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FLORIDA GAMING CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND RECENT DEVELOPMENTS(Edgar Glimpses Via Acquire Media NewsEdge) 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. 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. Recent Developments On August 19, 2013, Florida Gaming Corporation and certain of its subsidiaries, including Florida Gaming Centers, Inc, filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida (the "Court"). The Companies will continue to operate their business as "debtors in possession" under the jurisdiction of the Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Court. In general, as debtors in possession under the Bankruptcy Code, the Company will be authorized to continue to operate as an ongoing business but may not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court. While operating as debtors in possession under Chapter 11 of the Bankruptcy Code, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or otherwise as permitted in the ordinary course of business. The Debtors have not yet prepared or filed with the Bankruptcy Court a plan of reorganization. No assurance can be given as to the value, if any, that may be ascribed to the Company's various prepetition liabilities and other securities. The Company cannot predict what the ultimate value of any of its securities may be and it remains too early to determine whether holders of any such securities will receive any distribution in the reorganization. Accordingly, the Company urges that caution be exercised with respect to existing and future investments in any of these securities or other Debtor claims. On June 7, 2013, Centers entered into an Engagement Letter with Jefferies LLC pursuant to which Jefferies was engaged to determine the "Net Company Value" and an "Appraised Value" of Centers in the manner and in accordance with the terms set forth in Section 8 of the Warrant Agreement. Jefferies LLC delivered the valuation report on June 27, 2013. As defined in the warrant agreement, the Jefferies report indicated an Appraised Value and Net Company Value of $76.7 million as of May 31, 2013. These values would result in a warrant repurchase of $26,845,000 as of June 30, 2013. Because the warrant repurchase price exceeds the proceeds the Company expects to receive from the Stock Purchase Agreement, the Company evaluated its options and filed for bankruptcy protection. The Company has accrued the additional $22,441,334 in the accompanying financial statements during the period ended June 30, 2013. 28 The Credit Agreement (See Note 3) states that the warrants held by the lenders, currently exercisable for 35% of the stock in Centers, would increase by one-hundredth percent (.01%) for each slot machine made available for gaming at Hialeah Park ("Hialeah") after its opening, up to a maximum of 10.0%, at any time the Centers Warrants are outstanding. According to Hialeah's website, their new facility opened on August 14, 2013 and they opened with 882 slot machines. 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. 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 June 30, 2013 and June 30, 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 June 30, 2013. 29 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: mutuels, 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. 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 Hialeah Casino Park, which opened August 14, 2013 with 882 slot machines, 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. 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. 30 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. 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 ports/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 31 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 weekends and holidays; 2. "Authorized games" means a game or series of games of poker or dominoes; approved by the Division of Pari-Mutuel Wagering; 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 - SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 2013 COMPARED WITH SECOND AND SIX MONTHS QUARTER ENDED JUNE 30, 2012 During the three months ended June 30, 2013, and June 30, 2012, Casino Miami Jai-Alai reflects three months of casino operation, cardroom operation and three months' operation of live jai-alai performances at Miami. During the second quarter of 2013, Ft. Pierce did not operate live jai-alai compared to operating jai-alai during the month of April during the three months ended June 30, 2012. A full schedule of Inter-Track Wagering ("ITW") was conducted at Ft. Pierce for the second quarter ending June 30, 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 June 30, 2013, compared to the quarter ended June 30, 2012 Casino Revenue For the three months ended June 30, 2013 2012 Variance % Variance Casino $ 21,404,754 $ 16,690,394 $ 4,714,360 28 % Promotional credits (2,581,566 ) (1,901,679 ) 679,887 36 % $ 18,823,188 $ 14,788,715 $ 4,034,473 27 % State gaming tax (6,562,445 ) (5,151,701 ) 1,410,744 27 % City/county tax (562,495 ) (441,575 ) 120,920 27 % Net casino revenue $ 11,698,248 $ 9,195,439 $ 2,502,809 27 % The Company saw a 27% increase in Net Casino Revenue during the three month period ended June 30, 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. 32 Pari-Mutuel Revenue For the three months ended June 30, 2013 2012 Variance % Variance Miami $ 894,969 $ 1,030,007 $ (135,038 ) -13 % Ft. Pierce 252,568 270,872 (18,304 ) -7 % $ 1,147,537 $ 1,300,879 $ (153,342 ) -12 % Less state pari-mutuel taxes (151,964 ) (181,256 ) (29,292 ) -16 % Less simulcast guest commissions (199,839 ) (214,855 ) (15,016 ) -7 % Net pari-mutuel $ 795,734 $ 904,768 $ (109,034 ) -12 % Miami saw a 13% decrease in pari-mutuel revenue for the three months ended June 30, 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 a 7% decrease in pari-mutuel revenue. Ft. Pierce did not offer live jai-alai during the second quarter 2013, compared to offering live jai-alai from April 1, 2012 through April 28, 2012 during the second quarter 2012. Cardroom Revenue For the three months ended June 30, 2013 2012 Variance % Variance Miami $ 1,277,488 $ 1,367,969 $ (90,481 ) -7 % Ft.Pierce 778,104 701,923 76,181 11 % $ 2,055,592 $ 2,069,892 $ (14,300 ) -1 % State gaming tax (199,484 ) (200,592 ) (1,108 ) -1 % Net cardroom revenue $ 1,856,108 $ 1,869,300 $ (13,192 ) -1 % Miami saw a decrease this quarter when a Bad Beat Jackpot was hit two times in a relatively short period which eliminates players that follow the jackpot. Ft. Pierce did some television and radio advertising this quarter to attract new patrons. Food, Beverage and Other Revenue For the three months ended June 30, 2013 2012 Variance % Variance Miami $ 561,716 $ 439,947 $ 121,769 28 % Ft. Pierce 115,045 123,156 (8,111 ) 7 % $ 676,761 $ 563,103 $ 113,658 20 % Food, beverage and other income consists of the concession stands, bars, entertainment revenues, lottery commission, ATM commissions and misc. revenue. Overall, beverage revenue saw a $60,823 increase for the second quarter, entertainment revenue had a $15,679 increase, and there was a $48,809 increase in ATM commissions. 33 Operating Expenses For the three months ended June 30, 2,013 2,012 Variance % Variance Casino $ 2,090,799 $ 2,512,640 $ (421,841 ) -16.8 % Pari-mutuel 1,174,785 1,485,935 (311,149 ) -20.9 % Cardroom 861,636 1,153,917 (292,281 ) -25.3 % Food, beverages, and other 487,017 493,520 (6,503 ) -1.3 % Advertising 573,926 539,280 34,647 6.4 % Utilities 262,362 272,123 (9,761 ) -3.6 % Pre-Opening Expense - 348,415 (348,415 ) -100.0 % General & Administrative 1,107,888 1,079,170 28,718 2.7 %Depreciation and Amortization 1,227,787 1,037,067 190,720 18.4 % Other operating expense 3,148,825 2,286,669 862,156 38.0 % Operating Expenses $ 10,935,025 $ 11,208,736 (273,708 ) -2.4 % Casino Expenses Included in the casino expense for the second quarter 2013, is the equipment lease of $899,156, licenses and regulatory fees of $562,500, wages and insurance of $191,110 supplemental prize money of $328,122, and contract maintenance of $74,635. This compares to is the equipment lease of $808,193, licenses and regulatory fees of $625,000, wages and insurance of $216,829, supplemental prize money of $257,585, and pre-opening expense of $572,918. Pari-Mutuel The larger expenses for the three months ended June 30, 2013 were wages and health insurance totaling $1,028,281 and contract maintenance of $145,629. This compares to the three months ended June 30, 2012, wages of $1,114,767, contract maintenance of $151,003, security police of $47,502, and television camerarental of $61,709. Cardroom For the three months ended June 30, 2013, wages and insurance totaled $561,904, supplemental prize money of $82,370 and promotional expense of $166,418. This compares to three months ended June 30, 2012 which included wages and insurance of $704,603, supplemental prize money of $83,065, 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. 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 $34,637 increase for the three months ended June 30, 2013, compared to the three months ended June 30, 2012. Pre-Opening During 2012, the Company incurred $348,415 in pre-opening expenses for the three months ended June 30, 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 Executive salaries did not change in comparing three months ended June 30, 2013 to June 30,2012. Director's fees decreased during the three months ended June 30, 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 June 30, 2013 were $219,495 compared to $87,544 for the quarter 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. 34 Depreciation and Amortization Depreciation for the three months ended June 30, 2013 was $1,227,787 compared to $1,037,067 for the three months ended June 30, 2012. Depreciation expense on gaming equipment for the three months ended June 30, 2013, was $863,887 compared to $672,750 for the three months ended June 30, 2012. Amortization expense was comparable at $363,900 for the three months ended June 30, 2013, compared to $364,317 for the three months ended June 30, 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 Revenue for the six months ended June 30, 2013, compared to the six months ended June 30, 2012 Casino Revenue For the six months ended June 30, 2013 2012 Variance % Variance Casino $ 39,317,833 $ 28,364,101 $ 10,953,732 39 % Promotional credits (4,802,358 ) (2,904,294 ) 1,898,064 65 % $ 34,515,475 $ 25,459,807 $ 9,055,668 36 % State gaming tax (12,077,622 ) (8,840,914 ) 3,236,708 37 % City/county tax (1,035,224 ) (757,793 ) 277,431 37 % Net casino revenue $ 21,402,629 $ 15,861,100 $ 5,541,529 35 % The Company saw a 35% increase in Net Casino Revenue during the six months ended June 30, 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. Pari-Mutuel Revenue For the six months ended June 30, 2013 2012 Variance % Variance Miami $ 1,817,336 $ 2,130,767 $ (313,431 ) -15 % Ft. Pierce 624,155 585,513 38,642 7 % $ 2,441,491 $ 2,716,280 $ (274,789 ) -10 % Less state pari-mutuel taxes (333,315 ) (357,229 ) 23,914 7 % Less simulcast guest commissions (396,620 ) (445,928 ) 49,308 11 % Net pari-mutuel $ 1,711,556 $ 1,913,123 $ (201,567 ) -10.5 % Miami saw a decrease in pari-mutuel revenue for the six months ended June 30, 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 with additional advertising. 35 Cardroom Revenue For the six months ended June 30, 2013 2012 Variance % Variance Miami $ 2,514,878 $ 2,323,939 $ 190,939 8 % Ft.Pierce 1,534,411 1,464,640 69,771 5 % $ 4,049,289 $ 3,788,579 $ 260,710 7 % State gaming tax (437,528 ) (408,132 ) 29,396 7 % Net cardroom revenue $ 3,611,761 $ 3,380,447 $ 231,314 7 % Overall for the six months ended June 30, 2013, the cardroom revenue increased 8%. During the second quarter we saw a decline of 1%. Food, Beverage and Other Revenue For the six months ended June 30, 2013 2012 Variance % Variance Miami $ 1,024,075 $ 878,465 $ 145,610 17 % Ft. Pierce 247,436 244,147 3,289 1 % $ 1,271,511 $ 1,122,612 $ 148,899 13 % Food, beverage and other income consists of the concession stands, bars, entertainment revenues, lottery commission, ATM commissions and misc. revenue. Miami saw a 17% increase in beverage sales, ATM commissions and entertainment revenue. Operating Expenses For the six months ended June 30, 2,013 2,012 Variance % Variance Casino $ 4,098,669 $ 4,461,463 $ (362,794 ) -8.1 % Pari-mutuel 2,654,247 2,804,174 (149,927 ) -5.3 % Cardroom 1,733,744 2,150,374 (416,630 ) -19.4 %Food, beverages, and other 954,766 807,434 147,332 18.2 % Advertising 1,061,732 892,874 168,859 18.9 % Utilities 481,223 487,332 (6,109 ) -1.3 % Pre-Opening Expense - 1,626,326 (1,626,326 ) -100.0 % General & Administrative 2,336,955 2,150,152 186,803 8.7 % Depreciation and Amortization 2,467,527 2,153,234 314,293 14.6 % Other operating expense 5,510,522 4,488,170 1,022,352 22.8 % Operating Expenses $ 21,299,384 $ 22,021,533 $ (722,149 ) -3.3 % Casino Expenses Included in the casino expense for the six months ended 2013, is the equipment lease of $1,784,242 licenses and regulatory fees of $1,125,000, wages and insurance of $371,932supplemental prize money of $603,881, and contract maintenance of $149,941. This compares to the equipment lease of $1,271,904, licenses and regulatory fees of $1,312,500, wages and insurance of $439,063,supplemental prize money of $442,046, and pre-opening expense of $954,862 for the six months ended June 30, 2012. Pari-Mutuel Some of the larger expenses for the six months ended June 30, 2013 were wages and health insurance totaling $2,174,976, contract maintenance of $285,076, and television camera rental of $131,656. This compares to the six months ended June 30, 2012, wages of $2,188,294, contract maintenance of $321,120, security police of $63,684, and television camera rental of $61,709. 36 Cardroom For the six months ended June 30, 2013, wages and insurance totaled $1,160,222, supplemental prize money of $162,014 and promotional expense of $357,736. This compares to six months ended June 30, 2012 which included wages and insurance of $1,332,330, supplemental prize money of $151,853, and promotional expense of $560,660. Wages and insurance were higher during 2012 because the Company had more employees on hourly wages. Food, beverage and other Food, beverage and other consists of the entertainment, concession stands, bars, lottery commission, ATM commissions and misc. revenue. The Company saw an increase of 13% 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 for advertising entertainment events at the new Casino. This has led to the $168,859 increase for the six months ended June 30, 2013, compared to the six months ended June 30, 2012. Ft. Pierce did some additional advertising in 2013. Pre-Opening During 2012, the Company incurred $1,626,326 in pre-opening expenses for the six months ended June 30, 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 six months 2013 by $32,324. Director fees decreased during the six months ended June 30, 2013 by $12,000 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 six months ended June 30, 2013 were $447,133 for the six months ended June 30, 2013, compared to $206,684 for the six months ended June 30, 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 six months ended June 30, 2013 was $2,467,527 compared to $2,153,235 for the six months ended June 30, 2012. Depreciation expense on gaming equipment for the six months ended June 30, 2013, was $1,739,727 compared to $1,423,769 for the six months ended June 30, 2012. Amortization expense for the six months ended June 30, 2013 was $727,800 compared to $729,466 for the six months ended June 30, 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 Summary of Operations The Company had net loss of $22,206,044 or ($5.53) per common share for the three months ended June 30, 2013, compared to net loss of $2,508,230 or ($.65) per common share for the quarter ended June 30, 2012. The Company saw income from operations of $4,091,826 during the second quarter 2013, compared to income from operations of $1,323,883 during the same period in 2012, an increase of 209%. The company had warrant expense of $22,441,334 during the second quarter 2013 compared to -0- during 2012. For further information, please see Recent Development section. The Company had net loss of $23,349,915 or ($5.84) per common share for the six months ended June 30, 2013, compared to net loss of $6,805,496 or ($1.74) per common share for the six months ended June 30, 2012. The Company saw income from operations of $6,698,073 during the six months ended June 30, 2013, compared to income from operations of $255,749 during the same period in 2012, an increase of 2,519%. 37 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 June 30, 2013 was $5,717,478, compared to $10,939,449 during the six months ended June 30, 2012. At June 30, 2013, the Company had a negative working capital of $119,378,787. 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 8) |