rooms are:
1) Card rooms may operate from 12 noon to 12 midnight any day thatlive performances are conducted.
2) Reduced card room license fee per facility as opposed topermitholder, which will save the Company license fee expense.
3) The elimination of the $10 pot limit, which has been replacedwith a $2 bet limit, with a maximum of three raises in any round of betting. This change allows for a larger pot, a more exciting game for the patrons andenhances revenue for the Company.
Florida state taxes remain at 10% of revenue and 4% of the revenues are paid tothe jai-alai players. The Company is encouraged with the recent changes andbelieves these changes should improve the overall profitability of the card roomoperation.
JAI-ALAI INDUSTRY
The jai-alai industry live handle (money wagered) generally has declined in thelast several years, due to increased gaming competition such as Indian Gaming,gambling cruise ships, and the state-wide lottery. Also, competition in thesports/entertainment area has increased significantly with more professionalsports teams in the Company's market areas. Average live handle, state-wideon-track handle per performance for the state of Florida fiscal years endedJune 30, 2003 and June 30, 2002 was approximately $46,174 and $44,585, respectively. The total number of performances decreased statewide from 1,420for fiscal year ended June 30, 2002 to 1,170 for the same period in 2003. Aggregate live handle, state-wide, for the fiscal year ended June 30, 2003decreased approximately 14%. Aggregate live handle for the Company decreasedfrom $58,036,115 in 2002 to $56,077,782 in 2003, a decrease of 3%. Forcomparison purposes only, the 2002 and 2003 handle figures include SJA. Therecan be no assurance that the jai-alai industry will improve significantly, if atall, in the future. Because the Company's jai-alai business is tied directly tomany, if not all, of the factors which influence the jai-alai industry as awhole, a players strike or the enactment of unfavorable legislation could havean adverse impact on the Company's performances.
Inter-track wagering has grown significantly since its initiation in the Stateof Florida in August 1990. The State-wide ITW handle for the State of Florida'sfiscal year ended June 30, 1991 was approximately $109 million. The state-wideITW handle for the State of Florida's fiscal years ended June 30, 2002 and 2003increased from $817.3 million to $818.7 million, respectively. ITW handle atthe Company's Frontons has also demonstrated strong growth in recent years. TheCompany's ITW handle increased from approximately $51.5 million for the yearended December 31, 2002, to approximately $53.5 million for the year endedDecember 31, 2003. For comparison purposes only, the 2002 and 2003 ITW handlefigures include SJA.
REAL ESTATE DEVELOPMENT
In October 2002, the Company sold approximately 24 acres of partially developedland for $1,849,087. Payment of the sale price consisted of $438,551 in cashand a first mortgage note of $1,386,816. The Company recorded a net profit of$12,426 on the transaction. The note is due in quarterly installments ofinterest only at 6% through May 1, 2005, thereafter payable in quarterlyinstallments of principal and interest in the amount of $88,487 throughNovember 1, 2005, with any unpaid principal due at that date. At the borrower'soption the quarterly payments of principal and interest may be extended for upto four years before the remaining principal balance becomes due. On May 30,2003, the Company received a prepayment of $750,000 on the principal balance ofthis note.
On May 30, 2003 the Company sold the remaining Tara commercial property, whichconsisted of 2 acres and a clubhouse for $650,000. The Company received $97,350in cash, and received a non-interest bearing first mortgage note for $520,000.The Company valued the note at $447,708. The principal balance of the noteshall be due and payable on May 30, 2006. The Company recorded a net profit of$190,578 on the sale.
On May 30, 2003, the Company completed a bulk sale of the remaining 47 acres ofpartially-developed land for $1,350,000. The Company received cash of$1,125,329 and recorded a net loss of $607,040 on the transaction. The Companyused $200,000 of the sale proceeds to reduce the real estate development loanfrom $400,000 to $200,000.
On September 10, 2003, the Company sold 29 of the remaining developed lots for$900,000 in cash. The company used $200,000 of the proceeds to pay off thefirst mortgage on the real estate which was $200,000. The Company recorded anet loss of $79,690.
The only properties remaining at Tara Club Estates, Inc. for sale are 10residential building lots and 2 homes, with an aggregate book value of$1,169,500.
The Company sold no houses or lots in the three months ended March 31, 2004.
JAI-ALAI TAX LEGISLATION
Major tax legislation which limits the amount of state handle and admissiontaxes went into effect July 1, 1998.
The new law, (Section 2, Subsection (1b) of section 550.09511, Florida Statutes)states, in part, that "Any jai-alai permit holder that incurred state taxes onhandle and admissions in an amount that exceeds its operating earnings in afiscal year that ends during or after the 1997-1998 state fiscal year, isentitled to credit the excess amount of the taxes against state pari-mutueltaxes due and payable after June 30, 1998, during its next ensuing meets."
For the years 2002 and 2003 Miami had unused credits totaling $2,652,201.
Tax credits are used to satisfy the Company's obligation to pay taxes incurredon handle and admission. Tax credits used, depreciation expense and interestexpense are all excluded from the statutory calculation of operating earnings orloss in the determination of the amounts of future tax credits.
RESULTS OF OPERATIONS — FIRST QUARTER 2004 COMPARED WITH FIRST QUARTER 2003
During the quarter ended March 31, 2004, the Company's operations reflectsthree months' operation of live Jai-Alai performances at Miami and Ft. Pierce. Afull schedule of Inter-Track Wagering ("ITW") was conducted at Ft. Pierce. Miami which offers limited ITW product due to blackouts imposed because of itsclose proximity to other South Florida pari-mutuels. The Miami facility,however, broadcasts its jai-alai performances to other gaming facilities inFlorida, the rest of the United States, Mexico, Central America and Austria.
Handle Analysis
Total handle (amount of money wagered) for the three months ended March 31, 2004was $29,065,829 of which $14,592,403 was from live jai-alai wagering and$14,473,426 was from inter-track wagering.
Total handle (amount of money wagered) for the three months ended March 31, 2003was $31,601,934 of which $16,801,251 was from live jai-alai wagering and$14,800,683 was from inter-track wagering.
Revenues
Pari-mutuel revenues(net of state pari-mutuel taxes) for the quarter endedMarch 31, 2004 were $3,752,089 compared to pari-mutuel revenues of $4,235,564the same period in 2003. Revenues for the quarter ended March 31, 2004($3,752,089) consisted of $2,542,967 from live Jai-Alai wagering and $1,209,122from Inter-Track Wagering. Revenues for the quarter ended March 31, 2003($4,235,564) consisted of $2,979,484 from live Jai-Alai wagering and $1,256,080from Inter-Track Wagering.
Card room Revenuefor the three months ended March 31, 2004 was $207,058 comparedto $79,297 for the three months ended March 31, 2003 a 161% increase. Thisincrease is due to the new legislation that went into effect in August 2003,Direct Operating Costs totaled $84,360 for the period ending March 31, 2004.
Admissions income, net of state taxes, for the three month period ended March31, 2004 was $43,454, compared to $51,722 for the three month period endedMarch 31, 2003. Food, beverage and other income for the three months endedMarch 31, 2004 and March 31, 2003 were $521,927 and $554,377 respectively. Attendance for live jai-alai performances and ITW performances for the threemonths ended March 31, 2004 were approximately 140,721 compared to 176,048 forthe three months ended March 31, 2003, decreasing approximately 35,327 (20%) from the previous year.
Total Operating Revenues for the quarter ended March 31, 2004 decreased $396,432(8%) to $4,524,528 down from $4,920,960 for the same period in 2003.
General And Administrative Expenses
The Company's general and administrative expenses for the three months endedMarch 31, 2004 and March 31, 2003, were $810,917 and $809,343, respectively. The Company's general and administrative expenses compared to the first quarterlast year are as follows: Executive salaries were for the quarter endedMarch 31, 2004 were $123,400 compared to $137,226 for the quarter endedMarch 31, 2003 (see consulting fees). Professional fees increased from $74,853for the first quarter 2003, to $105,663 for the quarter ended March 31, 2004. Consulting fees for the quarter ended March 31, 2004 were $120,000 compared to$131,125 for the quarter ended March 31, 2003. Consulting fees consist ofmanagement fees paid to Freedom Financial Corporation in lieu of a salary to theChairman/CEO of Florida Gaming. Travel and entertainment expense totaled$61,794 for the first quarter of 2004, compared to $58,380 for the first quarterof 2003. Interest expense totaled $136,504 for the first quarter of 2004,compared to $147,008 for the same period in 2003.
Operating Expenses
The Company's operating expenses for the three months ended March 31, 2004 were$3,860,312 compared to $3,784,583 for the same period in 2003. The componentsof the Company's operating expenses and their comparison to the first quarterlast year are as follow: Depreciation and amortization expense for the threemonths ended March 31, 2004 and March 31, 2003, was $158,065 and $146,514respectively. Player costs, salaries, benefits, and support staff, represent asignificant portion of operational expenses. Player costs for the quarterending March 31, 2004 and March 31, 2003, were $1,162,168 and $1,181,245respectively. Rental and service costs for totalizator wagering equipment andsatellite receiving/television equipment also represent a significant portion ofoperating expenses. These expenses totaled $269,596 for the three months endedMarch 31, 2004, compared to $276,275 for three
months ended March 31, 2003. The components of the 2004 wagering equipment andexpenses were $34,341 in ITW tote, interface, and telephone charges; $89,565 intotalizator equipment rental; $58,500 in satellite charges and $87,191 incamera/television rental. Utilities expense totaled $135,557 and $128,239respectively, for the three months periods ended March 31, 2004 and March 31,2003. Program costs totaling $61,161 and $56,684, respectively, are alsoincluded in the total operating expenses for the three month period endedMarch 31, 2004 and March 31, 2003. Operating expenses (including payroll costs) for the bar, restaurant, souvenir and concessions costs were $357,925 and$346,419 for the three month periods which ended March 31, 2004 and March 31,2003, respectively. Operating payrolls and contract labor costs totaled$713,055 and $694,962 for the three month periods ended March 31, 2004 andMarch 31, 2003, respectively, excluding player costs and payroll costs includedin the bar, restaurant, souvenir and concessions areas. Of the $713,055, $252,719 was mutuels payroll, $186,347 was maintenance payroll, $20,477 wasadmissions payroll, $65,461 was office payroll, and $188,050 was securitypayroll. Maintenance expense for the three months ended March 31, 2004, totaled $94,027. Advertising expense for the three months ended March 31, 2004,totaled $136,662 compared to $147,320 for the three months ended March 31, 2003.
Other Income
The Company had other income of $68,615 for the three-month period endedMarch 31, 2004. Other Income for the quarter ended March 31, 2004 primarilyconsisted of $235,982 in pari-mutuel tax credits, a loss in the real estatedivision of $102,663, interest income of $18,719 and a loss in Summer Jai-Alaiof $83,423.
The Company had other income of $129,773 for the three-month period endedMarch 31, 2003. Other Income for the quarter ended March 31, 2003 primarilyconsisted of $264,241 in pari-mutuel tax credits, a loss in the real estatedivision of $49,077, and a loss in Summer Jai-Alai of $86,037.
Tax Loss Carryforwards
At December 31, 2003, the Company had tax net operating loss (NOL) carryforwardsof approximately $12,428,000 available to offset future taxable income. TheseNOL carryforwards expire fifteen years from the year in which the losses wereincurred or at various intervals through fiscal 2018. However, $6,460,000 ofthe Company's NOL carryforwards which can be utilized to offset future taxableincome are limited to approximately $91,000 per fiscal year under Section 382 ofthe IRC because Company stock purchased by Freedom Financial Corporation wasconsidered a "change in ownership" under the "deemed exercised rule" of IRCSection 382. As a result, only the net operating losses attributable to theperiod after the "change in ownership" (approximately $5,968,000) are notsubject to the Section 382 limitation.
Summary of Operations
The Company had a net loss of $236,151 or $.09 per common share for the threemonths ended March 31, 2004, compared to net income of $310,293 or $.08 percommon share for the three months ended March 31, 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 2004 was $2,422,286. AtMarch 31, 2004, the Company had an decrease in working capital of approximately$43,015 from December 31, 2003.
During the three months ended March 31, 2004, net cash used in the Company'soperating activities was $36,383. The Company's continuing operating expensesconsisted principally of office expenses, general and administrative expenses,and costs associated with Jai-Alai and ITW operations. Principal revenues werefrom net pari-mutuel wagering commissions on live Jai-Alai and ITW events.
During the three months ended March 31, 2004, cash provided by investingactivities was $46,168.
During the three months ended March 31, 2004, cash used in financing activitieswas $30,582.
This report contains forward-looking statements under the Private SecuritiesLitigation Reform Act of 1995 that involve risks and uncertainties. Althoughthe Company believes that the forward-looking statements are based uponreasonable assumptions, there can be no assurance that the forward-lookingstatements will prove to be accurate. Factors that could cause actual resultsto differ from the results anticipated in the forward-looking statementsinclude, but are not limited to: economic conditions (both generally and morespecifically in the markets in which the Company operates); competition for thecompany's customers from other providers of entertainment and gamingopportunities; government legislation and regulation (which changes from time totime and over which the Company has no control). The Company undertakes noobligation to republish forward-looking statements to reflect events orcircumstances after the date hereof or to reflect the occurrence ofunanticipated events .
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