10-Q 1 v358919_10q.htm FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 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 November 14, 2013, there were 4,037,293 shares of the Registrant’s common stock outstanding.
 
 
 
FLORIDA GAMING CORPORATION
 
INDEX
 
 
 
Page Number
PART I—FINANCIAL INFORMATION
 
 
 
Item 1. Financial Statements
 
 
Consolidated Balance Sheets
 
3-4
Consolidated Statements of Operations
 
5
Consolidated Statements of Cash Flows
 
6
Notes to Consolidated Financial Statements
 
7
 
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
29
Item 3.  Quantitative and Qualitative Disclosure about Market Risk
 
39
Item 4.  Controls and Procedures
 
39
 
 
PART II – OTHER INFORMATION
 
 
 
Item 1.  Legal Proceedings
 
40
Item 1a. Risk Factors
 
40
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
40
Item 3.  Defaults upon senior securities
 
40
Item 4.  Submission of Matters to a Vote of Security Holder
 
40
Item 5. Other Information
 
40
Item 6.  Exhibits
 
Signatures
 
43
 
 
2

 
Part 1.  Financial Information
 
FLORIDA GAMING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
 
 
 
September
 
December 31,
 
 
 
2013
 
2012
 
 
 
(Unaudited)
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents (Note 1)
 
$
5,455,092
 
$
4,859,302
 
Receivables, net
 
 
282,688
 
 
240,117
 
Inventory (Note 1)
 
 
43,986
 
 
53,523
 
Prepaid expenses
 
 
2,417,150
 
 
1,148,694
 
Total current assets
 
 
8,198,916
 
 
6,301,636
 
 
 
 
 
 
 
 
 
Property, plant and equipment, at cost:
 
 
 
 
 
 
 
Land
 
 
21,210,998
 
 
21,210,998
 
Building and improvements
 
 
30,378,873
 
 
30,335,212
 
Furniture and equipment
 
 
19,059,201
 
 
19,046,179
 
Construction in progress
 
 
84,727
 
 
0
 
 
 
 
70,733,799
 
 
70,592,389
 
Less accumulated depreciation
 
 
(10,662,530)
 
 
(8,059,284)
 
Net property, plant and equipment
 
 
60,071,269
 
 
62,533,105
 
Real estate held for sale (net)
 
 
234,000
 
 
234,000
 
Other assets
 
 
5,220,835
 
 
6,022,571
 
Total Assets
 
$
73,725,020
 
$
75,091,312
 
 
 
3

 
FLORIDA GAMING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
 
Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
September 30,
 
December 31,
 
 
2013
 
2012
 
 
(unaudited)
 
 
Current liabilities:
 
 
 
 
 
 
Unclaimed winnings
 
$
157,039
 
$
103,668
Accrued payroll and related expenses
 
 
591,794
 
 
1,009,547
Accounts payable and accrued expenses (See Note 15)
 
 
3,258,864
 
 
14,587,094
Warrant liability (See Note 6)
 
 
-
 
 
4,403,666
Current portion, other long-term debt
 
 
13,516
 
 
84,912,163
Total current liabilities
 
 
4,021,213
 
 
105,016,138
 
 
 
 
 
 
 
Long-term liabilities:
 
 
 
 
 
 
Long-term portion notes payable, less current portion
 
 
2,079
 
 
20,472,982
Liabilities subject to Compromise (See Notes 2 and 3)
 
 
146,873,912
 
 
-
 
 
 
 
 
 
 
Stockholders' Deficit:
 
 
 
 
 
 
Class A convertible preferred stock, convertible to common stock; $.10 par value,
1,200,000 shares authorized; 27,756 shares issued and outstanding at September 30, 2013 and December 31, 2012
 
 
2,776
 
 
2,776
Class AA convertible preferred stock, convertible to common stock; $.10 par value,
5,000 shares authorized; 5,000 shares issued and outstanding at September 30, 2013 and December 31, 2012
 
 
500
 
 
500
Class B convertible preferred stock, convertible to common stock; $.10 par value,
50 shares authorized; 45 shares issued and outstanding at September 30, 2013 and December 31, 2012
 
 
5
 
 
5
Class F convertible preferred stock, convertible to common stock; $.10 par value,
2,500 shares authorized; 1,000 shares issued and outstanding at September 30, 2013 and December 31, 2012
 
 
100
 
 
100
Common stock, $.20 par value, authorized 7,500,000 shares, 4,037,293 issued and outstanding at September 30, 2013 and December 31, 2012
 
 
807,459
 
 
807,459
Capital in excess of par value
 
 
50,784,922
 
 
50,784,922
Accumulated deficiency
 
 
(128,767,946)
 
 
(101,993,570)
Total stockholders' deficiency
 
 
(77,172,184)
 
 
(50,397,808)
Total liabilities and stockholders' deficiency
 
$
73,725,020
 
$
75,091,312
 
 
4

 
FLORIDA GAMING CORPORATION
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
 
 
Sept. 30, 2013
 
Sept. 30, 2012
 
Sept. 30, 2013
 
Sept. 30,2012
 
REVENUES
 
 
 
 
 
 
 
 
 
 
 
 
 
Casino
 
$
15,465,178
 
$
14,034,916
 
$
49,980,653
 
$
39,494,723
 
Less state, county and city taxes
 
 
(5,869,513)
 
 
(5,328,538)
 
 
(18,982,359)
 
$
(14,927,245)
 
Net Casino Revenue
 
 
9,595,665
 
 
8,706,378
 
 
30,998,294
 
 
24,567,478
 
Pari-Mutuel
 
 
760,989
 
 
879,163
 
 
3,202,480
 
 
3,595,443
 
Less state pari-mutuel taxes incurred
 
 
(76,632)
 
 
(99,464)
 
 
(409,947)
 
 
(456,693)
 
Less simulcast guest commissions
 
 
(127,513)
 
 
(134,320)
 
 
(524,133)
 
 
(580,248)
 
Net Pari-Mutuel Revenue
 
 
556,844
 
 
645,379
 
 
2,268,400
 
 
2,558,502
 
Cardroom
 
 
1,654,867
 
 
1,743,851
 
 
5,704,156
 
 
5,532,430
 
Less state taxes
 
 
(180,349)
 
 
(190,012)
 
 
(617,877)
 
 
(598,144)
 
Net Cardroom Revenue
 
 
1,474,518
 
 
1,553,839
 
 
5,086,279
 
 
4,934,286
 
Food, beverages, and other
 
 
608,042
 
 
603,170
 
 
1,879,553
 
 
1,725,782
 
Net Revenue
 
 
12,235,069
 
 
11,508,766
 
 
40,232,526
 
 
33,786,048
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
7,936,459
 
 
7,580,835
 
 
23,429,966
 
 
25,298,981
 
General and Administrative
 
 
1,745,153
 
 
1,544,289
 
 
4,766,322
 
 
3,694,441
 
Depreciation and Amortization
 
 
1,227,419
 
 
1,392,077
 
 
3,694,946
 
 
3,545,312
 
 
 
 
10,909,031
 
 
10,517,201
 
 
31,891,234
 
 
32,538,734
 
Net Income from Operations
 
 
1,326,038
 
 
991,565
 
 
8,341,292
 
 
1,247,314
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
 
 
 
 
 
 
Pari-Mutuel Tax Credits
 
 
49,548
 
 
70,631
 
 
170,659
 
 
277,166
 
Interest Income
 
 
335
 
 
169
 
 
755
 
 
674
 
Reorganization Fees - (See Note 4)
 
 
(453,394)
 
 
-
 
 
(770,575)
 
 
-
 
Warrant Expense
 
 
-
 
 
-
 
 
(22,441,334)
 
 
-
 
Interest Expense
 
 
(4,002,714)
 
 
(5,692,047)
 
 
(11,730,899)
 
 
(12,960,332)
 
 
 
 
(4,406,225)
 
 
(5,621,247)
 
 
(34,771,394)
 
 
(12,682,492)
 
Net Loss
 
 
(3,080,187)
 
 
(4,629,682)
 
 
(26,430,102)
 
 
(11,435,178)
 
Dividends on Preferred Stock
 
 
(114,758)
 
 
(114,758)
 
 
(344,274)
 
 
(344,274)
 
Net Loss Attributable to Common Shareholders
 
$
(3,194,945)
 
$
(4,744,440)
 
$
(26,774,376)
 
$
(11,779,452)
 
Basic Loss per Common Share
 
$
(0.79)
 
$
(1.18)
 
$
(6.63)
 
$
(2.92)
 
Diluted Loss per Common Share
 
$
(0.79)
 
$
(1.18)
 
$
(6.63)
 
$
(2.92)
 
 
 
5

 
 Florida Gaming Corporation
(Debtor-In-Possession)
Consolidated Statements of Cash Flows
(Unaudited)
 
 
 
Sept. 30
 
Sept. 30
 
 
 
2013
 
2012
 
Cash flows from operating activities:
 
 
 
 
 
 
 
Net Loss
 
$
(26,430,102)
 
$
(11,435,178)
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
3,694,946
 
 
3,545,312
 
Interest payment not made and added back to principal of loan
 
 
2,969,687
 
 
589,936
 
Stock options
 
 
0
 
 
94,254
 
Florida gaming centers warrants
 
 
22,441,334
 
 
0
 
Increase in accounts receivables
 
 
(42,571)
 
 
(154,062)
 
Decrease in inventory
 
 
9,537
 
 
15,812
 
Increase in prepaid expense
 
 
(1,268,456)
 
 
0
 
(Increase) decrease in other assets
 
 
(289,962)
 
 
1,022,050
 
Increase (decrease) in accounts payable and accrued expenses
 
 
199,558
 
 
(13,706,150)
 
Net cash provided by (used) in operating activities
 
 
1,283,971
 
 
(20,028,026)
 
 
 
 
 
 
 
 
 
Investing Activities:
 
 
 
 
 
 
 
Purchases of property, plant and equipment
 
 
(141,410)
 
 
(8,777,563)
 
Net cash used in investing activities
 
 
(141,410)
 
 
(8,777,563)
 
 
 
 
 
 
 
 
 
Financing Activities:
 
 
 
 
 
 
 
Repayment of debt
 
 
(546,771)
 
 
(3,581,947)
 
Net cash provided used in financing activities
 
 
(546,771)
 
 
(3,581,947)
 
 
 
 
 
 
 
 
 
INCREASE (DECREASE) IN CASH
 
 
595,790
 
 
(32,387,536)
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
 
4,859,302
 
 
37,297,676
 
CASH AND CASH EQUIVALENTS AT SEPT. 30, 2013 AND SEPT. 30, 2012
 
$
5,455,092
 
$
4,910,140
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
 
 
Interest capitalized
 
$
-
 
$
671,969
 
Interest paid
 
$
7,627,094
 
$
13,607,452
 
Non cash acquisition of premises
 
$
-
 
$
544,000
 
Accrued preferred dividends
 
$
344,274
 
$
344,274
 
 
 
6

 
(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
General:
 
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 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.
 
Bankruptcy:
On August 19, 2013 (the “Petition Date”), Florida Gaming Corporation (case no. 13-29598), Florida Gaming Centers, Inc (case no. 13-29597), and Tara Club Estates, Inc (case no. 13-29603).  (collectively, the “Debtors”) filed voluntary petitions for relief (the “Bankruptcy Filing”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of  Florida (the “Bankruptcy Court”).   The Debtors continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy 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. (See Note 2)
 
On October 23, 2013, the United States Bankruptcy Court, Southern District of Florida, authorized Florida Gaming Corp. and Florida Gaming Centers to use cash collateral on a final basis. Pursuant to that authorization, the Companies are permitted to operate in the ordinary course of business during the pendency of their Chapter 11 proceedings. The Debtors have also agreed to commence a Section 363 sale process that would culminate in the sale of the Florida Gaming Centers assets in or about March 2014. Additionally, the Companies agreed to the entry of an order allowing the previously appointed state court receiver, David Jonas, to continue to serve as an excused Receiver pursuant to Section 543(d) of the Bankruptcy Code. 
 
 
7

 
The accompanying consolidated financial statements have been prepared assuming that Florida Gaming Corporation  will continue as a going concern. Florida Gaming Corporation’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in its debtor-in-possession credit agreements, the Bankruptcy Court’s approval of  Florida Gaming Corporation’s  plan of reorganization and the ability to successfully implement the plan, among other factors.  As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty.  While operating as debtors-in-possession under chapter 11, Florida Gaming  may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted  in the ordinary course of business (and subject to restrictions contained in the debtor-in-possession credit agreements), for amounts other than those reflected in the accompanying consolidated financial statements.  Further, the plan of reorganization could materially change the amounts and classifications of assets and liabilities reported in the consolidated financial statements.  The accompanying consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should Florida Gaming be unable to continue as a going concern or as a consequence of the Bankruptcy Filing.  (See Note 2)
 
Going Concern:
 
As of September 30, 2013, the Company was in default on an $87,000,000 credit facility (See Note 11 ). 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.
 
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 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. (See Note 2)
 
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.
 
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 results of operations for the nine months ended September 30, 2013 may not necessarily be indicative of the results of operations for the year ended December 31, 2013. The September 2012  amounts originally presented were adjusted in subsequent quarters.  Items in prior periods have been reclassified to conform to the 2013 presentation.
 
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.
 
Development of Casino:
 
On April 25, 2011, the Company secured financing to expand the Miami facilities to include slot machines.  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 on May 18, 2011 on the casino addition at Miami Jai-Alai.  Miami Jai-Alai has undergone substantial renovations featuring a casino floor accommodating approximately 1,000 slot machines, new card room featuring poker and dominoes, and new food and beverage facilities. The main auditorium has received upgrades making it more conducive for entertainment as well as live jai-alai. The addition is approximately 35,000 square feet and is joined with the existing facility to provide approximately 45,000 square feet of casino floor as well as “back of house” support offices. The facility has approximately 1,500 surface parking spaces.      The casino opened on January 23, 2012.
 
 
8

 
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
 
 
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")  and ASC Topic 970 “Real Estate” 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.
 
Accounts Receivables:
 
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 and nine months ended  September 30, 2013 and September 30, 2012.
 
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 $1,687,500  and $3,593,750 for the nine months ended September 30, 2013 and 2012,  respectively, in relation to this license. The license for 2012 was amortized on a straight line basis over the period that the casino was operational, January through May of 2012. As of September 30, 2013  the Company had a prepaid of approximately $1,406,250, related to the slot license, compared to $844,000 at 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 September 30, 2013 and December 31, 2012.
 
 
9

 
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 $157,039 at September 30, 2013  and $103,668 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 September 30, 2013 and December 31, 2012.
 
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 2009.
 
Income (Loss) Per Common 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.
 
 
10

 
The net loss per common share for the quarters ended September 30, 2013 and September 30, 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 September 30, 2013 and September 30, 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 September 30, 2013 and September 30, 2012 was 4,037,293.
 
The net loss per common share for the nine months ended September 30, 2013 and September 30, 2012 were calculated based upon reducing net loss attributable to common stock shareholders by dividends declared on preferred stock which was $344,274, for the nine month period ended September 30, 2013 and September 30, 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 September 30, 2013 and September 30, 2012 was 4,037,293.
 
Weighted average shares were not adjusted for common stock equivalence in the determination of diluted earnings per share for the three and nine months ended September 30, 2013 and September 30, 2012 because the effect would be antidilutive.
 
 
 
Three Months
 
Nine Months
 
 
 
Ended
 
Ended
 
 
 
Sept. 30,
 
Sept. 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
Weighted average number of shares for calculation of basic EPS – Common Stock
 
 
4,037,293
 
 
4,037,293
 
 
4,037,293
 
 
4,037,293
 
Weighted average number of shares for calculation of diluted EPS
 
 
4,037,293
 
 
4,037,293
 
 
4,037,293
 
 
4,037,293
 
 
Advertising Costs:
 
Advertising costs are expensed as incurred.
 
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. (See Note 6)
 
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 September 30, 2013 through November 19, 2013, the date these financial statements were issued.
 
 
11

 
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.

(2)  BANKRUPTCY PROCEEDINGS
 
The Bankruptcy Filing was intended to permit the Company (“Debtor”)  to  reorganize and  implement a plan of payment that meets the standards for confirmation under the Bankruptcy Code.  Confirmation of a plan of reorganization could materially alter the classifications and amounts reported in the Company’s consolidated financial statements, which do not give effect to any adjustments to the carrying values of assets or amounts of liabilities that might be necessary as a consequence of a confirmation of a plan of reorganization or other arrangement or the effect of any operational changes that may be implemented.
 
Operation and Implications of the Bankruptcy Filing
 
Under Section 362 of the Bankruptcy Code, the filing of voluntary bankruptcy petitions by the Debtors automatically stayed most actions against the Debtors, including most actions to collect indebtedness incurred prior to the Petition Date or to exercise control over the Company’s property.   Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to compromise under a plan of reorganization. As a result of the Bankruptcy Filing, the realization of assets and the satisfaction of liabilities are subject to uncertainty.  The Debtors, operating as debtors-in-possession under the Bankruptcy Code, may, subject to approval of the Bankruptcy Court, or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the debtor-in-possession credit agreements), sell or otherwise dispose of assets and liquidate or compromise liabilities for amounts other than those reflected in the consolidated financial statements.  Further, a confirmed plan of reorganization or other arrangement may materially change the amounts and classifications in the Company’s consolidated financial statements.
 
The Debtors may assume, assume and assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions.  In general, rejection of an executory contract or unexpired lease is treated as a pre-petition breach of the executory contract or unexpired lease in question and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease but entitles the contract counter-party or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach.  Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure any existing defaults under such executory contract or unexpired lease.
 
 
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Subsequent to the Petition Date, the Debtors received approval, but not direction, from the Bankruptcy Court to pay or otherwise honor certain pre-petition obligations generally designed to stabilize the Company’s operations.  These obligations related to certain employee wages, taxes, salaries and benefits, certain customer program obligations, and the payment of vendors and other providers in the ordinary course for goods and services received after the Petition Date.  The Debtors have retained, pursuant to Bankruptcy Court approval, legal  professionals to advise the Company in connection with the Bankruptcy Filing.    From time to time, the Debtors may seek Bankruptcy Court approval to retain additional professionals.
 
The U.S. Trustee for the Southern District of  Florida (the “U.S. Trustee”) has appointed an official committee of unsecured creditors (the “UCC”) as well as the secured creditors that shall have a right to be heard on all matters affecting the Debtors that come before the Bankruptcy Court.  There can be no assurance that the UCC will support the Debtors’ positions on matters to be presented to the Bankruptcy Court in the future or on the plan of reorganization.
 
On October 23, 2013, the United States Bankruptcy Court, Southern District of Florida, authorized Florida Gaming Corp. and Florida Gaming Centers to use cash collateral on a final basis.   Pursuant to that authorization, the Companies are permitted to operate in the ordinary course of business during the pendency of their Chapter 11 proceedings. The Debtors have also agreed to commence a Section 363 sale process that would culminate in the sale of the Florida Gaming Centers assets in or about March 2014. Additionally, the Companies agreed to the entry of an order allowing the previously appointed state court receiver, David Jonas, to continue to serve as an excused Receiver pursuant to Section 543(d) of the Bankruptcy Code.
 
Plan or Reorganization
 
In order for the Debtors to emerge successfully from chapter 11, the Debtors must obtain the Bankruptcy Court’s approval of the plan of reorganization (POR) , which will enable the Debtors to emerge from chapter 11 as a reorganized entity operating in the ordinary course of business outside of bankruptcy.  A plan of reorganization determines the rights and satisfaction of claims of various creditors and security holders, and is subject to the ultimate outcome of negotiations, events and Bankruptcy Court decisions.
 
Under section 1125 of the Bankruptcy Code, a disclosure statement must be approved by the Bankruptcy Court before the Debtors may solicit acceptance of a proposed plan of reorganization.  To be approved by the Bankruptcy Court, the disclosure statement must contain “adequate information” that would enable a hypothetical investor to make an informed judgment about the plan.  Once the disclosure statement is approved, the Debtors may send the proposed plan of reorganization, the disclosure statement and ballots to all creditors entitled to vote. The Company plans to submit a POR prior to December 17, 2013. 

(3) LIABILITIES SUBJECT TO COMPROMISE (LSTC)
 
The following table reflects pre-petition liabilities that are subject to compromise:
 
Accounts Payable & Accrued Expense
$
12,236,445
Warrants
 
26,845,000
Current Portion Long Term Debt
 
87,096,396
Long Term Debt
 
20,696,071
 
$
146,873,912
 
In connection with the Company’s bankruptcy filing on August 19, 2013, the Company reclassified a substantial portion of the outstanding pre-petition obligations to LSTC. These prepetition obligations included all the Note Payables, including the Credit Agreement (see note 11). The LSTC also includes the warrants, trade payables, and other accrued prepetition liabilities. These liabilities are expected to be subject to compromise as part of the Reorganization Plan and are subject to settlement of lesser amounts.

(4) BANKRUPTCY RELATED REORGANIZATION COSTS
 
The following table reflects bankruptcy related reorganization costs incurred during the fiscal year 2013.
 
Professional Fees
 
$
770,575
 
 
 
$
770,575
 
 

(5) PREFERRED STOCK
 
Class A Preferred Stock
 
The Company has 27,756 shares of Class A Preferred Stock, $.10 par value, that 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. Accrued dividends on Class A Preferred Stock totaled $118,997 at September 30, 2013, compared to $100,262 at December 31, 2012.
 
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. Accrued dividends on Class AA  Preferred Stock totaled $1,837,500 at September 30, 2013, compared to $1,487,500 at December 31, 2012. 
 
 
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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. Accrued dividends on Class B Preferred Stock totaled $66,040 at September 30, 2013 compared to $63,002 at December 31, 2012.
 
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. Accrued dividends on Class F Preferred Stock totaled $541,703 at September 30, 2013, compared to $481,703 at December 31, 2012.
 
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.

(6) STOCK OPTIONS AND WARRANTS
 
The Company maintains a Master Stock Option Plan, last amended July 9, 2012, which encompasses the following stock option plans: Stock Incentive Plan, Nonqualified Stock Option Plan, Officers and Directors Stock Option Plan, and Advisors and Consultants Stock Option Plan. Each stock option plan governs the administration, participation and other terms and conditions of option agreements under the plan.
 
On July 10, 2006, the Company issued a total of 473,125 options at $17.00 per share with an expiration of July 10, 2012; 33,000 options were issued to key employees, 325,000 options were issued to Freedom Financial Corporation (“Freedom”) and 115,125 options were granted to executive employees and directors.  On July 3, 2008, the Company re-priced all 473,125 options issued on July 10, 2006 from an exercise price of $17 per share to $12 per share, and on August 26, 2008 the options were re-priced to $8.25 per share.
 
On July 11, 2006, the Company issued 362,500 options to executive employees and a director at $17.00 per share with an expiration of July 11, 2009.  On July 3, 2008, the Company re-priced all 362,500 of these options to $12 per share.  On August 26, 2008, the Company re-priced all 835,625 options issued on July 10 and 11, 2006 from $12 per share to $8.25 per share.  On July 11, 2012 and 2011, the Company extended the 362,500 options originally issued on July 11, 2006 to certain executive employees and directors.  The amended 2012 agreement provided the option holders a four year extension on the option term through March 31, 2017 at a price of $8.25 per share.  The Company recognized total stock based compensations expense of $94,254 during the third quarter  2012  due to this amendment.  The amendment affected two employees and two directors.  Freedom Holding, Inc. (“Holding”), a related party controlled by the Company’s chairman, with additional ownership maintained by the Company’s CEO, held 325,000 of these options; an executive officer of the Company held 17,500 of these options; and the remaining 20,000 options are held by a director of the Company. 
 
The Company’s Chairman and the CEO maintain ownership interest in Holding and Freedom. In January, 2008 Freedom transferred 10,000 of the 325,000 options issued to it in July, 2006 to a third party.  On March 11, 2008 Freedom transferred its remaining 315,000 options in the form of a dividend to Holding.  Additionally on March 11, 2008, the Company’s Chairman and the CEO both transferred all options in their possession to Holding.  Holding recorded these transfers from the Company’s Chairman, and the CEO as capital contributions. 
 
 
14

 
On June 26, 2008, the Company borrowed $1,000,000 from Mr. James Stuckert (“Stuckert”) with an interest rate of Wall Street Journal prime plus three percent.  As inducement to Stuckert to make the loan, the Company issued a warrant to purchase 20,000 shares of the Company’s $.20 par common stock with an exercise price of $8.25 per share. The warrant was exercisable at any time from June 26, 2008 through June 26, 2013. These warrants expired June 26, 2013.
 
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 or nine months ended September 30, 2013 and September 30, 2012.  On June 26, 2013,  20,000 warrants expired.
 
 
 
September 30, 2013
 
September 30, 2012
 
 
 
 
 
Exercise
 
 
 
Exercise
 
 
 
Shares
 
 
Price
 
Shares
 
Price
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding, beginning of period
 
 
846,250
 
$
8.25
 
 
906,250
 
 
8.15
 
Granted
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercised
 
 
 
 
 
 
 
 
 
 
 
 
 
Forfeited
 
 
 
 
 
 
 
 
 
 
 
 
 
Expired
 
 
20,000
 
 
8.25
 
 
20,000
 
 
30.00
 
Outstanding at end of period
 
 
826,250
 
 
8.25
 
 
886,250
 
 
8.15
 
Options and warrants exercisable at end of period
 
 
826,250
 
 
8.25
 
 
886,250
 
 
8.15
 
 
Credit Agreement Warrants:
 
On April 25, 2011, the Company entered into a Credit Agreement (See Note 11) 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”). According to Hialeah’s website, their new facility opened on August 14, 2013 and they opened with 882 slot machines. 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 was in the process of selling Centers, and the Company had valued the warrants of Centers at $4,403,666 at December 31, 2012.
 
On June 7, 2013, Centers entered into an Engagement Letter with Jefferies LLC pursuant to which Jefferies will 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 dated as of April 25, 2011 among Centers, the Company and certain warrant holders named in the Warrant Agreement.
 
On June 27, 2013, Centers, the wholly owned subsidiary of  the Company, received a valuation report from Jefferies LLC. The Net Company Value and Appraised Value were required to determine the repurchase price for the warrants issued pursuant to the Warrant Agreement.  The Company’s repurchase of the warrants was a condition to closing the sale of Centers to Silvermark LLC pursuant to the Stock Purchase Agreement among the Company, Centers and Silvermark dated as of November 25, 2012. (See Note 14)
 
 
15

 
As defined in the Warrant Agreement, when calculated in accordance with the sale of Centers, “Net Company Value” means the greater of (i) the net proceeds resulting from the transaction and (ii) the “Appraised Value.” “Appraised Value” means the equity value of Centers that would be realized in a transaction between a willing seller and a willing buyer, neither of which is acting under compulsion and assuming each has full access to relevant information.  The warrant repurchase price is determined by multiplying the “Base Percentage” by the Net Company Value.  The current Base Percentage is 35%.
 
The Report indicated an Appraised Value of $76.7 million as of May 31, 2013. Because this Appraised Value was greater than the net proceeds that the Company would receive from the Silvermark transaction, the Appraised Value would be the Net Company Value used for determining the warrant repurchase price.  Multiplying the Net Company Value by the current Base Percentage would result in a warrant repurchase price of $26.845 million. The Company has accrued the additional $22,441,334 in the accompanying financial statements.   Because the warrant repurchase price exceeds the proceeds the Company would have received from the Stock Purchase Agreement, the Company evaluated its options and on August 19, 2013  Florida Gaming Corporation, Florida Gaming Centers, Inc., and Tara Club Estates, Inc.  filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code  in the United States Bankruptcy Court for the Southern District of  Florida.  (See Note 2)
 
The foregoing description of the Warrant Agreement is qualified in its entirety by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 25, 2011. The foregoing description of the Stock Purchase Agreement is qualified in its entirety by reference to Exhibit 2.1 to the Company’s  Form 8-K dated November 25, 2012.

(7) 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.   
 
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.
 
 
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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.

(8)  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. The Company’s cost for matching employee contributions totaled $7,000 for the three months ended September 30, 2013, compared to $6,900 for the three months ended September 30, 2012.  The Company’s cost for matching contributions for the nine months ended September 30, 2013 was $31,600, compared to $32,300 for the nine months ended September 30, 2012.

(9) 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 June 30, 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, which is October 25, 2016. (See Form 8-K filed April 27, 2011, Exhibit 10.5). At September 30, 2013 the Company owed Freedom $2,202,150 on this note, compared to $2,105,744 at December 31, 2012.
 
 Consulting Agreement
 
On April 25, 2011, the Board of Directors of the Company promoted W. Bennett Collett, Jr. (B. Collett) from President and Chief Operating Officer of the Company and Centers to President and Chief Executive Officer of the Company and Centers.
 
In connection with B. Collett’s promotion, Mr. W. B. Collett, Sr. (W. Collett) retired as Chief Executive Officer of the Company, but continued in his roles as Chairman and a Director of the Company. W. Collett will also provide consulting services to the Company on a going-forward basis through Freedom Financial under a Consulting Agreement between Freedom and the Company (the “Freedom Consulting Agreement”). The Freedom Consulting Agreement is for a term beginning on April 25, 2011 and ending on December 31, 2017 and provides for fees paid by the Company to Freedom in an amount that may vary between $300,000 and $450,000 annually, depending on the financial performance of the Company. In 2012, W. Collett was paid $50,000 for these services by the Company, and no amounts have been paid in 2013. The Freedom Consulting Agreement generally provides that (i) the maximum number of hours of consulting work that Freedom may cause W. Collett to perform for the Company is 500 hours, (ii) any compensation under the Freedom Consulting Agreement is subject to certain representations, warranties and covenants made under the Credit Agreement is subject to certain representations, warranties and covenants made under Credit Agreement, (iii) and the Freedom Consulting Agreement may be terminated by either party without cause upon 90 days written notice.
 
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)
 
 
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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:
 
An initial term beginning on June 30, 2011 and ending on December 31, 2016, with automatic 12-month extensions 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 September 30, 2013, the Company owed Holding $1,995,288 on the note and $400,000 in dividends, compared to $1,850,162 on the note and $340,000 in dividends at December 31, 2012.
 
 
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(10) COMMITMENTS AND CONTINGENCIES
 
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 nine months ended September 30, 2013  totaled $2,759,018 compared to $2,332,780 for the nine month period ended September 30, 2012.
 
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 Certain Vendors:
 
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 Bally’s 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.
 
Litigation:
 
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.
 
 
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On October 31, 2012, Centers and Corp. filed a counterclaim 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. On June 15, 2013, Centers and Corp. filed a second amended counterclaim against ABC Funding, LLC.  A suggestion of bankruptcy was filed on August 20, 2013 and the litigation is currently stayed.
 
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.
 
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.   The parties agreed to transfer the case to Miami-Dade County and consolidate it with the case ABC Funding, LLC had filed against Centers and Corp. in Miami-Dade County.  Before the transfer was completed, a suggestion of bankruptcy was filed on August 20, 2013 and the litigation is currently stayed.
 
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.  
 
 
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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 an order of dismissal entered. 
 
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 responded to the suit and denied 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.

(11) NOTES PAYABLE AND LONG TERM DEBT
 
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 were $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)
 
 
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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.
 
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.
 
 
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At September 30, 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 ($85,984,214) is classified as a current liability in the accompanying September 30, 2013 balance sheet,  and $84,924,921 was classified as current on the December 31, 2012 balance sheet.
 
For complete details on the Credit Agreement refer to the Form 8-K filed April 27, 2011.
 
CIB Bank/Freedom/Holding Note
 
On November 1, 2008, Centers, a wholly-owned subsidiary of the Company, borrowed $1,322,573 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 September 30, 2013, the Company owed Holding $1,995,288 on the note and $400,000 in dividends, compared to $1,850,162 and $340,000 in dividends at December 31, 2012.
 
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 September 30, 2013 the Company owed $2,434,925 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 September 30, 2013 the Company owed $11,390,233, 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.
 
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 September 30, 2013, the Company owed $2,373,406, compared to $1,986,924 at December 31, 2012.
 
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. On April 11, 2012, the Company entered into an Assignment of Amendment and Restatement, Assignment and Assumption Agreement and assigned the Note to Eduardo and Linda Rodriguez.  The Company owed $1,250,140 on this note at September 30, 2013, compared to $1,140,568 at December 31, 2012.
 
 
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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 September 30, 2013 the Company owed Freedom $2,202,150, compared to $2,105,744 at December 31, 2012. (See Related Party Transactions)
 
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 September 30, 2013, the company owed $177,705 on this note, compared to $158,956 at December 31, 2012. (For further information please refer to Form 8-K filed April 27, 2011, Exhibit 10.4)

(12) SUMMER JAI-ALAI
 
In conjunction with the acquisition of WJA’s Frontons, the Company acquired WJA’s 21% interest in the Summer Jai-Alai Partnership (the “Partnership”), 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 fronton during the six months between May 1 to October 31 (“Summer Jai-Alai Operations”).
 
The Company’s partners were Hollywood Greyhound, Flagler Greyhound and Biscayne Kennel Club or their successors. The Company’s interest in the Partnership was accounted for under the equity method.
 
On October 14, 2010 the Company sold its interest in the Summer Jai-Alai partnership to West Flagler Associates, Ltd. (“Flagler”) for a purchase price of $2,501,583, which included non-cash compensation of $501,583 for the cancellation of a promissory note owed to Flagler and Calder Race Course, Inc. The debt forgiven and assumed by Flagler had a total principal of $416,666 and accrued interest of $84,917. The Company recorded a gain of $1,907,509 in connection with this sale transaction.
 
Under the terms of an Amended and Restated Permit Use Agreement (“APUA”), commencing on October 1, 2010, the Company will conduct at its own risk and benefit the minimum number of live performances required to ensure that the Summer Permit remains eligible to conduct all gaming activities authorized by Florida Law. The Company and the Summer Partnership have entered into a separate lease agreement with the same terms as the APUA, wherein the Company has agreed to lease common area facilities at the Miami fronton required for the conduct of live jai-alai games for $7,500 per performance, capped at 115% of the minimum number of performances required by Florida Statutes. The APUA terminates the earlier of seven years after the Company commences as a slot machine gaming facility, or the 21st anniversary of the commencement date. Additionally, the Summer partners have the option to terminate the lease with 30 days’ notice to the Company. The Company recognized rental income of $401,250 for the nine months ended September 30, 2013, compared to $202,500 of rental income during the nine months ended September 30, 2012.
 
 
25

 
(13)   REAL ESTATE HELD FOR SALE
 
The Company’s Tara subsidiary holds six residential lots called Tara Club Estates (collectively, “Tara” or the “Properties”), all of which are situated in Loganville, Walton County, Georgia.  The carrying value of these lots is as follows:
 
 
 
9/30/2013
 
12/31/2012
 
 
 
 
 
 
 
 
 
Real estate held for sale
 
 
 
 
 
 
 
Carrying value of real estate held for sale (six lots)
 
$
260,069
 
$
260,069
 
Reserve for losses on sale of real estate
 
 
(26,069)
 
 
(26,069)
 
 
 
 
 
 
 
 
 
 
 
$
234,000
 
$
234,000
 
 
In accordance with ASC Topic 360-10-05 “Impairment or Disposal of Long-lived Assets” the Company periodically  evaluates and adjusts its reserve for losses on its property held for sale.  Activity in the reserve for September 30, 2013 and at December 31, 2012 was as follows:
 
 
 
9/30/2013
 
12/31/2012
 
 
 
 
 
 
 
 
 
Allowance for losses on property held for sale
 
 
 
 
 
 
 
Balances, January 1
 
$
26,069
 
$
26,069
 
Provision for losses
 
 
-
 
 
-
 
Charges to the reserve
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
$
26,069
 
$
26,069
 
 
The Company has completed its development activities and will expend no additional resources to further develop its properties.  Accordingly, future expenses incurred related to these properties will be expensed as incurred.
 
The Company’s real estate development activities comprise a separate segment of its operations.
 
The Company had no real estate sales during the three or nine months  ended September 30, 2013, and September 30, 2012.

(14)  SALE OF FLORIDA GAMING CENTERS, INC.
 
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.
 
Pursuant to the SPA, Silvermark would have assumed 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. Pursuant to the SPA, $7.5 million of the purchase price would have been held in escrow for up to three years to indemnify Silvermark LLC against obligations of the Company after the closing. In connection with the transaction Centers was required to repurchase 35% of Centers equity held by Lenders under Centers’ credit facility. (For more information - See Note 11 – credit agreement)
 
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. (For more information refer to Form 8-K dated April 25, 2011)
 
 
26

 
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 September 30, 2013. Because the warrant repurchase price exceeded the proceeds the Company expected to receive from the Stock Purchase Agreement, the Company evaluated its options, and filed for bankruptcy protection (See Note 2). The Company  has accrued the additional $22,441,334 in the accompanying financial statements.
 
The SPA was amended multiple times for purposes of extending the expiration date. The expiration date was extended until 11:59 P.M. E.T. on August 30, 2013 and has since expired.
 
Although the Company is under no obligation to do so, if the Company assumes the SPA and obtains court approval for such assumption,  and if  Silvermark  is not in default hereunder and is ready, willing, and able to close on the purchase in the Section 363 Sale, and should Centers and/or Company, as applicable, accept a higher or better offer to sell the Shares or the Assets, as applicable, to another purchaser, which sale is approved by the Bankruptcy Court in the Bankruptcy Proceedings, then Silvermark could claim entitlement to receive Two Million and No/100 Dollars ($2,000,000.00) as a break-up fee to reimburse  for the value of its time, costs, and expenses incurred in connection with this transaction (the "Break-Up Fee"). The Break-Up Fee shall be entitled to status as an administrative expense under Bankruptcy Code section 501(b)(1) and shall be secured by a Lien on the deposit of the Alternative Purchaser or the closing proceeds in the event the transaction with the Alternative Purchaser closes. Any sums becoming payable to Silvermark pursuant to this Section 14.17(b)(iii) shall be paid to Silvermark simultaneously with the closing to any such Alternative Purchaser approved in the Bankruptcy Proceedings or, if applicable, when the deposit on such transaction is forfeited. In no event, however, shall any Break Up Fee be payable to Silvermark if no closing occurs with respect to a sale by Centers and/or Company, on the one hand, and the Alternative Purchaser, on the other hand, if the Alternative Purchaser’s deposit related thereto is not forfeited (it being understood and agreed that the Break Up Fee shall only be payable out of either the sale proceeds or deposit and not the debtor’s other assets). (For more information please see Def 14A filed January 31, 2013).

(15)  ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
 
 
9/30/2013
 
12/31/2012
 
Accounts payable
 
$
305,554
 
$
4,391,837
 
Accrued interest
 
 
1,052,109
 
 
2,878,402
 
Accrued dividends
 
 
114,758
 
 
2,132,468
 
Accrued professional fees
 
 
42,000
 
 
1,979,031
 
Accrued gaming taxes
 
 
1,626,442
 
 
1,808,300
 
Other payables and accrued expenses
 
 
118,001
 
 
1,397,056
 
 
 
$
3,258,864
 
$
14,587,094
 

(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.
 
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  September  30, 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  September 30, 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
 
$
-
 
$
-
 
$
-
 
$
(26,845,000)
 
$
(26,845,000)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total liabilities at fair value
 
$
-
 
$
-
 
$
-
 
$
(26,845,000)
 
$
(26,845,000)
 
 
 
27

 
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)
 
 
 
28

 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND RECENT DEVELOPMENTS
 
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 Companys 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.
 
On October 23, 2013, the United States Bankruptcy Court, Southern District of Florida, authorized Florida Gaming Corp. and Florida Gaming Centers to use cash collateral on a final basis. Pursuant to that authorization, the Companies are permitted to operate in the ordinary course of business during the pendency of their Chapter 11 proceedings. The Debtors have also agreed to commence a Section 363 sale process that would culminate in the sale of the Florida Gaming Centers assets in or about March 2014. Additionally, the Companies agreed to the entry of an order allowing the previously appointed state court receiver, David Jonas, to continue to serve as an excused Receiver pursuant to Section 543(d) of the Bankruptcy Code.
 
 
29

 
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.
 
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 and nine months ended September 30, 2013 and September 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 September 30, 2013.
 
 
30

 
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 approximately 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 800 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 approximately 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:
 
 
31

   
      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
      ATMS 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 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 dog racing and jai-alai. 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 weekends and holidays;
 
 
32

 
 
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 THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED WITH THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2012
 
During the three months ended September 30, 2013, and September 30, 2012, Casino Miami Jai-Alai reflects three months of casino operation, cardroom operation and two monthsoperation of live jai-alai performances at Miami. During the third quarter of 2013 and 2012, Ft. Pierce did not operate live jai-alai. A full schedule of Inter-Track Wagering (“ITW) was conducted at Ft. Pierce for the third quarter ended September 30, 2013 and September 30, 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.
 
Casino Revenue
For the three months ended September 30,
 
2013
 
2012
 
Variance
 
%  Variance
 
 
Casino
 
$
18,422,405
 
$
15,860,293
 
$
2,562,112
 
16
%
 
Promotional credits
 
 
(2,957,226)
 
 
(1,825,377)
 
 
1,131,849
 
62
%
 
 
 
$
15,465,178
 
$
14,034,916
 
$
1,430,262
 
10
%
 
State gaming tax
 
 
(5,406,130)
 
 
(4,907,864)
 
 
498,266
 
10
%
 
City/county tax
 
 
(463,383)
 
 
(420,674)
 
 
42,709
 
10
%
 
Net casino revenue
 
$
9,595,665
 
$
8,706,378
 
$
889,287
 
10
%
 
 
The Company saw a 10% increase in Net Casino Revenue during the three month period ended September 30, 2013 compared to the three months ended September 30, 2012.  Hialeah opened their new casino on August 14, 2013 which has had an impact on revenue at Casino Miami.    The Company continues to offer special events at the Casino, such as concerts, and boxing matches to draw new patrons. 
 
Pari-Mutuel Revenue
For the three months ended September 30
 
2013
 
2012
 
Variance
 
%  variance
 
 
Miami
 
$
571,385
 
$
685,281
 
$
(113,896)
 
-17
%
 
Ft. Pierce
 
 
189,604
 
 
193,882
 
 
(4,278)
 
-2
%
 
 
 
$
760,989
 
$
879,163
 
$
(118,174)
 
-13
%
 
Less state pari-mutuel taxes
 
 
(76,632)
 
 
(99,464)
 
 
22,832
 
-23
%
 
Less simulcast guest commissions
 
 
(127,513)
 
 
(134,320)
 
 
6,807
 
-5
%
 
Net pari-mutuel
 
$
556,844
 
$
645,379
 
$
(88,535)
 
-14
%
 
 
Miami saw a 17% decrease in pari-mutuel revenue for the three months ended September 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 2% decrease in pari-mutuel revenue. Ft. Pierce did not offer live jai-alai during the quarters ended September 30, 2013 and September 30, 2012.
 
 
33

 
Cardroom Revenue
For the three months ended September 30,
 
2013
 
2012
 
Variance
 
%  Variance
 
 
Miami
 
$
992,638
 
$
1,180,841
 
$
(188,203)
 
-16
%
 
Ft.Pierce
 
 
662,229
 
 
563,010
 
 
99,219
 
18
%
 
 
 
$
1,654,867
 
$
1,743,851
 
$
(88,984)
 
-5
%
 
State gaming tax
 
 
(180,349)
 
 
(190,012)
 
 
9,663
 
-5
%
 
Net cardroom revenue
 
$
1,474,518
 
$
1,553,839
 
$
(79,321)
 
-5
%
 
 
Miami’s cardroom saw a 16% decrease this quarter. Hialeah, which is located 4 miles from Miami, opened their new Casino on August 14, 2013. Their opening has had an impact on Miami’s revenue. Ft. Pierce saw an 18% increase due to evolving promotions and a cross property jackpot structure in the cardroom.
 
Food, Beverage and Other Revenue
For the three months ended September 30,
 
2013
 
2012
 
Variance
 
% Variance
 
 
Miami
 
$
510,838
 
$
518,520
 
$
(7,682)
 
-1
%
 
Ft. Pierce
 
 
97,204
 
 
84,650
 
 
12,554
 
15
%
 
 
 
$
608,042
 
$
603,170
 
$
4,872
 
1
%
 
 
Food, beverage and other income consists of the concession stands, bars, entertainment revenues, lottery commission, ATM commissions and misc. Hialeah opened on Auguat 14, 2013, and their opening has had an impact on Miami’s revenue. 
 
Operating Expenses
 
 
 
 
 
 
 
%
 
 
For the three months ended September 30,
 
2013
 
2012
 
Variance
 
Variance
 
 
Casino
 
$
2,138,374
 
$
2,026,566
 
$
111,808
 
6
%
 
Pari-mutuel
 
 
1,294,721
 
 
1,049,587
 
 
,245,134
 
23
%
 
Cardroom
 
 
912,344
 
 
899,115
 
 
13,229
 
1
%
 
Food, beverages, and other
 
 
434,890
 
 
424,663
 
 
10,227
 
2
%
 
Advertising
 
 
662,942
 
 
667,811
 
 
(4,869)
 
-1
%
 
Utilities
 
 
301,756
 
 
294,288
 
 
7,468
 
3
%
 
Pre-Opening Expenses
 
 
114,330
 
 
954,862
 
 
(840,532)
 
-88
%
 
General & Administrative
 
 
1,745,153
 
 
1,544,289
 
 
200,864
 
13
%
 
Depreciation and Amortization
 
 
1,227,419
 
 
1,392,078
 
 
(164,659)
 
-12
%
 
Other operating expense
 
 
2,077,102
 
 
1,263,942
 
 
813,160
 
64
%
 
Operating Expenses
 
$
10,909,031
 
$
10,517,201
 
 
391,830
 
4
%
 
 
Casino Expenses
Included in the casino expense for the third quarter 2013, is the equipment lease of $922,940, licenses and regulatory fees of $562,500, wages and insurance of $161,905 supplemental prize money of $266,100, and contract maintenance of $77,759. This compares to is the equipment lease of $935,628, licenses and regulatory fees of $562,500, wages and insurance of $212,431, and supplemental prize money of $245,393.
 
Pari-Mutuel
The larger expenses for the three months ended September 30, 2013 were wages and health insurance totaling $893,303, contract maintenance of $150,946, and television camera rental of $47,935.   This compares to the three months ended September 30, 2012, wages of $733,447, contract maintenance of $117,509, and television camera rental of $50,633.
 
 
34

 
Cardroom
For the three months ended September 30, 2013, wages and insurance totaled $340,378, supplemental prize money of $66,839 and promotional expense of $282,822. This compares to three months ended September 30, 2012 which included wages and insurance of $648,389, supplemental prize money of $69,503, promotional expense of $134,139, and misc expense of $31,013. 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.
 
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.
 
Pre-Opening
During 2013, the Company incurred $114,330 in pre-opening expenses for the three months ended September 30, 2013 for payment to Bally Technologies regarding a dispute regarding work done before the casino opened. This compares to $954,862 during the three months ended September 30, 2012.
 
General And Administrative Expenses
Executive salaries did increase in comparing three months ended September 30, 2013 to   September 30, 2012.  Mr. Collett and Mr. Licciardi each received 5% increases in salary in accordance with their employment agreements. Mr. Collett’s salary increased $3,750 per quarter, and Mr. Licciardi’s salary increased $2,812 per quarter. Dr. Galloway is the only paid director at $2,000 a month. Telephone and travel expenses decreased $41,045 for the quarter ended September 30, 2013.  Professional fees for the three months ended September 30, 2013 were $288,605 compared to $451,776 for the quarter ended September 30, 2012.  Property taxes decreased due to the timing of payments and insurance remained the same.  The Company paid $500,000 during the three months ended September 30, 2013 in appraisal fees for the appraisal of Centers.
 
Depreciation and Amortization
Depreciation for the three months ended September 30, 2013 was $863,518 compared to $1,028,177 for the three months ended September 30, 2012. Depreciation expense on gaming equipment for the three months ended September 30, 2013, was $563,807 compared to $734,643 for the three months ended September 30, 2012. Amortization expense was $363,900 for the three months ended September 30, 2013 and September 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.
 
Other Income (Expense)
The Company had other expense of $4,406,225 for the three months ended September 30, 2013, compared to other expense of $5,621,047 for the three months ended September 30, 2012. During the three months ended September 30, 2013, the Company had Reorganization Fees of $453,394 relating to the bankruptcy. Most of these charges are one time fees. The Company had pari-mutuel credits of $49,548 for the three months ended September 30, 2013, compared to $70,631 for the same period in 2012. The Company had interest expense of $4,002,714 for the three months ended September 30, 2013, compared to interest expense of $5,692,047 for the three months ended September 30, 2012. The company has interest income of $335 during the three months ended September 30, 2013, compared to $169 for the same period ended September 30, 2012.
 
Revenue for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012
 
Casino Revenue
 
 
 
 
 
 
 
 
 
 
%
 
For the nine months ended September 30,
 
2013
 
2012
 
Variance
 
Variance
 
Casino
 
$
57,740,237
 
$
44,230,393
 
$
13,509,844
 
 
31
%
Promotional credits
 
 
(7,759,584)
 
 
(4,735,670)
 
 
3,023,914
 
 
64
%
 
 
$
49,980,653
 
$
39,494,723
 
$
10,485,930
 
 
27
%
State gaming tax
 
 
(17,483,752)
 
 
(13,748,778)
 
 
3,734,974
 
 
27
%
City/county tax
 
 
(1,498,607)
 
 
(1,178,467)
 
 
320,140
 
 
27
%
Net casino revenue
 
$
30,998,294
 
$
24,567,478
 
$
6,430,816
 
 
26
%
 
The Company saw a 26% increase in Net Casino Revenue during the nine months ended September 30, 2013. The Company has seen an increase in patrons for the nine months ending September 30, 2013, with the additional advertising, and offering special events at the Casino, such as concerts, and boxing matches.
 
 
35

 
Pari-Mutuel Revenue
 
 
 
 
 
 
 
 
 
 
%
 
For the nine months ended September 30,
 
2013
 
 
2012
 
Variance
 
Variance
 
Miami
 
$
2,388,721
 
$
2,816,047
 
$
(427,326)
 
 
-15
%
Ft. Pierce
 
 
813,759
 
 
779,396
 
 
34,363
 
 
4
%
 
 
$
3,202,480
 
$
3,595,443
 
$
(392,963)
 
 
-11
%
Less state pari-mutuel taxes
 
 
(409,947)
 
 
(456,693)
 
 
46,746
 
 
-10
%
Less simulcast guest commissions
 
 
(524,133)
 
 
(580,248)
 
 
56,115
 
 
-10
%
Net pari-mutuel
 
$
2,268,400
 
$
2,558,502
 
$
(290,102)
 
 
-11
%
 
Miami saw a decrease in pari-mutuel revenue for the nine months ended September 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.
 
Cardroom Revenue
For the nine months ended September 30,
 
2013
 
2012
 
Variance
 
% Variance
 
Miami
 
$
3,507,516
 
$
3,504,779
 
$
2,737
 
 
0
%
Ft.Pierce
 
 
2,196,640
 
 
2,027,651
 
 
168,989
 
 
5
%
 
 
$
5,704,156
 
$
5,532,430
 
$
171,726
 
 
3
%
State gaming tax
 
 
(617,877)
 
 
(598,144)
 
 
(19,733)
 
 
3
%
Net cardroom revenue
 
$
5,086,279
 
$
4,934,286
 
$
151,993
 
 
3
%
 
Ft. Pierce has seen an increase in card room revenue due to evolving promotions and additional advertising.
 
Food, Beverage and Other Revenue
For the nine months ended September 30,
 
2013
 
2012
 
Variance
 
% Variance
 
Miami
 
$
1,534,913
 
$
1,396,985
 
$
137,928
 
 
10
%
Ft. Pierce
 
 
344,640
 
 
328,797
 
 
15,843
 
 
5
%
 
 
$
1,879,553
 
$
1,725,782
 
$
153,771
 
 
9
%
 
Food, beverage and other income consists of the concession stands, bars, entertainment revenues, lottery commission, ATM commissions and misc. revenue. Entertainment revenue was $72,584 for the nine months ended September 30, 2013, compared to $2,258 for the nine months ended September 30, 2012. ATM commissions saw an increase of $138,216 (29%) for the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012.
 
Operating Expenses
 
For the nine months ended September 30,
 
2013
 
2012
 
Variance
 
% Variance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Casino
 
$
6,237,043
 
$
6,488,029
 
$
(250,986)
 
 
-4
%
Pari-mutuel
 
 
3,948,968
 
 
3,651,259
 
 
297,709
 
 
8
%
Cardroom
 
 
2,646,088
 
 
3,049,489
 
 
(403,401)
 
 
-13
%
Food, beverages, and other
 
 
1,389,664
 
 
1,232,097
 
 
157,567
 
 
13
%
Advertising
 
 
1,724,674
 
 
1,560,685
 
 
163,989
 
 
11
%
Utilities
 
 
782,979
 
 
781,620
 
 
1,359
 
 
0
%
Pre-Opening Expense
 
 
114,330
 
 
2,581,188
 
 
(2,466,858)
 
 
-96
%
General & Administrative
 
 
4,766,322
 
 
3,694,441
 
 
1,071,881
 
 
29
%
Depreciation and Amortization
 
 
3,694,946
 
 
3,545,312
 
 
149,634
 
 
4
%
Other operating expense
 
 
6,586,220
 
 
5,954,613
 
 
631,606
 
 
4
%
Operating Expenses
 
$
31,891,234
 
$
32,538,734
 
$
1,647,500
 
 
5
%
 
 
36

 
Casino Expenses
Included in the casino expense for the nine months ended 2013, is the equipment lease of $2,707,182 licenses and regulatory fees of $1,687,500, wages and insurance of $533,837 supplemental prize money of $869,9811, and contract maintenance of $227,700. This compares to the equipment lease of $2,207,532, licenses and regulatory fees of $1,875,000, wages and insurance of $634,714, supplemental prize money of $687,439, and pre-opening expense of $954,862 for the nine months ended September 30, 2012.
 
Pari-Mutuel
Some of the larger expenses for the nine months ended September 30, 2013 were wages and health insurance totaling $3,095,306, contract maintenance of $400,337, and television camera rental of $179,591. This compares to the nine months ended September 30, 2012, wages of $3,031,942, contract maintenance of $438,629 and television camera rental of $112,342.
 
Cardroom
For the nine months ended September 30, 2013, wages and insurance totaled $1,160,222, supplemental prize money of $162,014 and promotional expense of $357,736. This compares to nine months ended September 30, 2012 which included wages and insurance of $1,980,718, supplemental prize money of $221,356, and promotional expense of $694,799. 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 9% in sales which led to an increase in cost of sales 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.
 
Pre-Opening
The Company incurred $114,330 in pre-opening expenses for the nine months ended September 30, 2013, compared to $2,581,188 in pre-opening expenses for the nine months ended September 30, 2012. The Company had a dispute with Bally Technologis regarding work done before the Casino opened and the invoice was paid in 2013. During 2012, the Company chose to hire a firm to staff various employee positions at the Casino the expenses were incurred one time.
 
General And Administrative Expenses
Executive salaries did increase in comparing nine months ended September 30, 2013 to September 30, 2012.  Mr. Collett (CEO) and Mr. Licciardi (Ex. V.P.)  each received 5% increases in salary in accordance with their employment agreements. For the nine months ended September 30, 2013, the increase for Mr. Collett was $11,250, and the increase for the nine months ended September 30, 2013, was $8,437 for Mr. Licciardi.  Director fees decreased during the nine months ended September 30, 2013 by $12,000 due to the death of William Haddon in 2012. Dr. Galloway is now the only paid director at $2,000 a month. Telephone and travel expenses decreased $78,798 (41%) for the nine month period ended September 30, 2013 compared to the same period in 2012. Professional fees for the nine months ended September 30, 2013, were $879,738, compared to $648,260 for the nine months ended September 30, 2012. MCM Mangement fees amounted to $250,000 for the nine months ended September, 30, 2013, compared to $150,000,000 for the nine months ended September 30, 2012. The Company paid $1,000,000 for the appraisal of Centers during the nine months ended September 30, 2013.
 
Depreciation and Amortization
Depreciation for the nine months ended September 30, 2013 was $2,603,246 compared to $2,451,916 for the nine months ended September 30, 2012. Depreciation expense on gaming equipment for the nine months ended September 30, 2013, was $1,700,779 compared to $1,570,290  for the nine months ended September 30, 2012. Amortization expense for the nine months ended September 30, 2013 was $1,091,700 compared to $1,093,366 for the nine months ended September 30, 2012.
 
 
37

 
 
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 $34,771,394 for the nine months ended September 30, 2013, compared to other expense of $12,682,492 for the nine months ended September 30, 2012. During the nine months ended September 30, 2013, the Company had Reorganization Fees of $770,575 relating to the bankruptcy. Most of these charges are one time fees. The Company had pari-mutuel credits of $170,659 for the nine months ended September 30, 2013, compared to $277,166 for the same period in 2012. The Company had interest expense of $11,730,899 for the nine months ended September 30, 2013, compared to interest expense of $12,960,332 for the nine months ended September 30, 2012. The company has interest income of $755 during the nine months ended September 30, 2013, compared to $674 for the same period ended September 30, 2012.
 
Summary of Operations
The Company had net loss of $3,080,187  or ($.79) per common share for the three months ended September 30, 2013, compared to net loss of $4,629,682 or ($1.18) per common share for the quarter ended September 30, 2012. The Company saw income from operations of $1,826,038 during the third quarter 2013, compared to income from operations of $991,565 during the same period in 2012.
 
The Company had net loss of $26,430,102 or ($6.63) per common share for the nine months ended September 30, 2013, compared to net loss of $11,435,178 or ($2.92) per common share for the nine months ended September 30, 2012. The Company saw income from operations of $9,341,292 during the nine months ended September 30, 2013, compared to income from operations of $1,247,314 during the same period in 2012. The company had warrant expense of $22,441,334 during the nine months ended September 30, 2013 compared to -0- for the nine months ended September 30, 2012 (See Note 6 regarding Credit Agreement Warrants). During the nine months ended September 30, 2012, the Company had $2,581,188 in pre-opening costs. Most of these costs were only incurred one time.
 
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 September 30, 2013 was $4,859,302, compared to $37,297,676 during the nine months ended September 30, 2012. The Company is in default of the Credit Agreement, and therefore the $84,924,921 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 11)
 
Cash Flows from:
 
2013
 
2012
 
Operating activities
 
$
1,283,971
 
$
(20,028,026)
 
Investing activities
 
$
(141,410)
 
$
(8,777,563)
 
Financing activities
 
$
(546,771)
 
$
(3,581,947)
 
 
Operating activities
 
·
The Company saw a $151,300 increase in depreciation compared to the same period in 2012 due to the gaming equipment depreciation, and amortization saw a slight decrease of $1,666.
·
The company decreased payables and accrued expenses during the nine months ended September 30, 2013, by $199,558 compared to an increase of $13,706,150 for the same period in 2012. fter the casino opened a lot of the payables and accrued expenses were paid in 2012. One of the larger payables paid during 2012 was 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 accrued an additional $22,441,334 for warrants after the Company had an appraisal of Centers.
·
The Company did not make two interest payment due to the lenders of $2,213,352, and the interest payments were added back to the principal.
·
The prepaid expense increase is due to the casino license fee.
 
 
38

 
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 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.
 
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, which was January, 2012, the original principal balance of the note would be increased from $446,000 to $1,000,000, a $554,000 increase.
·
The majority of the interest the Company paid during the nine months ended September 30, 2013 and September 30, 2012 was to ABC Funding, the Lenders.
 
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, $85,984,214  (See Note 9).
 
The following agreed to extend and subordinate their notes until six months past maturity date of Credit Agreement, which is October 25, 2016. At September 30, 2013, the Company owed the following amounts:
 
·
Freedom Financial Corp - $2,202,150
·
Freedom Holding - $1,995,288
·
Neiman- $177,705
·
Stuckert/Howell- $2,373,406
·
Florida Lemark - $1,250,140
 
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 nine months ended September 30, 2013 totaled $2,759,018, compared to $2,332,780 for the nine months ended September 30, 2012. The Company leases a number of slot machines that are not available for purchase. 
 
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.
 
 
39

 
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.
 
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.
 
Part II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
A reference is made to the information contained in Footnote 7 of our unaudited condensed consolidated financial statements included herein, which is incorporated herein by reference.
 
Item 1 a) — Risk Factors
 
Not required for smaller reporting companies
 
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
 
None
 
Item 3 — Defaults upon Senior Securities
 
The Company is in default of the Credit Agreement (See Note 11)
 
As of September 30, 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:
 
$
118,997
 
Preferred AA:
 
$
1,837,500
 
Preferred B:
 
$
66,040
 
Preferred F:
 
$
541,703
 
 
Item 4 — Submission of Matters to a Vote of Security Holders.
 
None.
 
Item 5 — Other information
 
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.
 
 
40

 
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.
 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, 2011 incorporated 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.
10.16
 
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.
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.
 
 
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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 Exhibit 10.32 to Registrant’s 10-Q dated November 15, 2010 is incorporated herein by reference as Exhibit 10.32.
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 to 18 USC 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto.
101
 
Interactive Data Files regarding (a) our Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012, (b) our Consolidated Statements of Operations for the Three and Nine months ended September 30, 2013 and 2012, (c) our Consolidated Statements of Cash Flows for the Nine months ended September 30, 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.
 
b) Form 8-K
 
On May 8, 2013, the Company and Centers entered into a Third Amendment to Stock Purchase Agreement with Silvermark LLC to extend the agreement’s expiration time until 11:59 P.M., E.T on May 31, 2013 from time to time, to no later than 11:59 P.M., E.T. on August 30, 2013 upon written notice to the Company.
 
On June 7, 2013, Centers entered into an Engagement Letter with Jefferies LLC to determine the Appraised Value of Centers
 
On July 31, 2013, Silvermark has extended their contract until August 30, 2013. 
 
On August 19, 2013, Florida Gaming Corporation and its wholly-owned subsidiary, Florida Gaming Centers, Inc. each filed voluntary petitions in the United States Bankruptcy Court for the Southern District of Florida seeking relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code  
 
On August 30, 2013, the Bankruptcy Court entered an Interim Order designed to assist the Company in preserving its net operating losses .
 
 
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On October 23, 2013, the Bankruptcy Court authorized Florida Gaming Corp. and Florida Gaming Centers to use cash collateral on a final basis. The Debtors have also agreed to commence a Section 363 sale process that would culminate in the sale of the Florida Gaming Centers assets in or about March 2014. 
 
FLORIDA GAMING CORPORATION
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
FLORIDA GAMING CORPORATION
(Registrant)
 
Date: November 19, 2013
By:
/s/  W. B. Collett, Jr.
 
W.B. Collett, Jr.
 
President and Chief Executive Officer
 
(principal executive officer)
 
 
 
Date: November 19, 2013
By:
/s/  Kimberly  Tharp
 
Kimberly Tharp
 
Chief Financial Officer
 
(principal financial officer) (principal accounting officer)
 
 
 
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