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EXCEL - IDEA: XBRL DOCUMENT - FLORIDA GAMING CORPFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 - FLORIDA GAMING CORPv344005_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - FLORIDA GAMING CORPv344005_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - FLORIDA GAMING CORPv344005_ex32-1.htm

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

  

WASHINGTON, DC 20549

  

FORM 10-Q

 

(Mark One)

  

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

  

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 0-9099

 

FLORIDA GAMING CORPORATION

 (Exact name of registrant as specified in its charter)

  

Delaware   59-1670533
(State or other Jurisdiction of   (IRS Employer Identification No.)
Incorporation or Organization)    

 

3500 NW 37 th Avenue, Miami, Florida   33142-0000
(Address of principal executive offices)   (Zip code)
     
Registrant's telephone number, including area code   (305) 633-6400

 

Former name, former address and former fiscal year, if changed since last report N/A

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

As of May 14, 2013, there were 4,037,293 shares of the Registrant’s common stock outstanding.

 

 
 

 

FLORIDA GAMING CORPORATION

 

INDEX

 

 

PART I—FINANCIAL INFORMATION

 

  Page Number
Item 1. Financial Statements  
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 24
Item 3.  Quantitative and Qualitative Disclosure about Market Risk 33
Item 4.  Controls and Procedures 33
   
   
PART II – OTHER INFORMATION
   
Item 1.  Legal Proceedings 35
Item 1a. Risk Factors 36
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 36
Item 3.  Defaults upon senior securities 37
Item 4.  Submission of Matters to a Vote of Security Holder 37
Item 5. Other Information 37
Item 6.  Exhibits 37
Signatures 41

  

 
 

 

Part 1. Financial Information

 

FLORIDA GAMING CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2013   2012 
   (unaudited)     
Current assets:          
Cash and cash equivalents (Note 3)  $5,759,562   $4,859,302 
Receivables, net   372,773    240,117 
Inventory (Note 3)   47,545    53,523 
Prepaid expenses   856,428    1,148,694 
Total current assets   7,036,308    6,301,636 
           
Property, plant and equipment, at cost:          
Land   21,210,998    21,210,998 
Building and improvements   30,335,212    30,335,212 
Furniture and equipment   19,046,179    19,046,179 
Construction in progress   29,337    0 
    70,621,726    70,592,389 
Less accumulated depreciation   (8,935,124)   (8,059,284)
Net property, plant and equipment   61,686,602    62,533,105 
Real estate held for sale (net)   234,000    234,000 
Other assets   5,658,673    6,022,571 
Total Assets  $74,615,583   $75,091,312 

 

2
 

 

FLORIDA GAMING CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2013   2012 
   (unaudited)     
Current liabilities:          
Accounts payable and accrued expenses  $16,459,066   $15,700,309 
Warrant liability   4,403,666    4,403,666 
Current portion, other long-term debt   84,695,562    84,912,163 
Total current liabilities   105,558,294    105,016,138 
           
Long-term liabilities:          
Long-term portion notes payable   20,713,726    20,472,982 
           
Stockholders' Equity:          
Class A convertible preferred stock, convertible to common stock; $.10 par value, 1,200,000 shares autorized; 27,756 shares issued and outstanding at March 31, 2013 and December 31, 2012   2,776    2,776 
           
Class AA convertible preferred stock, convertible to common stock; $.10 par value, 5,000 shares autorized; 5,000 shares issued and outstanding at March 31, 2013 and December 31, 2012   500    500 
           
Class B convertible preferred stock, convertible to common stock; $.10 par value, 50 shares autorized; 45 shares issued and outstanding at March 31, 2013 and December 31, 2012   5    5 
           
Class F convertible preferred stock, convertible to common stock; $.10 par value, 2,500 shares autorized; 1,000 shares issued and outstanding at March 31, 2013 and December 31, 2012   100    100 
           
Common stock, $.20 par value, authorized 7,500,000 shares, 4,037,293 issued and outstanding at March 31, 2013 and December 31, 2012   807,459    807,459 
Capital in excess of par value   50,784,922    50,784,922 
Accumulated deficiency   (103,252,199)   (101,993,570)
Total stockholders' deficiency   (51,656,437)   (50,397,808)
Total liabilities and stockholders' deficiency  $74,615,583   $75,091,312 

 

3
 

 

FLORIDA GAMING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   For the Three Months Ended 
   March 31, 2013   March 31, 2012 
REVENUES          
Casino  $15,692,287   $10,671,092 
Less state, county and city taxes   (5,987,906)  $(4,005,431)
Net Casino Revenue   9,704,381    6,665,661 
Pari-Mutuel   1,293,954    1,415,401 
Less state pari-mutuel taxes incurred   (181,351)   (175,973)
Less simulcast guest commissions   (196,781)   (231,073)
Net Pari-Mutuel Revenue   915,822    1,008,355 
Cardroom   1,993,697    1,718,687 
Less state, county and city taxes   (238,044)   (207,540)
Net Cardroom Revenue   1,755,653    1,511,147 
Food, beverages, and other   594,750    559,509 
Net Revenue   12,970,606    9,744,672 
           
EXPENSES          
Operating Expenses   7,895,552    8,625,647 
General and Administrative   1,229,067    1,070,982 
Depreciation and Amortization   1,239,740    1,116,168 
    10,364,359    10,812,797 
Net Income (Loss) from Operations   2,606,247    (1,068,125)
           
OTHER INCOME (EXPENSE)          
Pari-Mutuel Tax Credits   90,251    100,184 
Interest Income   252    245 
Interest Expense   (3,840,621)   (3,329,570)
    (3,750,118)   (3,229,141)
Net Loss   (1,143,871)   (4,297,266)
Dividends on Preferred Stock   (114,758)   (114,758)
Net Loss Attributable to Common Shareholders  $(1,258,629)  $(4,412,024)
Basic Loss per Common Share  $(0.31)  $(1.09)
Diluted Loss per Common Share  $(0.31)  $(1.09)

 

4
 

 

Florida Gaming Corporation

Consolidated Statements of Cash Flows

(Unaudited)

 

   March 31,   March 31, 
   2013   2012 
Cash flows from operating activities:          
Net Loss  $(1,143,871)  $(4,297,266)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,239,740    1,116,168 
Interest paid in kind   240,743    196,591 
Increase in accounts receivables   (132,656)   (185,689)
Decrease in inventory   5,978    24,445 
Decrease in prepaid expense   292,267    - 
Decrease in other assets   0    1,721,471 
Increase (decrease) in accounts payable and accrued expenses   643,997    (4,223,072)
Net cash provided by (used) in operating activities   1,146,198    (5,647,352)
           
Investing Activities:          
Purchases of property, plant and equipment   (29,337)   (6,222,681)
Net cash used in investing activities   (29,337)   (6,222,681)
           
Financing Activities:          
Repayment of debt   (216,601)   (67,876)
Net cash used in financing activities   (216,601)   (67,876)
           
INCREASE (DECREASE) IN CASH   900,260    (11,937,909)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR   4,859,302    37,316,128 
CASH AND CASH EQUIVALENTS AT MARCH 31, 2013 AND MARCH 31, 2012  $5,759,562   $25,378,219 
           
Supplemental disclosure of cash flow information:          
           
Interest capitalized  $-0-   $626,084 
Interest paid  $3,659,599   $4,817,687 
Accrued preferred dividends   $114,758   $114,758 
Non cash acquisition of premises  $-   $554,000 

 

5
 

 

(1) DESCRIPTION OF BUSINESS

 

Florida Gaming Corporation (“FGC” or the “Company”), was incorporated in the state of Delaware in 1976 as Lexicon Corporation (“Lexicon”). In 1993, Lexicon sold 699,480 shares of common stock to Freedom Financial Corporation ("Freedom") and a new board of directors was elected, and present management assumed control of Lexicon. The acquisition of the Ft. Pierce Fronton (“Ft. Pierce”) was consummated in February, 1994 following receipt of the approval from the Florida Department of Business Regulation on that date. Following the purchase of Ft. Pierce the Company, changed its’ name to Florida Gaming Corporation on March 17, 1994. On January 1, 1997, the Company purchased the Jai-Alai Facilities at Ocala, Tampa, and Miami, Florida. The Company also entered into the real estate development business in 1997. The Company’s stock is traded on the over-the-counter bulletin board under the stock symbol “FGMG”. The Company’s principal place of business and executive offices are located at 3500 N.W. 37th Avenue, Miami, FL 33142.

 

On September 4, 1998, the Company sold the Tampa Jai-Alai property. The sale did not include the Company's gaming permit which remains available for future use in Hillsborough County, Florida. On July 31, 2000, the Company sold the Ocala Jai-Alai. In March, 2006, the Company sold approximately 79 acres of investment real estate located adjacent to its' Jai-alai facility in Fort Pierce, Florida. On April 14, 2011, the Company issued a deed in lieu of foreclosure on 18.33 acres of unimproved real estate in St. Lucie County, adjacent to the Ft. Pierce Jai-Alai.

 

On January 23, 2012, the company opened Casino Miami Jai-Alai in Miami, Florida. Miami Jai-Alai added a 40,000 square foot state of the art casino with 1,058 Class III slot machines, an expanded poker room, electronic blackjack, roulette, dominoes, live shows such as concerts and boxing, a new restaurant and three full-service bars, including one that will feature live music. The Company also operates a fronton in Ft. Pierce, FL and an inactive Jai-Alai pari-mutuel permit for Hillsborough County (Tampa), Florida. The Company's business at this time consists primarily of its operations at the frontons, which include casino gaming, card rooms, live jai-alai performances, inter-track pari-mutuel wagering ("ITW") on jai-alai, horse racing (both thoroughbred and harness) and dog racing, and the sale of food and alcoholic beverages. The Fort Pierce location provides inter-track wagering on interstate simulcasting of horse racing, dog racing, and jai-alai from various tracks and frontons in the United States and within the State of Florida. Jai-alai games are played live and simulcast year round from the Miami facility via satellite to pari-mutuel wagering locations in Florida, Connecticut, Rhode Island, as well as locations in Mexico, Central America, and Austria. Poker and dominoes are played at the Miami Jai-Alai Crystal Card Room and poker is played at the Ft. Pierce card room.

 

Basis of Presentation: The accompanying financial statements, which are unaudited except that the balance sheet at December 31, 2012 is derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in the Company’s Form 10-K. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Report on Form 10-K for the year ended December 31, 2012. The March 2012 amounts originally presented were adjusted in subsequent quarters. The comparable March 31, 2012 accompanying statements reflect this adjustment. The results of operations for the three months ended March 31, 2013 may not necessarily be indicative of the results of operations for the year ended December 31, 2013.

 

Certain information and notes have been condensed or omitted pursuant to the rules and regulations of the Commission. The financial information presented herein, while not necessarily indicative of results to be expected for the year, reflects all adjustments of a normal recurring nature, which, in the opinion of the Company, are necessary to a fair statement of the results for the periods indicated.

 

(2) GOING CONCERN 

 

As of March 31, 2013, the Company was in default on an $87,000,000 credit facility (see Note 10 ). The Company’s continued existence as a going concern is dependent on its ability to obtain a waiver of its credit default and to generate sufficient cash from operations to meet its needs.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. While the Company believes that the sale of Florida Gaming Centers, Inc (Note 6) will enable the Company to continue as a going concern, there can be no assurances to that effect.

 

(3) SIGNIFICANT ACCOUNTING POLICIES 

 

Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 

 

Cash and Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. 

 

Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line and accelerated methods over the estimated useful life of the related assets as follows:

 

Buildings 39 years
Land and building improvements 15 years
Furniture and equipment 5-7 years
Automobiles 5 years

 

   March 31,   December 31, 
   2013   2012  
Land  $21,210,998   $21,210,998 
Buildings and improvements   30,335,212    30,335,212 
Equipment furniture and fixtures   19,046,179    19,046,179 
Construction in progress   29,337    -0- 
Less accumulated depreciation   (8,935,124)   (8,059,284)
   $61,686,602   $62,533,105 

 

Depreciation Expense totaled $875,840 during the three months ended March 31, 2013, compared to $751,018 during the three months ended March 31, 2012. 

 

6
 

 

Long-lived assets: The Company's investment in its residential and commercial property is carried at cost. We periodically evaluate the carrying value of long-lived assets to be held and used in accordance with ASC Topic 360, Property, Plant and Equipment ("ASC 360") which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. 

 

Bad Debt Reserve: The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The Company's estimate is based on historical losses, changes in volume and economic conditions impacting the current receivables. There was no allowance for doubtful accounts recorded for the three months ended March 31, 2013 and twelve months ended December 31, 2012.

 

Inventory: The Company's inventory, consisting of food and beverage products and souvenirs, is stated at the lower of cost or market using the First-In First-Out method to assign cost. Inventory market values exceeded its cost at March 31, 2013 and December 31, 2012.

 

Other comprehensive income: The Company follows the provisions of ASC Topic 220, “Comprehensive Income.” The Company had no “other comprehensive income” during either year presented. Accordingly, comprehensive income is equal to net income at March 31, 2013 and March 31, 2012.  

 

Pari-mutuel Wagering: Revenue is derived from acceptance of wagers under a pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW events. On-site wagers are accumulated in pools with a portion being returned to winning bettors, a portion paid to the State of Florida, and a portion retained by the Company. ITW wagers are also accepted and forwarded to the "host" facility after retention of the Company's commissions. The Company's unclaimed winnings (outs) totaled $117,954 at March 31, 2013 and $103,6688 at December 31, 2012.

 

Revenue Recognition: The Company recognizes revenue from gaming operations in accordance with ASC Topic 605, “Revenue Recognition,” which requires revenues to be recognized when realized or realizable and earned. Slot gaming revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs, for chips and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increase. 

 

Jai-Alai and inter track mutuel commissions are recognized immediately upon completion of the event upon which the related wagers are placed. In general, wagers are placed immediately prior to the event and are made in cash or other good funds so collectability is not an issue.

 

Revenues derived from admission, program sales, food and beverage sales, card room activities, and other revenues are recognized at the time of the transaction.

 

Revenues from the Company’s real estate operations are recognized in accordance with ASC Topic 360-20, “Real Estate Sales”, which generally allows the Company to record all profit on real estate sales at closing unless the down payment is insufficient to accrue the revenue.

 

Income Taxes : The Company utilizes the asset and liability approach to accounting for income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company follows ASC Topic 740, “Income Taxes” regarding accounting for income tax uncertainties. ASC Topic 740 states that a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company maintained no net tax assets at March 31, 2013 and December 31, 2012.

 

 

7
 

 

It is the Company’s policy to recognize interest and/or penalties related to income tax matters in income tax expense.

 

The Company files income tax returns in the U.S. federal jurisdiction. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for all years prior to and including 2008.

 

Advertising Costs : Advertising costs are expensed as incurred.

 

Slot License: The Company obtains the slot license from the Florida Department of Professional Regulation to operate the slot machine, renews annually in May and is paid in advance. The Company expensed $562,500 and $1,833,333 for the three months ended March 31, 2013 and 2012, respectively, in relation to this license. The license for 2011 was amortized on a straight line basis over the period that the casino was operational, January through May of 2012. As of March 31, 2013 and the 2012, the Company had a prepaid of approximately $281,250 and $916,667, respectively, related to the slot license.

 

Stock Options: The Company accounts for all employee stock-based compensation in accordance with ASC Topic 718, “Stock Compensation,” which requires that equity instruments issued as compensation be measured at fair value. The Company accounts for non-employee stock-based compensation in accordance with ASC Topic 505-50, “Equity Based Payments to Non-Employees”. Amounts are based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value assigned to stock options granted to non-employees are accounted for in accordance with ASC Topic 505-50, which requires that such costs be measured at the end of each reporting period to account for changes in the fair value of common stock until the options are vested using the Black-Scholes pricing model. Common stock is valued using the market price of common stock on the measurement date as defined in ASC Topic 505-50.

 

Effect of Implementing Recently Issued Accounting Standards :

 

Accounting Standards Update No. 2011-11, “Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”), was issued in December 2011 and was intended to enhance current disclosure requirements on offsetting financial assets and liabilities. The requirements of ASU 2011-11 enable users to compare balance sheets prepared under U.S. GAAP and International Financial Reporting Standards (“IFRS”), which are subject to different offsetting models. The requirements affect all entities that have financial instruments that are either offset in the balance sheet or subject to an enforceable master netting arrangement or similar agreement. ASU 2011-11 was effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The required disclosures were effective retrospectively for all comparative periods presented. The adoption of ASU 2011-11 did not have a material impact on the Corporation’s consolidated financial statements. This update is not expected to have a material impact on the Company’s consolidated financial statements.

 

Accounting Standards Update No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”) was issued in February 2013 and requires additional disclosure of the effects of reclassifications out of accumulated other comprehensive income (“AOCI”) in a single location, either on the face of the financial statement that reports net income or in the notes to the financial statements. ASU 2013-02 does not change the current requirements and carries forward the existing requirements that reclassifications out of AOCI be separately presented for each component of other comprehensive income. For items reclassified out of AOCI and into net income in their entirety, the effect of the reclassification on each affected net income line must be disclosed. For AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required disclosures is required. The amendments were effective prospectively for reporting periods beginning after December 15, 2012. This update is not expected to have a material impact on the Company’s consolidated financial statements.

 

(4) EARNINGS PER SHARE

 

Basic income (loss) per common share is determined by dividing income (loss), less required dividends declared on preferred shares, and dividends on cumulative preferred stock for the period, divided by the weighted average number of shares of common stock outstanding. Diluted income (loss) per common share is determined by dividing income (loss) by the weighted average number of shares of common stock outstanding plus the weighted average number of shares that would be issued upon exercise of dilutive stock options, assuming proceeds are used to repurchase shares pursuant to the treasury stock method plus the weighted average number of shares that would be issued if holders of the Company's preferred stock converted those shares to common stock using the “if converted” method. Diluted loss per common share is not presented when the resulting calculation is antidilutive relative to basic loss per common share.

 

The net loss per common share for the quarters ended March 31, 2013 and March 31, 2012 were calculated based upon reducing net loss attributable to common stock shareholders by dividends declared on preferred stock which was $114,758, for the three month period ended March 31, 2013 and March 31, 2012, by the weighted average number of outstanding shares. The weighted average number of shares outstanding used in the calculation of basic net loss per common share for the quarters ended March 31, 2013 and March 31, 2012 was 4,037,293.

 

8
 

 

Weighted average shares were not adjusted for common stock equivalence in the determination of diluted earnings per share for the three months ended March 31, 2013 and March 31, 2012 because the effect would be antidilutive.

 

   Three Months Ended 
   March 31, 
   2013   2012 
Weighted average number of shares for  calculation of basic EPS – Common Stock    4,037,293    4,037,293 
Weighted average number of shares for calculation of diluted EPS   4,037,293    4,037,293 

 

(5)   OPTIONS AND WARRANTS

 

The fair value of options and warrants is determined using the Black-Scholes option pricing model consistent with ASC Topics 718 and 505-50. The Black-Scholes option pricing model uses assumptions for inputs including the risk free rate of return, expected forfeitures, expected volatility, expected term, and expected dividends. The risk-free rate of return for the option or warrant life is based on U.S. Treasury zero coupon issues with a remaining term equal to the expected option term. Expected forfeitures are based on environmental factors tied to the options and warrants as well as historical behavior. Expected volatilities are based on historical volatility of the Company’s stock. Expected terms are generally based on the options contractual term unless environmental factors reflect that the option holder would likely exercise their option sooner. No new options or warrants were issued during the three months ended March 31, 2013 and March 31, 2012.

 

   Three Months Ended 
   March 31, 2013    March 31, 2012 
       Exercise       Exercise 
   Shares   Price   Shares   Price  
                 
Outstanding, beginning of year   846,250   $8.15    906,250    8.63 
Granted                    
Exercised                    
Forfeited                    
Expired                    
Outstanding at March 31, 2013, and March 31,  2012   846,250    8.15    906,250    8.63 
Options and warrants exercisable at March 31, 2013, and March 31, 2012   846,250    8.15    906,250    8.63 

 

On July 9, 2012, the Company’s Board of Directors adopted the Fourth Amended and Restated Master Stock Option Plan (the “Fourth Master Plan”). The Fourth Master Plan incorporates previous amendments to the Company’s 2006 Third Amended and Restated Master Stock Option Plan, attached as Exhibit 99.1 to the Company’s Form S-8 (File No. 333-103654) filed August 23, 2006, providing for the extension, re-pricing and limited transfer of stock options issued under the Fourth Master Plan. (For more information see Form 8-K filed July 13, 2012)

 

9
 

 

On April 25, 2011, the Company entered into a Credit Agreement (See Note 10) and at the closing, the Lenders received warrants, with a $0.01 exercise price, currently equal to 35% (the “Base Percentage”) of the stock in Centers and such percentage may increase depending on the number of slot machines that may become operational at a competing facility in the future. The Base Percentage shall increase by one one-hundredth percent (0.01%), up to a maximum of 10.0%, for each slot machine made available for gaming at Hialeah Park Race Track at any time while the Centers Warrants are outstanding (the “Hialeah Increase”). Centers may have the ability to reduce the Hialeah Increase by up to one-half, depending on actual financial performance in the future exceeding certain thresholds, by paying the Lenders an aggregate of $500,000 for each percentage point it wishes to deduct from the Hialeah Increase. Centers is obligated to make an offer to repurchase the Centers Warrants upon the occurrence of any Trigger Event, which is defined to include the following: (a) the maturity date of the Term Loan; (b) the date upon which the Term Loan is repaid in full (the “Repayment Date”); (c) upon a change of control in Centers; (d) upon the commencement of bankruptcy proceedings (or any similar action or insolvency event) by Centers; and (e) if the maturity date of the Term Loan or the Repayment Date occurs prior to the fifth anniversary of the opening date of The Casino at Miami Jai-Alai (the “Opening Date”), then each anniversary of the Opening Date occurring after the Repayment Date and on or prior to the fifth anniversary of the Opening Date.

 

In addition, at the closing, the Lenders received warrants in the Company currently equal to 30.0% of its fully diluted common equity ownership. The Company Warrants have a $25 exercise price; however, if (i) the Lenders’ construction consultant determines that Centers will need to access any amount of a $3.0 million completion guarantee (thus representing that the Project is “Out of Balance”), which has been funded by the Term Loan, to complete the Project on time and on budget and (ii) the Company and Centers have not raised new equity to replace the $3.0 million completion guarantee and thereby cancel the Company Warrants at anytime from the closing until 30 days after the Project is determined to be Out of Balance, the Company Warrants shall become exercisable at $0.01. If the Company is successful at raising new equity to replace the completion guarantee, the $3.0 million shall be used to prepay the Term Loan at par upon receipt of such proceeds. Similarly, if the Company is able to complete the Project on time without going Out of Balance, the completion guarantee will be canceled upon the Opening Date and the $3.0 million shall be used to prepay the Term Loan at par and the Company Warrants cancelled. The Company never received notification that the loan was Out of Balance, and therefore considers the Company warrants cancelled.

 

The Company did not account for the Centers warrants at the time of issuance because there were too many contingencies on the warrants becoming exercisable for either Centers or the Company. Centers is not publicly traded and at the time the potential value of the warrants could not be determined. The Credit Agreement requires that once a trigger event occurs, the Company will have to hire an arbitrator and calculate the value of the company, the debt owed, and the value of the warrants. The Company is in the process of selling Centers, and the Company has valued the warrants of Centers at $4,403,666. Management has estimated the value of such warrants based on the purchase price stipulated in the stock agreement entered into on November 25, 2012 (Note 6) but is currently negotiating the redemption value of such warrants with the Lenders. The final redemption amount of these warrants could be significantly different than the one estimated. The warrant expense has been accrued in the attached consolidated financial statements as of March 31, 2013. (Refer to Form DEF14A filed January 31, 2013) (A copy of the Credit Agreement, the Centers Warrant Agreement, the Company Warrant Agreement and the Registration Rights Agreement are included as Exhibits 10.1, 4.1, 4.2 and 4.3, respectively, to the April 25, 2011 Form 8-K.)

 

(6) SALE OF FLORIDA GAMING CENTERS

 

On November 25, 2012, the Board of Directors of the Company unanimously approved the Company’s sale of its wholly owned subsidiary, Florida Gaming Centers, Inc. (“Centers”). The Company entered into a Stock Purchase Agreement (the “SPA”) for the sale of Centers to Silvermark LLC (“Silvermark”) for $115 million plus the assumption of certain liabilities of Centers associated with two mortgages held by Miami-Dade County. Centers constitutes the Company’s only operating asset. (For complete details on the sale of Centers, please refer to DEF 14A filed January 31, 2013)

 

The $115 million cash purchase price, which is subject to adjustment as described in the SPA, will be used to fund the repayment of Centers’ other outstanding indebtedness, including but not limited to approximately $87 million credit facility and other debt totaling approximately $10.5 million. Silvermark will assume Centers’ post-closing obligations under a Settlement Agreement with Miami-Dade County, Florida pertaining to a parking lot that is adjacent to Centers’ Miami facility which is subject to notes and mortgages totaling approximately $15 million. Additionally, $7.5 million of the purchase price will be held in escrow for up to three years to indemnify Silvermark LLC against obligations of the Company after the closing. The Company expects to use any net cash proceeds from the transaction, after the repurchase of warrants for 35% of Centers’ equity held by lenders under Centers’ credit facility and the debt reduction described above, to pay transaction-related expenses and for other purposes.

 

10
 

 

The results of the discontinued operations were as follows for the three months ended March 31, 2013, and March 31, 2012.

 

   2013   2012 
Net Revenues  $12,970,606    9,744,672 
Operating Expenses   (7,843,780)   (8,587,596)
General and Administrative Expense   (1,106,219)   (1,017,197)
Depreciation & Amortization   (1,239,462)   (1,112,560)
Net operating income (loss)   2,781,145    (972,681)
Interest Expense   (3,599,879)   (3,122,096)
Other Income   90,252    100,186 
Net Loss   (728,482)   (3,994,591)

 

The proposed transaction was approved by the Company’s stockholders on February 25, 2013, and must be approved by customary regulatory approvals, including Silvermark’s receipt of a Florida gaming license, and other customary regulatory and closing conditions. The transaction is also conditioned on Centers’ receipt of an order from the court in the Company’s ongoing litigation in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida either (i) approving of Centers’ entry into the transaction or (ii) ruling that the court’s approval of Centers’ entry into the transaction is not required.

 

The Company’s stockholders are not expected to receive any consideration upon the consummation of the transaction. In general, at closing, proceeds from the transaction will be used to pay transaction-related expenses and to service the Company’s outstanding indebtedness. $7.5 million of the purchase price will be placed in escrow for up to three years to indemnify Silvermark against obligations of the Company after the closing. Pursuant to the Indemnification Escrow Agreement, the escrow agent will release $70,000 per month to the Company as long as there are no outstanding claims for indemnification or outstanding Excluded Liabilities or Excluded Litigation with unspecified Losses or Potential Losses or until the escrow amount reaches $5,000,000. If the Company receives the $70,000 monthly payment, management expects to use those proceeds to continue operations during the escrow period and for payment of ongoing expenses including: legal, accounting, public company expenses, and operational expenses, such as rent, utilities, and salaries.

 

The transaction is expected to be completed by 11:59 P.M., E.T. on May 31, 2013 (provided however, that if the Closing shall not have occurred on or before May 31, 2013, then Purchaser shall have the right, which right may be exercised by Purchaser at its sole and absolute discretion, to extend the Expiration Time, from time to time, to no later than 11:59 P.M., E.T. on August 30, 2013 upon written notice to Seller).” The Company intends to disclose further information pertaining to this transaction, as required or appropriate, in the future.

 

For complete details on the sale of Centers, please refer to DEF 14A filed January 31, 2013

 

(7) REAL ESTATE HELD FOR SALE

 

As of March 31, 2013, the Company's subsidiary, Tara Club Estates, Inc. held six (6) residential lots at its residential real estate development (“Tara”), which is situated in Loganville, Walton County , Georgia with an aggregate carrying value of $234,000. The Company carries a valuation reserve in the amount of $68,569. The Company has completed its development activities at Tara. Accordingly, any future costs incurred related to these properties will be expensed.

 

Valuation Reserve Analysis

 

   03/31/2013   12/31/2012 
Balance at the beginning of the year  $68,569   $68,569 
Provision charged to operations   0    0 
Charge offs to the reserve   0    0 
Ending Balance  $68,569   $68,569 

 

The Company had no real estate sales during the three months ended March 31, 2013, and March 31, 2012. 

 

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(8) TAXES

 

At December 31, 2012, the Company had tax net operating loss (NOL) carryforwards of approximately $61,585,000 available to offset future taxable income. These NOL carryforwards expire twenty years from the year in which the losses were incurred or at various intervals through fiscal 2032. A significant portion of these NOLs are related to Florida Gaming Centers, Inc. and will be transferred to the buyer in connection with the pending sale (Note 6)

 

Effective July 1, 1998, tax relief legislation was enacted by the State of Florida stipulating that jai alai permit holders incurring state taxes on handle and admissions in an amount exceeding its operating earnings (before deduction of certain expenses such as depreciation and interest) for the prior years are entitled to credit such excess amounts against pari-mutuel taxes due and payable. Tax credits are used to satisfy the Company's obligation to pay taxes incurred on handle and admission. Tax credits used, depreciation expense and interest expense are all excluded from the statutory calculation of operating earnings or loss in the determination of the amounts of future tax credits.

 

The Company’s Tampa Jai-Alai Permit (the fronton closed in 1998) retain such tax credits carried forward totaling $1,362,265. The Company’s Ft. Pierce facility has not incurred statutory operating losses and therefore has not earned any state tax credits. For the years 2001 through 2012, Miami has unused credits totaling $2,352,201 and Summer Jai-Alai has $1,220,208 unused credits available for recovery.

 

(9) PREFERRED STOCK

 

CLASS A PREFERRED STOCK

The Company's Class A preferred stock provides annual dividends, at the rate of $.90 per share payable in cash, property or common stock, which is cumulative and has priority over dividends on the common stock. The Class A preferred is redeemable at the option to the Company at $10.60 per share. In the event of dissolution, the holders of Class A preferred shall be entitled to receive $10.00 per share, plus accrued dividends, prior to any distribution to holders of common stock. The Company has declared and accrued the required dividends.

 

CLASS AA PREFERRED STOCK 

On June 15, 2007 the Company authorized and issued 5,000 shares of its Series AA 7% cumulative convertible preferred stock to Prides Capital for $1,000 cash per share for an aggregate of $5,000,000. Each share is convertible into 40 shares of the Company’s $.20 par value common stock. The stated value per share is $1,000 (as adjusted for stock splits, combinations or splits). The Company has declared and accrued the required dividends.

 

CLASS B PREFERRED STOCK 

The Company's Series B convertible preferred stock provides annual cumulative dividends at the rate of 8% to 10% of the consideration paid for the stock. Such dividends are payable in shares of the Company's common stock. The consideration received by the Company upon the initial issuance of each share of the Series B stock was $1,000. Holders of Series B shares may convert all or any of such Series B shares to the Company's common stock using a ratio based on the consideration paid for the stock and 80% of the market value of the common stock. Upon liquidation, the holders of Series B preferred shares shall be entitled to be paid $1,000 per share plus 8% to 10% accrued dividends before any distribution to holders of common stock. The Company has declared and accrued the required dividends.

 

CLASS F PREFERRED STOCK 

The Company is also authorized to issue up to 2,500 shares of Series F 8% Cumulative Convertible Preferred Stock (the “Series F Preferred Stock”), which provides annual dividends at the rate of 8% of the shares' stated value. The stated value per share equals $1,000 (as adjusted for any stock dividends, combination or split). At the discretion of the Company's Board of Directors, such dividends may be paid in shares of the Series F Preferred Stock. Holders of Series F Preferred Stock may convert all or any of such shares to the Company's common stock at any time. Each share of Series F Preferred Stock shall be converted into 148.3345 shares of common stock (the “Conversion Stock”). The number of shares of Conversion Stock into which each share of Series F Preferred Stock shall be converted shall be proportionately adjusted for any increase or decrease in the number of shares of common stock or Series F Preferred Stock. Upon liquidation, the holders of Series F Preferred Shares shall be entitled to be paid $1,000 per share plus accrued dividends before any distribution to holders of common stock. The Company has declared and accrued the required dividends.

 

The Class A Preferred Stock, the Series AA Preferred Stock, the Series B Preferred Stock, and the Series F Preferred Stock are all equal in rank with respect to the payment of dividends and with respect to the distribution of assets upon liquidation of the Company.

 

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(10) CREDIT AGREEMENT

 

On April 25, 2011, the Company entered into a Credit Agreement (the “Credit Agreement”) at its wholly owned subsidiary, Florida Gaming Centers, Inc. (“Centers”) with a syndicate of unaffiliated third party lenders (the “Lenders”) and ABC Funding, LLC, as Administrative Agent for the Lenders. Innovation Capital, LLC served as exclusive Financial Advisor to the Company and Placement Agent on the debt financing.

 

The Credit Agreement provided for an $87,000,000 senior secured term loan (the “Term Loan”) that will mature on April 25, 2016. The Term Loan was issued at a price of 98.0% and bears interest at a rate varying between 15.75% and 16.50%. The net proceeds of the Term Loan was $83,520,000, after deducting fees and discounts to the Lenders related to the transaction. The Company used the net proceeds from the Term Loan to fund capital expenditures and for working capital and general corporate purposes. The capital expenditures encompassed the expansion project at the Company’s Miami Jai-Alai fronton.

 

On July 25, 2012, there was a $3,229,127 principal pay down from the amounts on deposit in the completion reserve account and interest reserve account. The principal balance owed on the note was reduced to $83,770,862. On July 31, 2012, the Company was required to make a $2,362,408 principal payment. The Company did not make the required principal payment on July 31, 2012, and on August 9, 2012, the Company and Centers, received a Notice of Acceleration of all Obligation and a Note of Demand on Credit Party Guaranty. (See Legal Proceedings and exhibits 99.1 and 99.2 attached to the June 30, 2012 10-q)

 

On September 5, 2012 two complaints were filed against the Company and its wholly owned subsidiaries, Centers and Tara Club Estates, Inc. (“Tara Club”). In its complaint filed in the Circuit Court of the Nineteenth Judicial District in and for St. Lucie County, Florida, ABC Funding seeks to enforce the Guaranty and to foreclose on the collateral secured by the St. Lucie mortgage, the Pledge Agreement and the Trust Assignment. The complaint is styled ABC Funding, LLC, as Administrative Agent for Summit Partners Subordinated Debt Fund IV-A, L.P., Summit Partners Subordinated Debt Fund IV-B, L.P., JPMorgan Chase Bank, N.A., Locust Street Funding LLC, Canyon Value Realization Fund, L.P., Canyon Value Realization Master Fund, L.P., Canyon Distressed Opportunity Master Fund, L.P., and Canyon-GRF Master Fund II, L.P., vs. Florida Gaming Centers, Inc., a Florida corporation, Florida Gaming Corporation, a Delaware corporation, City National Bank of Florida, not individually but solely as Trustee under the Land Trust Agreement dated January 3, 1979, known as Trust Number 5003471, Freedom Holding, Inc., a Delaware corporation, Tara Club Estates, Inc., a Georgia corporation, et. al. (For more information please refer to Form 8-K dated September 5, 2012.)

 

On September 25, 2012, David S. Jonas, age 51, was appointed the Chief Restructuring Officer of Centers pursuant to an Engagement Letter between Mr. Jonas and Centers. Mr. Jonas was appointed as Chief Restructuring Officer following the Company’s and Centers’ receipt on August 9, 2012 of notice of acceleration of indebtedness outstanding under its Credit Agreement with certain lenders and also foreclosure actions against the Company and Centers that were filed on September 5, 2012 by such lenders. The notice of acceleration was reported in the Company’s Form 10-Q for the period ending June 30, 2012. In his position as Chief Restructuring Officer, Mr. Jonas will be responsible for and have control over the day-to-day operations of Centers. Until such time as the Company’s lenders exercise warrants to purchase shares of Centers common stock that were issued in connection with the Credit Agreement, Centers’ board of directors has the right to terminate Mr. Jonas at will. After those warrants are exercised, Mr. Jonas’ position may be terminated by either party upon giving 60 days written notice. (For more information please refer to Form 8-K dated September 25, 2012.)

 

On October 18, 2012, ABC Funding, LLC, on behalf of certain of Centers’ lenders, filed motions requesting the immediate appointment of David S. Jonas as receiver to take operational control of Centers. ABC Funding filed the motions as Administrative Agent for the lenders under Centers’ primary credit facility, alleging that the appointment of a receiver is necessary to protect certain property that was pledged to the lenders under the credit facility. The motions further allege that: Centers is unable to manage its contractual obligations appropriately and to protect the collateral of its secured creditors; Centers is incapable of adhering to the corporate structure by which it and the Company are required to operate; Centers’ funds have been misappropriated and misallocated; and, the assets that are available to repay the loan are in danger of being dissipated in violation of the credit facility loan documents. The motions were filed in connection with lawsuits previously filed by ABC Funding in the Eleventh Judicial Circuit in and for Miami-Dade County, Florida and in the Nineteenth Judicial District in and for St. Lucie County, Florida that were reported by the Company on its Form 8-K dated September 5, 2012 and that are described in greater detail below.

 

13
 

 

In its complaints, ABC Funding alleged numerous defaults and other violations of the credit agreement and other loan documents against the Company and Centers. ABC Funding is seeking: (i) an award of damages in excess of $84,000,000 against Centers for breach of the credit agreement; (ii) enforcement of the Guaranty against the Company, including an award of damages in excess of $84,000,000; (iii) to foreclose on the collateral secured by the Miami mortgage, the St. Lucie mortgage, the Pledge Agreement and the Trust Assignment, including, certain real property owned by Centers and the Land Trust in Miami-Dade County, Florida and in St. Lucie, Florida; and (iv) the appointment of a receiver.

 

On October 19, 2012, the board of directors terminated the engagement of David S. Jonas as Centers’ Chief Restructuring Officer.

 

On November 2, 2012, the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida (the “Court”) entered an order appointing David Jonas as Temporary Receiver for certain real and personal property owned by Centers, the wholly-owned subsidiary, and primary operating asset, of the Company. The appointment was made effective as of October 25, 2012, and the Court scheduled a hearing for November 27, 2012 to consider whether Mr. Jonas should be appointed as receiver through the pendency of the litigation.

 

In its order, the Court ordered Mr. Jonas, as receiver, to immediately take possession of all the accounts, books of account, checkbooks, lease agreements, sales contracts, assets, files, papers, contracts, records, documents, monies, securities, choses in action, keys, pass codes and passwords, computers, all software and data, archived and historical data, and all other property, real, mortgaged, personal or mixed, of Centers, including, but not limited to any and all funds being held by any third party on behalf of Centers. As receiver, Mr. Jonas is empowered, directed and authorized by the Court to do any and all things necessary for the proper management, operation, preservation, maintenance, protection and administration of Centers’ assets. The affected assets constitute substantially all of the Company’s operating assets.

 

At March 31, 2013, the Company was in default of the Credit Agreement due to the violation of certain covenants. Events of default unless waived by the lenders may allow the lenders to terminate the lenders commitments and thereupon the commitments shall terminate immediately and declare the loans then outstanding to be due and payable in whole (or in part in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations accrued hereunder and under the other loan documents, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which were waived by the Company; and in case of any event with respect to the Company, the commitments shall automatically terminate and the principal of the loans then outstanding, together with accrued interest thereon and all fees and other obligations accrued hereunder and under the loan documents, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of waived by the Company. All the debt associated with the Credit Agreement ($83,770,862) is classified as a current liability in the accompanying March 31, 2013 and December 31, 2012 balance sheet.

 

For complete details on the Credit Agreement refer to the Form 8-K filed April 27, 2011.

 

(11) COMMITMENTS AND CONTINGENCIES

 

PAC Agreement In February, 2005, the Company agreed to contribute to political action committee (PAC) formed by South Florida gaming interests seeking passage of a statewide legislative initiative and local referenda to expand gaming rights to include “slots” in Miami-Dade County, Florida. Pursuant to that contribution agreement, the Company is contingently committed to the payment of $3,550,000 to the PAC as its share of the cost of the initiative. The contingent commitment becomes binding upon the Company at the earlier of ten days after the Company begins slot machine operations at its facility or upon the bona fide sale or transfer of its business operations to a third party purchaser. The $3,550,000 was accrued as a payable in 2011 and on February 3, 2012 the Company made payment in the amount of $3,550,000 to the political action committee, Floridians for a Level Playing Field, satisfying their liability to the organization for their assistance in seeking passage of the legislation to allow “slots” in Miami-Dade County Florida.

 

14
 

 

Registration Rights : The Company has committed upon certain terms and conditions, to use its best efforts to register for resale, certain shares held by other parties, allowing those shares to be publicly traded. The Company intends to use reasonable efforts to comply with these commitments. On April 25, 2011, the Company entered into a Credit Agreement, and the Company and the Lenders entered into a Registration Rights Agreements. The Lenders will have certain registration rights with respect to the shares of common stock issuable upon exercise of the Company Warrants. (For further information please refer to Form 8-K filed April 27, 2011, Exhibit 4.3)

 

Leases: The Company leases totalizator equipment from Sportech, a number of slot machines that are not available for purchase, copiers, golf carts, copiers, telephone system and other equipment. Total equipment rental under operating leases for the three months ended March 31, 2013 totaled $967,460, compared to $617,493 for the three month period ended March 31, 2012. 

 

Litigation Costs : Legal fees for settlement costs and fees associated with various lawsuits incurred in the normal course of the Company's business activities are included in General & Administrative expenses in the accompanying Statements of Operations.

 

Collective Bargaining Agreement : The Company is a party to a collective bargaining agreement with the International Jai Alai Players Association U.A.W. Local 8868, AFL-CIO. The agreement allows the Company to negotiate individual contracts with players and provides for minimum salaries and bonuses based on pari-mutuel handle, certain cesta allowances and retirement benefits. The agreement continues from year to year unless timely notice of termination is given by either party to the agreement.

 

Concentration of Deposits : The Company maintains significant cash balances with financial institutions in excess of the insurance provided by the Federal Deposit Insurance Corporation (FDIC).

 

Dependence on One Vendor : The Company depends on Sportech, a leading supplier of pari-mutuel wagering systems, to provide the computer systems that accumulate wagers, record sales, calculate payoffs and display wagering data accurately and in a secure manner. If Sportech failed to properly maintain their computer systems and software, it could affect the security of wagering and the Company’s ability to serve its customers. The Company also depends on Ballys Technologies, a leading supplier of slot gaming systems, to provide the computer systems that accumulate wagers, calculate payoffs and display wagering data accurately and in a secure manner. If Ballys failed to properly maintain their computer systems and software, it could affect the security of wagering and the Company’s ability to serve its customers.

 

Summer Jai Alai: Florida Gaming Centers, Inc. (“Centers”) held a 21% interest in Summer Jai-Alai (“SJA”), a Florida general partnership formed in 1980 with three other pari-mutuel permit holders for the purpose of conducting pari-mutuel jai-alai operations at the Miami Jai-Alai fronton. On October 14, 2010, Centers sold to West Flagler Associates, Ltd. (“Flagler”) all of Centers’ interest in the Summer Jai-Alai Partnership (“Summer”) for a total purchase price of $2,501,583.

 

The sale consisted of its entire 21% ownership of the total issued and outstanding partnership interest in Summer, including any and all rights, title, and interest that Centers maintained in Summer’s gaming permit (the “Summer Permit”). The Summer Permit enabled Summer to conduct pari-mutuel wagering during the period beginning May 1st and ending November 30th(the “Summer Season”) of each year at the Facility in accordance with the following agreements between Centers and Summer: 1) an Amended and Restated Permit Use Agreement dated September 30, 2010; 2) a Lease Agreement dated September 30, 2010; and 3) a Memorandum of Lease dated September 30, 2010.

 

The Amended and Restated Permit Use Agreement (“APUA”) dated September 30, 2010 requires Centers to perform management services at the Facility during the term of the APUA. Centers must conduct the minimum number of performances required by Florida law for the Summer Permit to be authorized to conduct pari-mutuel, intertrack wagering, and cardroom operations, but not more than 115% of the minimum required performances, subject to annual adjustment agreed upon by the two parties. All revenue of any type produced and all costs, expenses, and liabilities incurred from the Summer operations that specifically occur at the Facility during the APUA’s term belongs entirely to Centers. In the event Summer obtains authorization and a license under the Summer Permit to conduct cardroom operations at a location other than the Facility, Summer must remit to Centers 4.00% of Summer’s weekly gross cardroom receipts to supplement prizes paid in connection with live jai alai games conducted at the Facility.

 

15
 

 

The APUA commenced on October 1, 2010 and continues until the date which is seven years after all of the following events have occurred:

 

1)Centers obtains a slot machine license under Chapter 551 of the Florida Statutes, pursuant to Centers’ Miami Jai-Alai permit;

2)Centers installs slot machines, and holds itself out to the public as, and commences operations as, a slot machine gaming facility under Chapter 551, Florida Statutes; and

3)the first “coin-in” occurs at the Facility. If the aforementioned events do not occur, the APUA terminates on its 21st anniversary.

 

Additionally, Summer has the option to unilaterally terminate the APUA at any time by giving Centers 30 days notice of such termination. The Lease Agreement and Memorandum of Lease both dated September 30, 2010 outline terms for Summer to lease the Facility from Centers during the Summer Seasons. The Lease Agreement and Memorandum have the same term as the APUA, including the unilateral option of Summer to terminate the lease with notice. Rent owed by Summer to Centers equals the product of $7,500 multiplied by the number of jai alai performances held during the period. Rent is capped at 115% of the minimum number of performances required under Florida law.

 

On April 30, 2012, Summer Jai Alai Partners, a Florida general partnership, and West Flagler Associates, Ltd., a Florida limited partnership, Plaintiffs, filed a complaint for declaratory and injunctive relief against Florida Gaming Centers, Inc., a Florida corporation. The Company continues to work to resolve the issues involved with West Flagler Associates and believes a satisfactory resolution can be achieved. On May 21, 2012 the Company served a motion to dismiss the complaint. A full settlement was thereafter reached and the case was dismissed with prejudice.

 

Hialeah Park : On June 30, 2010, W. Flagler and Florida Gaming Centers filed a constitutional challenge regarding the enactment of changes to Florida Statutes in Chapter 551 that purport to enable the expansion of slot machine games in Miami Dade County to the site of Hialeah Park. The Statutory Amendment conflicts with the Constitutional Provision, Article X, Section 23 in numerous ways. The Leon County Circuit Court held the statute to be valid and that decision is presently on appeal to the Florida First District Court of Appeal. On October 6, 2011, a state appeals court upheld the ruling for Hialeah Park to have a casino with Las Vegas style slot machines. On April 27, 2012, the Florida Supreme Court refused to take up a case challenging their legality. The Company continues to evaluate its options regarding this matter.

 

The decision essentially upholds the ruling from the 1 st District Court of Appeal in October that asserted the Legislature has the power to expand gambling in the state. Florida Gaming Centers and W. Flagler, in South Florida had challenged the decision to allow slots in Hialeah, claiming that since the racetrack wasn’t included as part of referendums in Miami-Dade and Broward counties to approve slots, the track should be barred from offering them.

 

The appellate court ruling upheld a trial court decision claiming the Legislature had the power to expand gaming, as it did in 2009 to include the Hialeah Racetrack in state statutes allowing slot machines in South Florida pari-mutuels.

 

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(12) NOTES

 

CIB Bank/Freedom/Holding Note 

On November 1, 2008, Centers, a wholly-owned subsidiary of the Company, borrowed One Million Three Hundred Twenty-Two Thousand Five Hundred and Seventy-Three Dollars and .73/00 ($1,322,573.73) from Holding, which was evidenced by Centers Promissory Note in favor of Holding dated November 1, 2008. Holding is controlled by the Company’s CEO/Chairman and the President maintains ownership in Holding. The Holding note was unsecured, interest was 10.0% per annum, and had an initial maturity date of May 1, 2009. The note was refinanced on May 1, 2009, again on September 1, 2009 and March 1, 2010 with maturity extended until September1, 2010. On September 1, 2010, the Company extended the note until September 1, 2011. (See Related Party Transactions) The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instruments were substantially different than the old debt. The present value of the remaining cash flows under the terms of the original instrument is less than ten percent, and therefore we determined that the new debt was not a substantially different debt instrument. The Notes were accounted for as debt refinances. The Company incurred no costs to refinance the notes.

 

On April 25, 2011, the Company entered into a Modification, Assignment and Assumption Agreement with Holding. Holding agreed to amend the note with Centers. The Agreement releases Centers from the obligations thereunder and accepted Florida Gaming Corporation as the new borrower under the promissory notes. Holding agreed to extend the maturity date to be at least six (6) months after the maturity date of the Credit Agreement, convert all interest payments to be paid in kind instead of in cash and to subordinate the obligations under the promissory notes to those under the Credit Agreement. (For more information refer to Form 8-K filed April 27, 2011, Exhibit 10.3). This note was accounted for as a debt refinance.

 

On June 28, 2012, the Company paid $100,323 to Holding which reduced the Company’s indebtedness to Holding. Holding used the funds to bring the interest current on an outstanding loan. At March 31, 2013, the Company owed Holding $1,896,802 on the note and $360,000 in dividends, compared to $1,850,162 and $340,000 in dividends at December 31, 2012.

 

Freedom Financial Corporation Note 

In connection with the closing of the Credit Agreement, the Company also entered into a Promissory Note with Freedom Financial Corporation (“Freedom”) in the amount of $1,905,000 for certain accounts receivable and unpaid consulting services rendered by Freedom to the Company. Under the Promissory Note, (i) the indebtedness is obligations under the Credit Agreement, (ii) interest shall be paid-in-kind instead of in cash and (iii) the outstanding principal shall be due and payable in full on the date that is six (6) months after the maturity date under the Credit Agreement. At March 31, 2013 the Company owed Freedom $2,137,051, compared to $2,105,744 at December 31, 2012. (See Related Party Transactions)

 

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James W. Stuckert and Solomon O. Howell Notes 

On August 14, 2009, Florida Gaming Corporation (the “Registrant”) entered into a Memorandum of Agreement (the “Agreement”) with Solomon O. Howell (“Howell”) and James W. Stuckert (“Stuckert,” and collectively with Howell, the “Lenders”) pursuant to which the Lenders may advance cash (each an “Advance”, and collectively the “Advances”) to the Company up to a maximum aggregate amount of one million dollars ($1,000,000). The advances to the Company were $1,000,000 evidenced by eight separate notes with a maturity date of December 31, 2009. On October 7, 2009, the Registrant and the Lenders amended the Agreement to require the Company to issue to each of the Lenders warrants to acquire up to 20,000 shares of the Registrant’s common stock at a price of $6.00 per share. Such warrants expired on October 7, 2012. The Company incurred $39,451 of cost related to the issuance of the warrants. These costs were amortized into expense over the remaining term of the related Notes from October 7, 2009 through December 31, 2009. The Notes also included a convertible feature allowing the lenders, at their option to convert outstanding principal and any accrued but unpaid interest into the Company’s $0.20 par value common stock at $6.00. The value of this conversion feature to the Company was $138,204. This value was initially recorded as a discount on notes payable and then amortized over the life of the Notes, which ended December 31, 2009.

 

On April 25, 2011, in connection with the closing of the Credit Agreement, the Company entered into a Modification Agreement with Solomon O. Howell and James W. Stuckert whereby the Memorandum of Agreement, dated August 14, 2009, for a note in the amount of $1,000,000 was amended to extend the maturity date to be at least six (6) months after the maturity date under the Credit Agreement, at the Company’s option permit interest to be paid-in-kind instead of in cash and subordinate the obligations under the Memorandum of Agreement to those under the Credit Agreement. (For further information please refer to Form 8-K filed April 27, 2011, Exhibit 10.2). The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instrument was substantially different than the old debt. The present value of the remaining cash flows under the terms of the original instrument is less than ten percent, and therefore we determined that the new debt was not a substantially different debt instrument. The Note was accounted for as debt refinance. At March 31, 2013, the Company owed $2,106,838, compared to $1,986,924 at December 31, 2012.

 

Andrea S Neiman 

On April 25, 2011, in connection with the closing of the Credit Agreement, the Company entered into a Modification, Assignment and Assumption Agreement with Andrea S. Neiman and agreed to modify an originate note in the amount of $125,000 to release Centers from the obligations thereunder and accept the Company as the borrower under the note, and extended the maturity date to be at least six (6) months after the maturity date under the Credit Agreement, and at the Company ‘s option permit interest to be paid-in-kind instead of in cash and generally subordinate the obligations under the note to those under the Credit Agreement. The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instrument was substantially different than the old debt. The present value of the remaining cash flows under the terms of the original instrument is less than ten percent, and therefore we determined that the new debt was not a substantially different debt instrument. The Note was accounted for as debt refinance. On March 31, 2013, the company owed $164,908 on this not, compared to $158,956 at December 31, 2012. (For further information please refer to Form 8-K filed April 27, 2011, Exhibit 10.4)

 

Miami Dade County 

On April 6, 2009, the Company completed Phase 1 of its two-phase acquisition of the 10.982 acres of property from the County. Phase 1 included the closing of the purchase of approximately 2.283 acres from the County for $3,348,429, including a down payment of $334,843 and a County financed note payable of $3,013,586 for 15 years with final payment due April 1, 2024, with a fixed interest rate of 7.25%. The Note is secured by the purchased property pursuant to a mortgage and security agreement between the Company and the County. The Company also received air-rights over N.W. 37th Avenue, a street separating the two properties. At March 31, 2013 the Company owed $2,522,900, compared to $2,582,833 at December 31, 2012.

 

On June 11, 2011, the Company completed Phase 2 of the approximately 8.7 remaining acres for $13,393,716 that was to close no later than 60 days after the United States Corps of Engineers released the property free and clear of environmental contamination. The Corp of Engineers released the property free and clear of environmental contamination and on June 16, 2011, the Company and the County consummated the final closing on the remaining 8.67 acres of the undeveloped property. At the final closing, the Company made a down payment of $1,339,371, representing 10% of the purchase price of the remaining 8.67 acres, and the County issued a new promissory note for $12,054,344 representing the remaining amount owed by the Company on the 8.67 acres of undeveloped property which were the subject of the Closing. The Note is for 15 years, with an interest rate of 7.25%. The Company deferred payments until March, 2012. At March 31, 2013 the Company owed $11,632,428, compared to $11,789,096 at December 31, 2012. (See Exhibit 10.20 and 10.21, filed with June 30, 2011 10-Q)

 

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Following the County Board’s vote to close 37th Avenue on July 7, 2011, the Company is required to pay up to $1,000,000 for remediation of 36th Avenue, of which $570,000 was paid in August, 2011 for the design and engineering of the 36th Avenue which was a condition precedent to the closure of 37th Avenue. The Company has accrued the remaining $430,000. If within 36 months of this vote the County determines a need to expand 36th Avenue, then the Company will be required to dedicate a 20-foot wide by 812-foot long strip of the Undeveloped Property to accommodate an 80 foot right-of-way (the “Expansion Easement”) which may, at the County’s sole discretion, be constructed in the future. The Company would also be required to pay for such street expansion to the extent of $4,700,000 through incremental draw-downs as described in the Settlement Agreement. On June 16, 2011, the Company granted a right-of-way deed representing the Expansion Easement which will be held in escrow until such time as the County Board votes to expand 36th Avenue.

 

Florida Lemark/Construct Design 

On December 9, 2010, the Company executed a $446,000 Promissory Note to Construct Design, Inc. The note was unsecured. The note bears interest at 12% per annum and was due January 31, 2011.

 

On April 25, 2011 the Company and Florida Lemark/Construct Design entered into an Amendment and Restatement, Assignment and Assumption Agreement (the “Agreement”) whereby the Promissory Note (“Note”) in the principal amount of $446,000 effective December 9, 2010, has been amended to (i) upon substantial completion of the project in accordance with the construction contract, to increase the outstanding principal of the original note to $1,000,000, (ii) at the Company’s option permit interest to be paid-in-kind instead of in cash and (iii) subordinate the obligations under the Agreement to those under the Credit Agreement. The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instrument was substantially different than the old debt. The present value of the remaining cash flows under the terms of the original instrument is less than ten percent, and therefore we determined that the new debt was not a substantially different debt instrument. The Note was accounted for as a debt refinance. (For further information please refer to the Form 8-K filed April 27, 2011). On March 11, 2012, 60 days after substantial completion of the project, the outstanding principal of this note was increased to $1,000,000. The Company owed $1,177,497 on this note at March 31, 2013, compared to $1,140,568 at December 31, 2012.

 

(13) RETIREMENT PLAN

 

The Company provides defined contribution retirement plans under Internal Revenue Code Section 401(k). The plans, which cover employees included in its current Collective Bargaining Agreement and certain non-union employees, provide for the deferral of salary and employer matching.

 

(14) RELATED PARTY TRANSACTIONS

 

Management fees/Freedom Financial Note . In lieu of salaries for the Chairman/CEO, W. B. Collett, the Company paid a management fee to Freedom Financial Corporation (“Freedom”) through March 31, 2011. The Company was unable to pay the management fees and accrued management fees to Freedom of $780,000 for each of the years ended December 31, 2009 and December 31, 2010. Freedom is controlled by the Company’s Chairman and the Company’s CEO/President also maintains ownership in Freedom. The Company had accrued management fees of $1,560,000 during the years ended December 31, 2010 and December 31, 2009, and the Company had accrued management fees of $195,000 for the first quarter 2011. On April 25, 2011, in connection with the closing of the Credit Agreement, the Company entered into a Promissory Note with Freedom in the amount of $1,905,000 of which $1,755,000 was for accrued but unpaid consulting fees and $150,000 in accounts receivables from Freedom. Under the Promissory Note, (i) the indebtedness is subordinate to the obligations under the Credit Agreement, (ii) interest shall be paid-in-kind instead of in cash and (iii) the outstanding principal shall be due and payable in full on the date that is six (6) months after the maturity date under the Credit Agreement. (See Form 8-K filed April 27, 2011, Exhibit 10.5). At March 31, 2013 the Company owed Freedom $2,137,051 on this note.

  

Consulting Agreement 

On April 25, 2011, Freedom and the Company entered into a consulting agreement. W. B. Collett (“WBC”) is the Chairman and CEO of Freedom and was the Chairman and CEO of FGC and Florida Gaming Centers, Inc. (“Centers”), until his retirement effective April 25, 2011. WBC is knowledgeable and experienced in both the areas in which the Companies conduct their respective businesses, and with industry sources and contacts, customers, and suppliers vital to the businesses operated by the Companies. (For further information refer to Form 8-K filed April 27, 2011 Exhibit K to Exhibit 10.1)

 

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FGC desires to maximize the value of the Companies’ business operations by entering into this Agreement with Freedom to utilize WBC’s valuable knowledge, assistance, reputation, and contacts in connection with existing business lines and with the anticipated future business opportunities of the Companies.

 

FGC will direct WBC to perform such business consulting services as FGC may reasonably request from time to time relating to the Companies’ businesses and future opportunities. The maximum number of hours of Consulting Service which WBC will be obligated to perform annually will be 500 hours. Unless this Agreement has been terminated, WBC may provide greater or fewer hours of Consulting Service than such number without affecting the compensation set forth herein.

 

WBC shall receive $300,000 per fiscal year in exchange for its performance of the Consulting Services; provided that if Centers satisfies the EBITDAM Adjustment Condition with respect to a fiscal year, the compensation for that Fiscal Year shall be $450,000, provided further, that no portion of the compensation of Consultant that goes unused in any fiscal year shall be available in any other fiscal year and no more than 25% of any fiscal year’s compensation of Consultant shall be available or otherwise distributed in any fiscal quarter occurring during such fiscal year. The first such fiscal year shall be the period beginning on the Opening Date, with each subsequent fiscal year running for periods of 12 consecutive months thereafter. In no event will payments be made hereunder prior to the Opening Date.

 

FGC will reimburse WBC for documented expenses reasonably incurred in connection with performing the Consulting Services, including but not limited to expenses for travel, lodging, meals and entertainment (subject to a maximum aggregate reimbursement of $7,500 in each consecutive three-month period beginning on the Opening Date) and (ii) provide WBC at its expense an office, telephone, and secretarial assistance as required. Secretarial services to be provided to WBC under this paragraph will be performed by members of FGC's current staff or their replacements and FGC will have no obligation to hire additional persons to perform such services.

 

The term of this Agreement will commence April 25, 2011 and end December 31, 2017 unless terminated earlier. WBC or FGC may terminate this Agreement for cause at any time. For the purposes of this Agreement, "cause" includes any breach or default of this Agreement by the other party which is not cured within 30 days of written notice thereof; commission of a felony; or action by the Consultant that materially injures the image or reputation of the Companies. WBC will remain a Director of the Companies or as the Chairman of their respective Boards of Directors. (For complete details see Exhibit K filed to Exhibit 10.1 of the Form 8-k filed April 27, 2011)

 

Mr. Collett received his first $25,000 payment of consulting services in June, 2012, and he also received a $25,000 payment in July, 2012. No other payments have been made.

 

Pledge Agreement 

In accordance with the Credit Agreement dated April 25, 2011, as additional collateral, William B. Collett, William B. Collett, Jr. and Hurd Family Partnership have pledged 954.3 shares of capital stock of Freedom Holding, Inc. (“Holding”). William B. Collett owned 85.09%, William B. Collett, Jr. owned 9.22% and the Hurd Family Partnerhip owned 5.69% of Holding.(For more information please refer to Form 8-K filed April 27, 2011, Exhibit 10.6)

 

Holding owns 1,325,869 shares of the Company’s common stock, 1,000 shares of the Company’s Preferred F stock, and 706,000 options. The 20,000 warrants expired November 1, 2011. In January, 2011, Holding pledged all 1,325,869 shares of common stock and 1,000 shares of Preferred stock as collateral on a loan.

  

W. Bennett Collett, Jr. Employment Agreement 

Concurrent with the closing of the financing under the Credit Agreement, W. Bennett Collett, Jr. (Mr. B. Collett) was promoted from President and Chief Operating Officer of the Company and Centers to President and Chief Executive Office of the Company and Centers. Mr. B. Collett is the son of W. Bennett Collett. Mr. B. Collett entered into an Employment Agreement with Centers, which provides for the following:

 

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·An initial term beginning on March 31, 2011 and ending on December 31, 2016, with automatic 12-month entensions thereafter unless earlier terminated

 

·Annual base salary of $300,000

 

·Subject to the discretion of the Board of Directors, an annual bonus beginning in calendar year 2012 not to exceed 50% of the base salary.

 

In addition, he entered into an Employee Bonus Compensation Restriction Agreement with the Administrative Agent, which Restricts the bonus payments made under the Employment Agreement in the event of default or default under the Credit Agreement.

 

For further information please see Form 8-K filed April 27, 2011, Exhibits 10.7 and 10.8.

 

CIB Bank/Freedom Note 

On October 31, 2005 Freedom purchased Centers First Bank (formerly CIB) loan for $2,400,000. First Bank assigned, without recourse, the note representing the loan as well as the mortgages, rents, and receivables securing the loan to Freedom, but retained the right to elect between receiving a $250,000 deferred fee or exercising warrants to purchase 102,115 shares of the Registrant's common stock in connection with the loan. First Bank exercised all warrants in 2006. Effective October 31, 2005, Freedom and Centers entered into an Amended and Restated Loan Agreement and a Third Amended and Restated Note in the principal amount of $2,400,000 with an 8% fixed rate of interest. On October 31, 2008, Centers note payable to Freedom matured and was subsequently refinanced with a $1,322,574 note payable issued November 1, 2008 to Freedom Holding, Inc. ("Holding"). Holding is controlled by the Company’s Chairman and the CEO/President maintains ownership in Holding. The Holding note was unsecured at an interest rate of 10%, with all principal and interest due May 1, 2009. The Note was subsequently renewed through September 1, 2011 (refer to 8-K filed March 5, 2010). As an inducement to refinance the note, the Company issued Holding a warrant to purchase 20,000 shares of the Company's $0.20 par value common stock at a price per share of $8.25. The warrant was exercisable at any time from November 1, 2008 through November 1, 2011. Holding did not exercise their warrants and they expired November 1, 2011.

 

On April 25, 2011 the Company entered into a Modification, Assignment and Assumption Agreement with Holding. Holding agreed to amend the note with Centers to release Centers from the obligations thereunder and accept Florida Gaming Corp as the new borrower under the promissory notes. Holding agreed to extend the maturity date to be at least six (6) months after the maturity date under the Credit Agreement, and convert all interest payments to be paid in kind instead of in cash and to subordinate the obligations under the promissory notes to those under the Credit Agreement. The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instruments were substantially different than the old debt. The present value of the remaining cash flows under the terms of the original instrument is less than ten percent, and therefore we determined that the new debt was not a substantially different debt instrument. The note was accounted for as a debt refinance. (See Form 8-K filed April 27, 2011)

 

On June 28, 2012, the Company paid $100,323 to Holding which reduced the Company’s indebtedness to Holding. Holding used the funds to bring the interest current on an outstanding loan. At March 31, 2013, the Company owed Holding $1,896,802 on the note and $360,000 in dividends, compared to $1,850,162 on the note and $340,000 in dividends at December 31, 2012.

 

(15) SUBSEQUENT EVENTS

 

The Company has adopted the provisions of SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS 165, as incorporated into ASC Topic 855, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date and through the date financial statements are issued. The Company evaluated, and included, all events or transactions that occurred after March 31, 2013 through May 14, 2013, the date these financial statements were issued.

 

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(16) FAIR VALUE MEASUREMENTS

 

ASC Topic 820 requires disclosures concerning fair value measurements and establishes a three-level valuation hierarchy. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

 

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

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Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

56ASC Topic 820 requires disclosure of assets and liabilities measured at fair value on a nonrecurring basis. The following table presents the financial assets carried by the Company at fair value as of March 31, 2013 and December 31, 2012 and by Topic 820 valuation hierarchy (as described above).

 

Assets and liabilities measured at fair value on a recurring and nonrecurring basis as of March 31, 2013

 

           Internal         
       Quoted   models with   Internal models     
   Total   market   significant   with significant     
   carrying   prices in an   observable   unobservable     
   value on   active   market   market     
   balance   market   parameters   parameters   Total Gains 
   sheet   (Level 1)   (Level 2)   (Level 3)   (Losses) 
Real Estate Held For Sale  $234,000   $-   $234,000   $-   $(26,069)
                          
Total assets at fair value  $234,000   $-   $234,000   $-   $(26,069)
                          
Warrants Liability  $-   $-   $-   $(4,403,666)  $(4,403,666)
                          
Total liabilities at fair value  $-   $-   $-   $(4,403,666)  $(4,403,666)

 

Assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2012

 

           Internal         
       Quoted   models with   Internal models     
   Total   market   significant   with significant     
   carrying   prices in an   observable   unobservable     
   value on   active   market   market     
   balance   market   parameters   parameters   Total Gains 
   sheet   (Level 1)   (Level 2)   (Level 3)   (Losses) 
Real Estate Held For Sale  $234,000   $-   $234,000   $-   $(26,069)
                          
Total assets at fair value  $234,000   $-   $234,000   $-   $(26,069)
                          
Warrants Liability  $-   $-   $-   $(4,403,666)  $(4,403,666)
                          
Total liabilities at fair value  $-   $-   $-   $(4,403,666)  $(4,403,666)

 

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Florida Gaming Corporation operates a casino and pari-mutuel wagering facilities in Florida. In Miami the Company offers slot machines and live jai-alai, poker, dominos, electronic blackjack, roulette and inter-track wagering (ITW). In Ft. Pierce, Florida Gaming offers ITW via simulcasting on horse and greyhound racing, seasonal jai-alai, and year round poker in the card room. In addition, the Company operates Tara Club Estates, Inc. (“Tara”), a residential real estate development located near Atlanta in Walton County, Georgia. Approximately 44.6% of the Company's common stock is controlled by the Company's Chairman either directly or beneficially through his ownership of Freedom Holding, Inc.

 

On November 25, 2012, the Board of Directors of the Company unanimously approved the Company’s sale of Centers. The Company entered into a Stock Purchase Agreement for the sale of Centers to Silvermark LLC for $115 million plus the assumption of certain liabilities of Centers associated with two mortgages held by Miami-Dade County. Centers constitutes the Company’s only operating asset. The $115 million cash purchase price, which is subject to adjustment as described in the SPA, will be used to fund the repayment of Centers’ other outstanding indebtedness, including but not limited to approximately $87 million credit facility and other debt totaling approximately $10.5 million. The Company’s stockholders are not expected to receive any consideration upon the consummation of the transaction. In general, at closing, proceeds from the transaction will be used to pay transaction-related expenses and to service the Company’s outstanding indebtedness. $7.5 million of the purchase price will be placed in escrow for up to three years to indemnify Silvermark against obligations of the Company after the closing. (See Note 6) (For complete details on the sale of Centers, please refer to DEF 14A filed January 31, 2013)

 

This Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project,” and similar expressions. When the Company makes forward-looking statements, it is basing them on management’s beliefs and assumptions, using information currently available. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions related to the following:

 

·risk of foreclosure;

·changes in legislation;

·federal and state regulations;

·general economic conditions;

·unforeseen legal proceedings;

·inadequate insurance coverage;

·substantial debt;

·competitive factors and pricing pressures;

·dependence on the services of key personnel;

·interest rates;

·risks associated with acquisitions;

·uncertainties associated with possible hurricanes;

·and uncertainties related to the State of Florida negotiations with the American Indian tribes who operate casinos.

 

If one or more of these or other risks or uncertainties materialize, or if the underlying assumptions prove to be incorrect, actual results may vary materially from those anticipated. Any forward-looking statements in this Form 10-Q or the documents incorporated herein by reference reflect management’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Company’s operations, results of operations, growth strategy and liquidity. The factors specifically consider the factors identified in the Company’s Form 10-K including under the caption “Risk Factors” should be considered.

 

References to “we”, “us”, “our”, “the registrant”, “Florida Gaming ” and “the Company” in this quarterly report on Form 10Q shall mean or refer to Florida Gaming Corporation, unless the context in which those words are used would indicate a different meaning.

 

Critical Accounting Estimates

 

The Company's Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments, and select from a range of possible estimates and assumptions, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period.

 

On an on-going basis, the Company evaluates its estimates, including those related to allowances for doubtful accounts, accounts receivable, inventory allowances, asset lives, the recoverability of other long-lived assets, including property and equipment, goodwill and other intangible assets, the realization of deferred income tax assets, remediation, litigation, income tax and other contingencies. The Company bases its estimates and judgments, to varying degrees, on historical experience, advice of external specialists and various other factors it believes to be prudent under the circumstances. Actual results may differ from previously estimated amounts and such estimates, assumptions and judgments are regularly subject to revision.

 

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The policies and estimates discussed below are considered by management to be critical to an understanding of the Company's financial statements because their application requires the most significant judgments from management in estimating matters for financial reporting that are inherently uncertain.

 

The Company presents accounts receivable, net of allowances for doubtful accounts, to ensure accounts receivable are not overstated due to uncollectability. The allowances are calculated based on detailed review of certain individual customer accounts, historical rates and an assessment of the overall economic conditions as well as the aging of the accounts receivable. In the event that the receivables become uncollectible after exhausting all available means of collection, the company will be forced to record additional adjustments to receivables to reflect the amounts at net realizable value. The effect of this entry would be a charge to income, thereby reducing its net profit. Although the company considers the likelihood of this occurrence to be remote, based on past history and the current status of its’ accounts, there is a possibility of this occurrence.

 

The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The Company's estimate is based on a review of the current status of receivables. The Company had no allowance for doubtful accounts for the quarters ended March 31, 2013 and March 31, 2012.

 

In connection with losses incurred from natural disasters, insurance proceeds are collected on existing business interruption and property and casualty insurance policies. When losses are sustained in one period and the amounts to be recovered are collected in a subsequent period, management uses estimates to determine the amounts that it believes will be collected. So far the Company’s estimates have proved to be reasonable.

 

The Company evaluates the carrying value of its real estate development and other long-lived assets, annually under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 360, “Plant, Property, and Equipment” and ASC Topic 970 “Real Estate.” Long-lived assets, including property, plant and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in relation to the operating performance and future undiscounted cash flows of the underlying assets. Adjustments are made if the sum of expected future cash flows is less than book value. Based on management’s assessment of the carrying values of long-lived assets, no impairment reserve had been deemed necessary as of March 31, 2013.

 

Slot revenue is the aggregate net difference between gaming wins and losses, with liabilities recognized for funds deposited by customers before gaming play occurs, for chips and “ticket-in, ticket-out” coupons in the customers’ possession, and for accruals related to the anticipated payout of progressive jackpots. Progressive slot machines, which contain base jackpots that increase at a progressive rate based on the number of coins played, are charged to revenue as the amount of the jackpots increase. Pari-Mutuel revenue is derived from acceptance of wagers under a pari-mutuel wagering system. The Company accepts wagers on both on-site and ITW events. On-site wagers are accumulated in pools with a portion being returned to winning bettors, a portion paid to the State of Florida, and a portion retained by the Company. ITW wagers are also accepted and forwarded to the "host" facility after retention of the Company's commissions. The Company recognizes revenue from gaming operations in accordance with ASC Topic 605 which requires revenues to be recognized when realized or realizable and earned. Revenues derived from gaming operations including: mutuel, admission, program, food and beverage, card room, and other revenues are collected shortly before the earning events take place. The Company recognizes revenues from the Company's real estate operations in accordance with ASC Topic 360-20, and sales are generally recognized when consummated, which is upon the closing of the sale, unless the down payment is insufficient to accrue the revenue.

 

The Company's policy for unclaimed winning tickets follows the requirements as set forth by the State of Florida. Abandoned tickets are winning tickets that remain uncashed for a period of one year. The value of the abandoned tickets escheat to the state. These funds are deposited into the State School Fund for support and maintenance of Florida's public schools.

 

Competition

 The gaming industry is highly competitive. Many gaming companies have substantially greater financial resources and larger management staffs than the Company. Because of the growing popularity and profitability of gaming activities, competition is significantly increasing. The Company competes for customers with other forms of legal wagering, including video poker gaming in non-casino facilities, charitable gaming, pari-mutuel wagering, state lotteries, Indian casinos, and cruise ships.

 

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Further expansion of gaming opportunities not related to the pari-mutuel industry could also significantly and adversely affect the Company's business. In particular, the expansion of casino gaming in Miami-Dade and Broward Counties which is near the geographic areas from which the Company attracts or expects to attract a significant number of its customers could have a material adverse effect on the Company's business. The Company expects that it will experience significant competition as the emerging casino industry matures. The Company is now competing with Calder Casino, a slot facility in Florida adjacent to Calder Race Course, which opened on January 22, 2010 with approximately 1,200 slot machines and Flagler Dog Track reopened in October 2009 as Magic City Casino with 700 Las Vegas-style slot machines.

 

The Company also faces competition from gaming companies that operate on-line and Internet-based gaming services. These services allow patrons to wager from home on a wide variety of sporting events. Unlike most on-line and Internet-based gaming, companies, the Company may require significant and ongoing capital expenditures for both its continued operation and expansion. The Company also could face increased costs in operating business compared to these gaming companies. The Company cannot offer the same number of gaming options as on-line and Internet-based gaming companies. In addition, many on-line and Internet gaming companies are based off-shore and avoid regulation under state and federal laws. These companies may divert wagering dollars from legitimate wagering venues. Competition in the gaming industry is likely to increase due to limited opportunities for growth in new markets. The Company's inability to compete successfully with these competitors could have a material, adverse affect on its business.

 

Under SB 622, the Seminole tribe gained the exclusive right to have blackjack and other table games at three Broward County casinos and two others in Imokalee and Tampa. All seven tribal casinos also would be able to keep operating Las Vegas-style slot machines. Other portions of Chapter 2009-170 Laws of Florida, purports to permit Hialeah Race Course, located approximately 4 miles from Miami Jai-Alai, to open as a horse facility and operate slot machines after two consecutive years of quarter horseracing.

 

On October 6, 2011, a state appeals court upheld the ruling for Hialeah Park to have a casino with Las Vegas style slot machines. On April 27, 2012 the Florida Supreme Court refused to take up a case challenging their legality. The Company continues to evaluate its options regarding this matter.

 

Development of Slot Machines Operations

 

On January 29, 2008, residents of Miami-Dade County passed a referendum that would allow Miami Jai-Alai, and two other pari-mutuel facilities in Miami-Dade County to install up to 2,000 slot machines. On January 23, 2012, the company opened Casino Miami Jai-Alai in Miami, Florida. Miami Jai-Alai added a 40,000 square foot state of the art casino with 1,058 Class III slot machines, an expanded poker room, electronic blackjack, roulette, dominoes, live shows such as concerts and boxing, a new restaurant and three full-service bars, including one that will feature live music. The facility has approximately 1,500 surface parking spaces.

 

On April 28, 2010, the Governor of Florida signed SB 622, Chapter 2009-170, Laws of Florida which became effective on July 1, 2010. Under Florida Slot Law, the Company operates under the following provisions:

 

Casino Miami Jai-Alai may be open 365 days per year, up to 18 hrs per weekday, and 24 hrs on the weekend and certain holidays

Maximum number of machines is 2,000

$2,000,000 yearly license fee

35% tax rate of net slot machine revenue

ATM’S are permitted at the facility but not on the gaming floor

You must be 21 years old to play

  

Slot machines must be tested thoroughly and must comply with local and state government imposed licensing regulations. Many of the manufacturers will only allow the Casino to lease the machines in exchange for a flat fee. Leasing allows the Company to evaluate the different machines and continue to improve the selection for our guests at Casino Miami Jai-Alai. The Company is continually striving to provide the best entertainment in the Miami area.

 

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Under SB 622, the Seminole tribe gained the exclusive right to have blackjack and other table games at three Broward County casinos and two others in Imokalee and Tampa. All seven tribal casinos also would be able to keep operating Las Vegas-style slot machines. Other portions of Chapter 2009-170 Laws of Florida, purports to permit Hialeah Race Course, located approximately 4 miles from Miami Jai-Alai, to open as a horse facility and operate slot machines after two consecutive years of quarter horseracing.

 

On June 30, 2010, W. Flagler and Florida Gaming Centers filed a constitutional challenge regarding the enactment of changes to Florida Statutes in Chapter 551 that purport to enable the expansion of slot machine games in Miami-Dade County to the site of Hialeah Park. The Statutory Amendment conflicts with the Constitutional Provision, Article X, Section 23 in numerous ways. In December, 2010 FDBPR and South Florida Racing Association, LLC were granted a partial summary judgment in regards to the suit. The Company appealed the ruling and a state appeals court in Tallahassee, FL, on October 6th 2011, upheld a lower court ruling that allows Hialeah Park to have a casino with Las Vegas-style slot machines. The Company remains an appellant in this action. (For further information see Item 3 – Legal Proceedings)

 

Jai-Alai Industry

The jai-alai industry live handle (money wagered) generally has declined in the last several years, due to increased gaming competition such as casino gaming in Broward and Miami-Dade County, Indian Casino Gaming, gambling cruise ships, and the State of Florida lottery. Also, competition in the sports/entertainment area has increased significantly due to more professional sports teams in the Company's market areas. There can be no assurance that the jai-alai industry will improve significantly, if at all, in the future. Because the Company's jai-alai business is tied directly to many, if not all, of the factors which influence the jai-alai industry as a whole, a players strike or the enactment of unfavorable legislation could have an adverse impact on the Company's operations.

 

All Florida permit-holders are authorized to engage in Inter-Track Wagering (“ITW”) year-round, subject to certain restrictions, all of which are not discussed herein. ITW is permitted on thoroughbred racing, harness racing, dog racing, and jai-alai. ITW is permitted at a pari-mutuel facility so long as at least one facility in Florida is providing live pari-mutuel performances on any such day that ITW is offered.

 

Pursuant to the statute and subject to certain restrictions, Florida jai-alai frontons and dog racing tracks may receive broadcasts of dog races or jai-alai games conducted at tracks or frontons located outside of Florida ("out-of-state host facilities"). Among the restrictions applicable to such broadcasts, however, are the following: (1) that the receipt of out-of-state broadcasts by the Florida fronton or dog racing track (the "Florida guest facility") only be permitted during the Florida guest facility's operational meeting, (2) in order for the Florida guest facility to receive such broadcasts, the out-of-state host facility must hold the same type of class of pari-mutuel permit as the Florida guest facility, i.e., horse to horse, jai-alai to jai-alai, etc., (3) the guest facilities may not accept wagers on out-of-state races or games that exceed 20% of the total races or games on which wagers are accepted live. All wagering placed on out-of-state ITW broadcasts is included in the amount taxed pursuant to the Pari-Mutuel Law.

 

Each of the Frontons, as a guest facility when it participates in ITW, is entitled by statute to a minimum of 7% of the total contributions to the pari-mutuel pool when the ITW broadcast is by a host horse racing facility with the races run in Florida. Each of the Frontons is eligible by statute to receive a minimum of 5% of the total contributions to the pari-mutuel pool when the ITW broadcast is by facilities other than horse racing facilities (greyhound and jai-alai). In addition, each of the Frontons is authorized to receive admissions and program revenue when conducting ITW.

 

Card Room & Dominoes Development

Miami Jai-Alai opened a card room in 1997, and Ft. Pierce opened a card room on April 28, 2008. Poker is played at the Miami and Ft. Pierce Jai-Alai, and dominoes are played at the Miami Jai-Alai.

 

Card rooms are regulated by the Florida Division of Pari-Mutuel Wagering (“DPMW”). Permitted games are limited to non-banked poker games and dominoes. Florida state taxes are 10% of revenue and 4% of the revenues are paid to the jai-alai players.

 

1.Card rooms may operate on any day for a cumulative amount of 18 hours on week days and 24 hours on weekend and holidays;

 

2.“Authorized games” means a game or series of games of poker or dominoes; approved by the Division of Pari-Mutuel Wagering;

 

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3.“Tournament” means a series of games that have more than one betting round involving one or more Tables and where the winners or others receive a prize or cash award;

 

4.Card room operators may award giveaways, jackpots, and prizes to a player who holds certain combinations of cards specified by the card room operator;

 

5.Card rooms may conduct games of poker, with all games approved by the Division of Pari-Mutuel Wagering, State of Florida.

 

RESULTS OF OPERATIONS — FIRST QUARTER ENDED MARCH 31, 2013 COMPARED WITH FIRST QUARTER ENDED MARCH 31, 2012

 

Casino Miami Jai-Alai opened January 23, 2012. The revenue figures include the casino operation for the three months ended March 31, 2013, and from January 23, 2012 through March 31, 2012 for the first quarter 2012. During the first quarter ending March 31, 2013 and 2012, the Company’s operations reflect three months’ operation of live jai-alai performances at Miami. During the first quarter of 2013, Ft. Pierce operated live jai-alai from February 1, 2013 through March 30, 2013, compared to the first quarter of 2012,when Ft. Pierce operated live jai-alai from March 2, 2012 through April 28, 2012. The Miami cardroom did not open until January 25, 2012, compared to being open during the first quarter 2013. A full schedule of Inter-Track Wagering (“ITW”) was conducted at Ft. Pierce for the first quarters ending March 31, 2013 and 2012. Miami offers limited ITW product due to blackouts imposed because of its close proximity to other South Florida pari-mutuels. The Miami facility, however, broadcasts its jai-alai performances to other gaming facilities in Florida, the rest of the United States, Mexico, Central America and Austria. Ft. Pierce and Miami operated a card room, with the Miami location also offering dominoes in its’ card room.

  

Revenue for the quarter ended March 31, 2013, compared to the quarter ended March 31, 2012

On May 12, 2011, the Company received a license from the State of Florida to begin Class III-“Vegas Style” slot machine operations at Miami Jai-Alai. The Company broke ground Wednesday, May 18, 2011 to celebrate construction of the casino addition. Casino Miami Jai-Alai opened January 23, 2012.

  

Casino Revenue

 

For the three months ended March 31,  2013   2012   Variance   %
Variance
 
Casino  $17,913,079   $11,673,707   $6,239,372    53%
Promotional credits   (2,220,792)   (1,002,615)   (1,218,177)   122%
   $15,692,287   $10,671,092   $5,021,195    47%
State gaming tax   (5,515,176)   (3,689,213)   (1,825,963)   49%
City/county tax   (472,729)   (316,218)   (156,511)   49%
Net casino revenue  $9,704,381   $6,665,661   $3,038,720    46%

  

The Company saw a 46% increase in Casino Revenue during the three month period ended March 31, 2013. The Casino did not open until January 23, 2012, compared to being open the full 90 days in 2013. The Company has seen an increase in patrons with the additional advertising, and offering special events at the Casino, such as concerts, and boxing matches.

   

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Pari-mutuel revenue

  

For the three months ended March 31,  2013   2012   Variance   % Variance 
Miami  $922,367   $1,100,760   $(178,393)   -16%
Ft. Pierce   371,587    314,641    56,946    18%
   $1,293,954   $1,415,401   $(121,447)   -9%
Less state pari-mutuel taxes   (181,351)   (175,973)   5,379   3%
Less simulcast guest commissions   (196,781)   (231,073)   (34,292)   -15%
Net pari-mutuel  $915,822   $1,008,355   $(92,533)   -9%

  

Miami saw a decrease in pari-mutuel revenue for the three months ended March 31, 2013. The Company is offering fewer performances and totally eliminated Saturday performances at Miami. With the opening of the Casino the Company is offering entertainment functions on Saturdays. The Company may add more performance as a guest site at the Miami location in the future. If the Company does add more performances that would enhance ITW in the future.

 

Ft. Pierce saw an increase in pari-mutuel revenue because of live jai-alai being offered February and March, 2013, compared to only offering live jai-alai March 2, 2012 through March 31, 2012.

  

Cardroom Revenue

 

For the three months ended March 31,  2013   2012   Variance   % Variance 
Miami  $1,237,390   $955,970   $281,420    29%
Ft.Pierce   756,307    762,717    (6,410)   -1%
   $1,993,697   $1,718,687   $275,010    16%
State gaming tax   (215,355)   (184,658)   30,697    17%
City/county tax   (22,689)   (22,882)   (192)   -1%
Net cardroom revenue  $1,755,653   $1,511,147   $244,506    16%

 

With the opening of the casino in January, 2012, the Company moved the Cardroom closer to the casino floor which resulted in an increase in revenue. The cardroom did not open until January 25, 2012, compared to the 90 days beimg open in 2013. Ft. Pierce saw a slight decrease even though they were offering live jai-alai during February and March 2013, which normally draws more patrons.

 

Food, beverage and other revenue

  

For the three months ended March 31,  2013   2012   Variance   % Variance 
Miami  $462,359   $438,518   $23,841    5.4%
Ft. Pierce   132,391    120,991    11,400    9.4%
   $594,750   $559,509   $35,241    6.3%

 

Food, beverage and other income consists of the concession stands, bars, lottery commission, ATM commissions and misc. revenue. Casino Miami was open during the first quarter 2013, and this compares to not operating a full first quarter in 2012. The Casino did not open until January 23, 2012. Ft. Pierce offered live jai-alai during the months of February and March 2013 and there was an increase in the food and beer revenue.

 

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Expenses

 

For the three months ended March 31,  2013   2012   Variance   % Variance 
Casino  $2,007,870   $1,948,823   $59,047    3%
Pari-mutuel   1,479,462    1,318,239    161,223    12.23%
Cardroom   872,108    996,457    (124,349)   -12.48%
Food, beverages, and other   467,749    313,914    153,835    49.01%
Advertising   487,806    353,594    134,212    37.96%
Utilities   218,861    215,209    3,652    1.70%
Pre-Opening Expense   -    1,277,911    (1,277,911)   -100.00%
General & Administrative   1,229,067    1,070,982    158,085    14.76%
Depreciation and Amortization   1,239,740    1,116,168    123,572    11%
Other operating expense   2,361,696    2,201,502    160,194    7.3%
Expenses  $10,364,359   $10,812,798   $448,439    4%

 

Casino Expenses

 

Included in the casino expense for the first quarter 2013, is the equipment lease of $885,086, licenses and regulatory fees of $562,500, wages and insurance of $180,821 supplemental prize money of $275,759, and contract maintenance of $75,306 and other expenses of $28,398. This compares to is the equipment lease of $463,711, licenses and regulatory fees of $687,500, wages and insurance of $ 206,024 supplemental prize money of $184,461, pre-opening expense of $381,944 and other expenses of $25,183. The Casino did not open until January 23, 2012, compared to the three months ended March 31, 2013.

 

Pari-Mutuel

 

Some of the larger expenses for the three months ended March 31, 2013 were wages and health insurance totaling $1,173,722, contract maintenance of $141,247, security police $48,364, television camera rental of $72,486, and misc of $43,643. This compares to the three months ended March 31, 2012, wages of $1,073,526, contract maintenance of $191,452 and misc of $53,261. During the three months ended March 31, 2013, Ft. Pierce offered live jai-alai during February and March of 2013, compared to the three months ended March 31, 2012, when Ft. Pierce only offered live jai-lai in March.

 

Cardroom

 

For the three months ended March 31, 2013, wages and insurance totaled $598,246, supplemental prize money of $79,644 promotional expense of $191,300, and misc of $2,918. This compares to three months ended March 31, 2012 which included wages and insurance of $627,725, supplemental prize money of $68,788, promotional expense of $262,386, and misc expense of $37,558. Wages and insurance were higher during 2012 because the Company had more employees on hourly wages. During the three months ended March 31, 2013, Miami’s cardroom was open, compared to not opening the cardroom until January 25, 2012.

  

Food, beverage and other

 

Food, beverage and other consists of the concession stands, bars, lottery commission, ATM commissions and misc. revenue. The Company saw an increase of 6% in sales which led to an increase in cost of sales, wages and insurance, and operating supplies.

  

Advertising

 

The company continues to evaluate different areas of advertising. The company currently uses direct marketing mail, billboard placement, ads in the newspaper, ads on television and radio, and agency fees advertising entertainment events and the new Casino. This has led to the $134,212 increase for the three months ended March 31, 2013, compared to the three months ended March 31, 2012.

 

Utilities

 

Utilities saw an increase of $3,652 for the three months ended March 31, 2013.

 

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Pre-Opening 

During 2012, the Company incurred $1,277,611 in pre-opening expenses for the three months ended March 31, 2012. The Company chose to hire a firm to staff various employee positions at the Casino and a majority of these expenses will be incurred one time.

  

General And Administrative Expenses

After the opening of the Casino the Company made adjustments to personnel which decreased executive compensation for the first quarter 2013 by $32,324. Directors fees decreased during the three months ended March 31, 2013 by $6,000 due to the death of William Haddon in 2012. Dr. Galloway is the only paid director at $2,000 a month. Telephone and travel expenses remained comparative. Professional fees for the three months ended March 31, 2013 were $219,495 compared to $87,544 for the quarter ended March 31, 2012 due to legal fees associated with the lawsuit with the lenders. Property taxes increased due to the increase in personal property tangible tax in Miami. Property insurance decreased due to the timing of payments.

 

Depreciation and Amortization 

Depreciation for the three months ended March 31, 2013 was $875,840 compared to $751,851 for the three months ended March 31, 2012. Depreciation expense on gaming equipment for the three months ended March 31, 2013, was $572,652 compared to $466,715 for the three months ended March 31, 2012. Amortization expense for the three months ended March 31, 2013was $363,900 compared to $364,317 for the three months ended March 31, 2012.

 

Other Expenses 

The Company has seen an increase in Other operating expenses with the opening of the Casino. The Company has added an IT department, a marketing department, additional security and surveillance. A large portion of the expense is for wages and insurance.

 

Other Income (Expense)

The Company had other expense of $3,750,118 for the three month period ended March 31, 2013, compared to other expense of $3,229,141 for the three-month period ended March 31, 2012. Other expense for the quarter ended March 31, 2013, consisted of $90,251 in pari-mutuel tax credits, interest income of $252 and interest expense of $3,840,621. A large portion of the interest expense is a result of the $87 million dollar loan for the construction of Casino Miami Jai-Alai. During the three-month period ended March 31, 2012, the Company has pari-mutuel tax credits of $100,184, interest expense of $3,329,571 and interest income $245.

 

Tax Loss Carryforwards

At December 31, 2012, the Company had tax net operating loss (NOL) carryforwards of approximately $61,585,000 available to offset future taxable income. These NOL carryforwards expire twenty years from the year in which the losses were incurred or at various intervals through fiscal 2032. A significant portion of these NOLs are related to Florida Gaming Centers, Inc. and will be transferred to the buyer in connection with the pending sale (Note 6).

  

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Summary of Operations

The Company had net loss attributable to common shareholders of $1,258,629 or ($.31) per common share for the three months ended March 31, 2013, compared to net loss attributable to common shareholders of $4,412,024 or ($1.09) per common share for the quarter ended March 31, 2012. The Company saw income from operations of $2,606,247 during the first quarter 2013, compared to a loss from operations of $1,068,125 during the same period in 2012. The Casino did not open until January 23, 2012, and the Miami cardroom did not open until January 25, 2012, therefore the Company did not have a full 90 days of operation in 2012 with the casino revenue or cardroom revenue.

  

The Company began Casino operations on January 23, 2012 or just seven months after the first construction permit was granted. In addition to the Casino opening and building a database of players with the players club VIVA card we have experienced great success with the card room which is located on the casino floor.

 

The goal is to achieve greater awareness of the new Casino Miami Jai-Alai on the various entertainment options, such as poker, slots, dominos, boxing, concerts and of course jai-alai.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company’s cash and cash equivalents at March 31, 2013 was $5,759,562, compared to $25,378,219 during the three months ended March 31, 2012. At March 31, 2013, the Company had a negative working capital of $98,521,986. The Company is in default of the Credit Agreement, and therefore the $83,770,862 note was moved to current liabilities. On August 9, 2012 the company received an acceleration of demand on the $87 million dollar loan. (See Note 10 and the June 30, 2012 Exhibits 99.1 and 99.2.)

  

Cash Flows provided by (used in):  2012   2012 
Operating activities  $1,146,198   $(5,647,352)
Investing activities  $(29,337)  $(6,222,681)
Financing activities  $(216,601)  $(67,876)

  

Operating activities

  

·The Company had a net loss of $1,143,871 for the three months ended March 31, 2013, compared to $4,297,266 for the three months ended March 31, 2012. The Company saw an increase in casino revenue, cardroom revenue, and food, beverage and other revenue with the opening of the Casino on January 23, 2012.

·The Company saw an increase in depreciation due to the depreciation of gaming equipment of $572,652 in 2013, compared to $466,715 during the same period in 2012.

·Accounts Payable and Accrued Expenses saw a increase of $643,997 during the three months ended March 31, 2013, compared to a decrease of $4,223,072 during the same period in 2012. The Company had accrued the $3,550,000 PAC payment which was due ten days from when the casino was complete, and the Company paid the $3,550,000 on February 3, 2012.

·The Company had a prepaid expense of $281,250 related to the slot license at March 31, 2013.

 

Investing activities

 

The decrease in investing is a decrease in purchasing of property, plant and equipment.

 

·Most of the equipment was purchased in 2011 and the first quarter of 2012, for the new casino which opened January 23, 2012. Some of the larger purchases included the slot machines, computer system, and surveillance equipment . Purchases during 2013 have been minimal.

 

Financing activities

 

·The Company’s repayment of debt is on the Miami Dade properties.

 

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Supplemental Disclosures

 

·The Company also had an increase in property and equipment through an agreement the Company made with Lemark/Construct Design on April 25, 2011. The Company agreed upon substantial completion of the Casino the original principal balance of the note would be increased from $446,000 to $1,000,000, a $554,000 increase. (See Note 13)

 

·The majority of the interest the Company paid during the three months ended March 31, 2013 and March 31, 2012 was to ABC Funding, the Lenders.
   
 ·The Company accrued dividends for the three months ended March 31, 2013 and 2012.

 

On April 25, 2011, the Company entered into a Credit Agreement that provided for an $87,000,000 loan that matures on April 25, 2016. The loan is currently in default, and the entire principal balance is current, $83,770,862 (See Note 10).

  

The following agreed to extend and subordinate their notes until six months past maturity date of Credit Agreement, which is October 25, 2016. At March 31, 2013, the Company owed the following amounts:

  

·Freedom Financial Corp - $2,137,051

·Freedom Holding - $1,896,802

·Neiman- $164,908

·Stuckert/Howell- $2,106,838

·Florida Lemark - $1,177,497

 

The Company reviewed ASC 470-50-40 and used its guidance to determine if the new debt instrument was substantially different than the old debt. The Company determined that the new debt was not different and all the notes extended were accounted for as debt refinances.

  

The Company leases totalizator equipment from Sportech, a number of slot machines from Bally’s that are not available for purchase, copiers, golf carts, copiers, telephone system and other equipment. Total equipment rental under operating leases for the three months ended March 31, 2013 totaled $967,460. This compares to $530,695 for the three months ended March 31, 2012.

  

In February, 2005, the Company agreed to contribute to political action committee (PAC) formed by South Florida gaming interests seeking passage of a statewide legislative initiative and local referenda to expand gaming rights to include “slots” in Miami-Dade County, Florida. Pursuant to that contribution agreement, the Company was contingently committed to the payment of $3,550,000 to the PAC as its share of the cost of the initiative. The contingent commitment became binding upon the Company at the earlier of ten days after the Company begins slot machine operations at its facility or upon the bona fide sale or transfer of its business operations to a third party purchaser. The Company began slot operations on January 23, 2012 and on February 3, 2012, the Company paid the PAC $3,550,000. The Company had accrued the $3,550,000 in accounts payable during the year ended December 31, 2011.

 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Under SEC regulations, the information called for by this item is not required because the Company is a smaller reporting Company.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures . Based on the evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting . There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met.  In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any control will meet its objectives under all potential future conditions.

 

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Part II - OTHER INFORMATION

 

Item 1.  Legal Proceedings .

 

Florida Gaming Centers vs  FDBPR and South Florida Racing Association, LLC

On June 30, 2010, W. Flagler and Florida Gaming Centers filed a constitutional challenge regarding the enactment of changes to Florida Statutes in Chapter 551 that purport to enable the expansion of slot machine games in Miami Dade County to the site of Hialeah Park.  The Statutory Amendment conflicts with the Constitutional Provision, Article X, Section 23 in numerous ways.  The Leon County Circuit Court held the statute to be valid and that decision is presently on appeal to the Florida First District Court of Appeal.  On October 6, 2011, a state appeals court upheld the ruling for Hialeah Park to have a casino with Las Vegas style slot machines.  On April 27, 2012 the Florida Supreme Court refused to take up a case challenging their legality. The Company continues to evaluate its options regarding this matter.

 

ABC Funding, LLC v. Florida Gaming Centers, Florida Gaming Corp., et al., Miami-Dade County, Florida Circuit Court Case # 12-35064 CA 58.

On September 5, 2012, ABC Funding, LLC (“ABC”) brought suit against Florida Gaming Centers (“Centers”) and Florida Gaming Corp. (“Corp.”) alleging that Centers and Corp. are in default under an April 25, 2011 Credit Agreement entered into between them and ABC. ABC also named as defendants multiple other alleged creditors of Centers and Corp., all of whom ABC contends Center and Corp. owe money, in order to prioritize ABC’s alleged debt over the claimed debts of the other defendants.

 

In the suit, ABC alleges that certain defaults Centers and Corp. are claimed to have committed entitle ABC to foreclose upon the assets of Centers and Corp. The lawsuit contains the following counts: Breach of the Credit Agreement, Breach of Guaranty, Mortgage Foreclosure, Foreclosure of Security Interests and seeks the Appointment of a Receiver to run Casino Miami Jai Alai. On November 2, 2012, the court entered an order appointing David Jonas as Temporary Receiver in charge of Casino Miami Jai Alai’s operations, and the court later named Mr. Jonas as the receiver for the pendency of the suit.

 

On October 31, 2012, Centers and Corp. filed a counter-claim against ABC for breach of the Credit Agreement, breach of the implied covenant of good faith and fair dealing, aiding and abetting the breach of a fiduciary duty and fraud in the inducement Centers and Corp. also filed third party complaints against Innovation Capital, LLC (“Innovation”); James Freeland; Matthew Sodl; Steven Rittvo; Kevin Schieble; Summit Partners, LP; and Summit Master Company, LLC. The causes of action asserted against those entities and individuals are as follows: breach of fiduciary duty against Innovation, Sodl, Rittvo and Schieble; aiding and abetting the breach of a fiduciary duty against Freeland, Summit Partners, LP and Summit Masters Company, LLC; fraud in the inducement against Innovation, Freeland, Summit Partners, LP and Summit Masters Company, LLC; civil conspiracy against Innovation, Freeland, Summit Partners, LP and Summit Masters Company, LLC; breach of contract against Summit Partners, LP; and breach of the implied covenant of good faith and fair dealing against Summit Partners, LP. On February 20, 2013, Centers and Corp. filed an amended counterclaim against ABC alleging the same causes of action. ABC has yet to respond to that suit. On February 11, 2013, the court dismissed without prejudice the third party complaint and on that same day, Centers and Corp. filed a separate lawsuit against Innovation; James Freeland; Matthew Sodl; Steven Rittvo; Kevin Schieble; Summit Partners, LP; and Summit Master Company, LLC alleging similar causes of action to those set forth in the third party complaint.

 

ABC Funding, LLC v. Florida Gaming Centers and Florida Gaming Corp., St. Lucie, Florida Circuit Court Case #: 56-2012-CA-003525 AXXXHC.

On September 5, 2012, ABC Funding, LLC (“ABC”) brought suit against Florida Gaming Centers (“Centers”) and Florida Gaming Corp. (“Corp.”) in St. Lucie County, Florida, where Ft. Pierce Jai Alai is located, alleging that Centers and Corp. are in default under an April 25, 2011 Credit Agreement entered into between them and ABC. ABC alleges certain defaults entitle ABC to foreclose upon the assets of Centers and Corp. The lawsuit contains the following counts: Breach of the Credit Agreement, Breach of Guaranty, Mortgage Foreclosure, Foreclosure of Security Interests and seeks the Appointment of a Receiver to run Casino Miami Jai Alai.

 

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On October 31, 2012, Centers and Corp. filed a counter-claim against ABC for breach of the Credit Agreement, breach of the implied covenant of good faith and fair dealing, aiding and abetting the breach of a fiduciary duty and fraud in the inducement Centers and Corp. also filed third party complaints against Innovation Capital, LLC (“Innovation”); James Freeland; Matthew Sodl; Steven Rittvo; Kevin Schieble; Summit Partners, LP; and Summit Master Company, LLC. The causes of action asserted against those entities and individuals are as follows: breach of fiduciary duty against Innovation, Sodl, Rittvo and Schieble; aiding and abetting the breach of a fiduciary duty against Freeland, Summit Partners, LP and Summit Masters Company, LLC; fraud in the inducement against Innovation, Freeland, Summit Partners, LP and Summit Masters Company, LLC; civil conspiracy against Innovation, Freeland, Summit Partners, LP and Summit Masters Company, LLC; breach of contract against Summit Partners, LP; and breach of the implied covenant of good faith and fair dealing against Summit Partners, LP. Centers and Corp. anticipate that they will amend the counterclaim against ABC and dismiss without prejudice the third party complaint, as the same causes of action are currently pending in Miami-Dade County.

 

Florida Gaming Centers and Florida Gaming Corp. v. Innovation; James Freeland; Matthew Sodl; Steven Rittvo; Kevin Schieble; Summit Partners, LP; and Summit Master Company, LLC; Miami-Dade County, Florida Circuit Court Case #: 13-5105 CA 31

On February 11, 2013, Florida Gaming Centers (“Centers”) and Florida Gaming Corp. (“Corp.”) sued Innovation Capital, LLC (“Innovation”); James Freeland; Matthew Sodl; Steven Rittvo; Kevin Schieble; Summit Partners, LP; and Summit Master Company, LLC. The complaint contains six counts: Count I for breach of fiduciary duty against Innovation; Count II for breach of fiduciary duty against Sodl, Rittvo and Schieble; Count III for aiding and abetting a breach of fiduciary duty against Freeland, Summit Partner, LP and Summit Masters Company, LLC; Count IV for fraud in the inducement against Innovation; Count V for fraud in the inducement against Freeland, Summit Partners, LP and Summit Master Company, LLC; and Count IV for civil conspiracy against Innovation, Freeland, Summit Partners, LP and Summit Master Company, LLC. The claims arise out of the defendants’ conduct in negotiating and inducing Centers and Corp. to sign the April 25, 2011 Credit Agreement with ABC Funding, LLC. The defendants have not yet been served with the summons and complaint.


Coby Jacobs v. Florida Gaming Corporation, W. Bennett Collett, W. Bennett Collett, Jr., George Galloway, Jr., William Haddon, Florida Gaming Centers and Silvermark, LLC; Miami-Dade County, Florida Circuit Court Case #: 12-48014 CA 21.

On December 11, 2012, Jacobs, a shareholder of Florida Gaming Corp. (“Corp”), filed a class action suit alleging W. Bennett Collett, W. Bennett Collett, Jr., George Galloway, Jr., and William Haddon (deceased), as directors of Corp., breached their fiduciary duties with respect to entering into a Stock Purchase Agreement with Silvermark, LLC. The suit also alleged Florida Gaming Centers, Corp. and Silvermark, LLC aided and abetted these breaches. The Defendants denied all allegations of wrongdoing and moved to dismiss the complaint. No class was certified, and the suit has since been resolved and the parties. expect an order of dismissal to be entered in the near future.

 

Herbert Silverberg v. W. Bennett Collett, W. Bennett Collett, Jr., George Galloway, Jr., Freedom Holding, Inc. Silvermark, LLC and Florida Gaming Corporation (Nominal Defendant); Delaware Court of Chancery Case #: 8292-VCN

On February 8, 2013, Silverberg, a shareholder of Florida Gaming Corp. (“Corp.”), filed suit alleging W. Bennett Collett, W. Bennett Collett, Jr., and George Galloway, Jr., as directors of Corp., breached their fiduciary duties with respect to entering into a Stock Purchase Agreement with Silvermark, LLC and wasted corporate assets. The suit also alleged Silvermark, LLC aided and abetted these breaches. The suit also alleges Corp. failed to hold an annual meeting. The Defendants have not yet responded to the suit but deny all allegations of wrongdoing and intend to vigorously defend the suit.

 

Other Suits

The Company is a defendant in certain other suits which are deemed to be routine litigation in the ordinary course of business. The Company believes that the ultimate resolution of the suits will not have a material adverse impact on the Company's financial position or its results of operations.

  

Item 1 a) — Risk Factors

  

Not required for smaller reporting companies

 

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

  

None

  

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Item 3 — Defaults upon Senior Securities

 

The Company is in default of the Credit Agreement (See Note 10)

 

As of March 31, 2013, the Company has accrued but not paid dividends on their four classes of Preferred Stock:

 

The Company owes the following amounts on their Preferred Stock:

 

Preferred A:  $106,508 
Preferred AA:  $1,575,000 
Preferred B:  $64,075 
Preferred F:  $501,703 

 

Item 4 — Submission of Matters to a Vote of Security Holders.

  

None.

 

Item 5 — Other information

  

None.

 

Item 6 — Exhibits

 

3.1   Registrant’s Third Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on March 28, 2005, filed as reference 3.1 to the Registrant’s 2004 10-KSB, is incorporated herein by reference as Exhibit 3.1.
3.2   Registrant’s By-Laws as amended to date filed as Exhibit 3.5 to Registrant’s Form 10-KSB for the fiscal year ended December 31, 1998 are incorporated herein by reference as Exhibit 3.2.
4.1   Warrant Agreement, dated as of April 25, 2011, by and among Florida Gaming Corporation and the holders named therein, filed as reference 4.1 to Registrant’s 8-K filed April 27, 2011, is incorporated herein by reference as Exhibit 4.1.
4.2   Warrant Agreement, dated as of April 25, 2011, by and among Florida Gaming Centers, Inc., Florida Gaming Corporation as Guarantor and the holders named therein, filed as reference 4.2 to Registrant’s 8-K filed April 27, 2011 incorporated herein by reference as Exhibit 4.2.

  

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10.1   Credit Agreement, dated as of April 25, 2011, by and among Florida Gaming Centers, Inc., Florida Gaming Corporation, the lenders party thereto, and ABC Funding, LLC as Administrative Agent, filed as reference 10.1 to Registrant’s 8-k filed April 27, 2011, incorporated herein by reference as Exhibit 10.1.
10.2   Modification Agreement, dated as of April 25, 2011 by and between Solomon O. Howell and James W. Stuckert and Florida Gaming Corporation, filed as reference 10.2 to Registrant’s 8-K filed April 27, 2011, incorporated herein by reference as Exhibit 10.2.
10.3   Modification, Assignment and Assumption Agreement, dated as of April 25, 2011, by and among Freedom Holding, Inc., Florida Gaming Centers, Inc., and Florida Gaming Corporation, filed as reference 10.3 to Registrant’s 8-K filed April 27, 2011incorporated herein by reference as Exhibit 10.3.
10.4   Modification, Assignment and Assumption Agreement, dated as of April 25, 2011, by and among Andrea S. Neiman, Florida Gaming Centers, Inc., and Florida Gaming Corporation, filed as reference 10.4 to Registrant’s 8-K filed April 27, 2011 incorporated herein by reference as Exhibit 10.4.
10.5   Florida Gaming Corporation Promissory Note, dated as of April 25, 2011, in the amount of $1,905,000, filed as reference 10.5 to Registrant’s 8-K filed April 27, 2011 incorporated herein by reference as Exhibit 10.5.
10.6   Freedom Pledge Agreement, dated as of April 25, 2011, by and among William B. Collett, William B. Collett, Jr., Hurd Family Partnership, L.P. and ABC Funding, LLC. (Included as Exhibit H to Exhibit 10.1), filed as reference 10.1 to 8-k filed April 27, 2011, incorporated herein by reference as Exhibit 10.6.
10.7   Employment Agreement, dated as of April 25, 2011, between Florida Gaming Centers, Inc. and W. Bennett Collett, Jr. filed as reference 10.7 to Registrant’s 8-K filed April 27, 2011, incorporated herein by reference as Exhibit 10.7.
10.8   Employee Bonus Compensation Restriction Agreement, dated as of April 25, 2011, by and between W. Bennett Collett, Jr. and ABC Funding, LLC, filed as reference 10.8 to Registrant’s 8-K filed April 27, 2011, incorporated herein by reference as Exhibit 10.8.
10.9   Employment Agreement, dated as of April 25, 2011, by and between Florida Gaming Centers, Inc. and Daniel J. Licciardi, filed as reference 10.9 to Registrant’s 8-K filed April 27, 2011, incorporated herein by reference as Exhibit 10.9.
10.10   Consulting Agreement, dated as of April 25, 2011 by and between Freedom Financial Corporation and Florida Gaming Corporation (Included as Exhibit K to Exhibit 10.1), filed as reference 10.1 to Registrant‘s 8-K filed April 27, 2011, incorporated herein by reference as Exhibit 10.10.
10.13   Stock Subscription Agreement entered into between the Registrant and Prides Capital Fund I.L.P. dated June 15, 2007 and is filed as Exhibit 4.5 to Registrant’s Form 8-K dated June 15, 2007 and is incorporated herein by reference as Exhibit 10.13.
10.14   Stockholders Agreement entered into between the Registrant and Prides Capital Fund I.L.P. dated June 15, 2007 and is filed as Exhibit 4.6 to Registrant’s Form 8-K dated June 15, 2007 and is incorporated herein by reference as Exhibit 10.14.
10.15   Warrant Agreement entered into between the Registrant and Prides Capital Fund I.L.P. dated June 15, 2007 and is filed as Exhibit 4.7 to Registrant’s Form 8-K dated June 15, 2007 and is incorporated herein by reference as Exhibit 10.15.
10.16   Settlement Agreement as to Parcel No. 155 and Parcel No. 155TCE, dated February 3, 2009, by and between the Registrant and the County, filed as Exhibit 10.1 on Registrant’s Form 8-K dated April 6, 2009, and is incorporated herein by reference as Exhibit 10.16.
10.17   Promissory Note, entered into by the Registrant, the County and City National Bank of Florida on April 2, 2009, filed as Exhibit 10.2 on Registrant’s Form 8-K dated April 6, 2009 and is incorporated herein by reference as Exhibit 10.17.
10.18   Mortgage and Security Agreement, entered into by the Registrant, the County and City National Bank of Florida on April 6, 2009, filed as Exhibit 10.3 on Registrant’s Form 8-K dated April 6, 2009 and is incorporated herein by reference as Exhibit 10.18.
10.19   Registrant’s Amended and Restated Loan Agreement between Florida Gaming Centers, Inc. City National Bank of Florida, and Freedom Financial Corp, dated October 31, 2005, was filed as reference 10.9 to Registrant’s 2005 10-KSB, herein incorporated by reference as Exhibit 10.19.
10.20   Promissory Note, entered into by the Registrant, the County and City National Bank of Florida on June 16, 2011, was filed as Exhibit 10.20 to Registrant’s June 30, 2011 10-Q, and is incorporated herein by reference as Exhibit 10.20.
10.21   Mortgage and Security Agreement, entered into by the Registrant, the County and City National Bank of Florida on April 6, 2009, was filed as Exhibit 10.21 to Registrant’s June 30, 2011 10-Q, and is incorporated herein by reference as Exhibit 10.21.

 

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10.23   Warrant Agreement entered into between the Registrant and Nurmi Properties, dated December 11, 2009, was filed as Exhibit 10.18 to an 8-k filed December 17, 2009 and is incorporated herein by reference as Exhibit 10.23.
10.30   Partnership Purchase Interest Agreement, dated October 14, 2010, filed as Exhibit 10.30 to Registrant’s 10-Q dated November, 15, 2010 is incorporated herein by reference as Exhibit 10.30.
10.31   Assignment of Interest Agreement, between Florida Gaming Centers and W. Flagler Associates, dated October 14,2010, filed as Exhibit 10.31 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.31.
10.32   Assumption Agreement, between Florida Gaming Centers and West Flagler Associates, dated October 14, 2010, filed as Exhibit10.32 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.32.
10.33   Escrow Agreement, between Mintzer Sarowitz Zeris Ledva & Meyers LLP, Florida Gaming Centers and West Flagler, dated October 14, 2010, filed as Exhibit10.33 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.33.
10.34   Legal opinion, dated October 14, 2010, filed as Exhibit10.34 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.34.
10.35   Legal opinion of seller, dated October 14, 2010, filed as Exhibit 10.35 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.35.
10.36   Secretary’s Certificate, dated October 14, 2010, filed as Exhibit 10.36 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.36.
10.37   Sellers Certificate, between Florida Gaming Centers and West Flagler Associates, dated October 14, 2010, filed as Exhibit 10.37 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.37.
10.38   Sellers Release, between Florida Gaming Centers and West Flagler Associates, dated October 14, 2010, filed as Exhibit10.38 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.38.
10.39   Notice of Acceleration of Obligations, issued on August 9, 2012 filed as Exhibit 99.1 to the registrants June 30, 2012 10-Q, is incorporated herein by reference as Exhibit 10.39 .
10.40    Notice of Acceleration of Obligations, issued on August 9, 2012 filed as Exhibit 99.2 to the registrants June 30, 2012 10-Q, is incorporated herein by reference as Exhibit 10.40 .
10.41   Engagement Letter between Florida Gaming Centers, Inc. and David Jonas, filed as Exhibit 99.1 to the Company’s September 30, 2012 10-Q, is incorporated herein by reference as Exhibit 10.41.
10.42   Press Release dated November 26, 2012, announcing entering in to a Stock Purchase Agreement with Silvermark, attached at exhibit 99.1 to Form 8-K dated November 25, 2012, and is herein by reference as Exhibit 10.42.     
10.43   Stock Purchase Agreement dated November 26, 2012, attached as Exhibit 2.1 on Form 8-K dated November 25, 2012, is incorporated herein by reference as Exhibit 10.43.
10.44   The company entered into an Amendment to Stock Purchase Agreement attached as Exhibit 99.1 on Form 8-k dated February 22, 2013, and is incorporated herein by reference as Exhibit 10.44.
10.45   Appointment of new auditors for Florida Gaming Centers reported on Form 8-K, dated March 18, 2013, is incorporated herein by reference as Exhibit 10.45
14.0   Registrant’s Code of Ethics adopted by the Board of Directors on May 16, 2003, filed as Exhibit 14 to Registrant’s 2004 10-KSB is incorporated by reference as Exhibit 14.0.
21.0   List of Registrant’s Subsidiaries as of December 31, 2004, filed as Exhibit 21 to Registrant’s 2004 10-KSB is incorporated by reference as Exhibit 21.0.
31.1   Certification by Registrant’s Chief Executive Officer pursuant to Rule 302 as adopted pursuant to Section 902 of the Sarbanes-Oxley Act of 2002 is attached hereto.
31.2   Certification by Registrant’s Chief Financial Officer pursuant to Rule 302 as adopted pursuant to Section 902 of the Sarbanes-Oxley Act of 2002 is attached hereto.
32.1   Certification by Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to18 USC 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto.

 

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101   Interactive Data Files regarding (a) our Consolidated Balance Sheets as of March 31, 2013 and December 31, 2012, (b) our Consolidated Statements of Operations for the Three months ended March 31 2013 and 2012, (c) our Consolidated Statements of Cash Flows for the Three months ended March  31, 2013 and 2012 and (d) the Notes to such Consolidated Financial Statements.

 

* Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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(b) Form 8-K

 

Form 8-k report dated February 25, 2013, announcing that at the Special Meeting of Stockholders of Florida Gaming stockholders they approved the sale of all of the issued and outstanding stock of the Company’s wholly owned subsidiary, Florida Gaming Centers, Inc.

  

Form 8-k report dated March 27, 2013, whereas the Audit Committee and Board of Director recommended the ratification and approval of Morrison’s appointment as the Registrant’s principal accountant for the December 31, 2012 audit.

  

Form 8-k report dated April 22, 2013 entering into a Second Amendment to Stock Purchase Agreement with Silvermark LLC.

 

Form 8-k report dated May 8, 2013 entering into a Third Amendment to Stock Purchase Agreement with Silvermark LLC.

 

All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statement or notes thereto.

 

 

 

 

FLORIDA GAMING CORPORATION

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  FLORIDA GAMING CORPORATION
  (Registrant)
     
Date: May 15, 2013 By: /s/  W. B. Collett, Jr.
    W.B. Collett, Jr.
    President and Chief Executive Officer
    (principal executive officer)
     
Date: May 15, 2013 By: /s/  Kimberly  Tharp
    Kimberly Tharp
    Chief Financial Officer
    (principal financial officer) (principal accounting officer)

 

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