<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ______________ to _______________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
---------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75 - 2571032
-------- ------------
(State of incorporation or organization) (IRS Employer
Identification No.)
13150 Coit Road, Suite 125, Dallas, Texas 75240
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (972) 671-1133
--------------
Check whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.
Yes xx No __
--
Number of shares of common stock, par value $.01 per share, outstanding as of
June 30, 1999:33,620,920
Transitional Small Business Disclosure Format (Check One): Yes __No xx
--
1
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
30-Jun-99 31-Dec-98
------------ ------------
ASSETS UNAUDITED
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 201,148 $ 183,205
Restricted cash - 97,904
Accounts receivable (net) 152,283 270,525
Inventories, at cost - 123,090
Prepaid Expenses 20,296 47,809
Notes receivable - current 22,650 39,166
Current deferred tax asset 30,000 30,000
----------- -----------
TOTAL CURRENT ASSETS 426,377 791,699
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 50,294 945,127
----------- -----------
OTHER ASSETS:
Deposits 31,638 100,893
Long-term deferred tax asset 266,500 378,000
Revenue interest rights - 90,176
Trade name, contract rights and organizational costs, net of
accumulated amortization 113,687 125,608
Goodwill and merger costs 506,714 643,098
Casino and truck stop under construction - 1,604,923
Assets of business transferred under contractual agreement - 675,488
Investments 306,451 -
----------- -----------
1,224,990 3,618,186
----------- -----------
TOTAL ASSETS $ 1,701,661 $ 5,355,012
=========== ===========
LIABILITY AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 372,036 $ 1,114,966
Notes payable - current 477,462 2,357,498
Preferred stock dividends payable 447,018 780,000
----------- -----------
TOTAL CURRENT LIABILITIES 1,296,516 4,252,464
Liabilities of business transferred under contractual agreement - 770,215
NOTES PAYABLE-LONG-TERM 1,051,128 1,446,749
----------- -----------
TOTAL LIABILITIES 2,347,644 6,469,428
STOCKHOLDERS' DEFICIT:
Class A preferred stock, $3.00 par value, 10% annual cumulative
Dividend 1,600,000 shares authorized, no shares issued and
Outstanding - -
Preferred stock, $.01 par value, 10,000,000 shares authorized
8,000,000 shares designated series "B" no shares issued and
authorized - -
Common stock, $.01 par value, 100,000,000 shares authorized,
33,620,920 and 41,788,552 shares issued and outstanding
at June 30, 1999 and December 31, 1998 336,210 417,886
Additional paid-in-capital 466,959 466,959
Retained earnings (deficit) (1,449,152) (1,999,261)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (670,983) (1,114,416)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 1,701,661 $ 5,355,012
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTERS AND SIX MONTHS ENDED June 30, 1999 and 1998
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
30-Jun-99 30-Jun-98 30-Jun-99 30-Jun-98
-------------- ----------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Video Poker Revenue $ - $ 3,956,806 $ 4,128,171 $ 7,935,851
Truck Stop and Convenience Store - 2,102,850 1,905,959 4,045,437
Cruise Revenue 278,478 280,592 504,390 509,151
----------- ----------- ----------- -----------
278,478 6,340,248 6,538,520 12,490,439
COST AND EXPENSES:
Cost of revenue 129,847 4,080,650 4,128,364 7,975,546
General and administrative expenses 244,162 1,849,364 2,025,734 3,616,525
Depreciation and Amortization 86,188 155,259 233,072 310,353
----------- ----------- ----------- -----------
460,197 6,085,273 6,387,170 11,902,424
OPERATING INCOME (LOSS) (181,719) 254,975 151,350 588,015
----------- ----------- ----------- -----------
OTHER REVENUE (EXPENSE)
Other revenue (expense) 137,308 (91,042) (6,319) (186,830)
Interest expense (36,098) (62,051) (133.807) (137,679)
Income from equity investments 70,085 - 70,085 -
Gain on sale of investments 705,065 - 662,065 -
----------- ----------- ----------- -----------
INCOME BEFORE PROV. FOR INCOME TAXES 669,641 101,882 718,374 263,506
PROVISION FOR INCOME TAXES (175,000) (17,100) (193,265) (29,600)
----------- ----------- ----------- -----------
NET INCOME $ 519,641 $ 84,782 $ 550,109 $ 233,906
=========== =========== =========== ===========
BASIC INCOME PER SHARE $ .02 $ * $ .01 $ .01
=========== =========== =========== ===========
BASIC WEIGHTED AVERAGE
SHARES OUTSTANDING 33,620,920 24,149,733 37,724,736 22,111,639
=========== =========== =========== ===========
DILUTED INCOME PER SHARE $ . 02 $ * $ .01 $ *
=========== =========== =========== ===========
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 33,620,920 41,788,552 37,724,736 41,788,552
=========== =========== =========== ===========
</TABLE>
*Less than $.01 per share
The accompanying notes are an integral part of the financial statements
3
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED June 30, 1999 AND 1998
<TABLE>
<CAPTION>
30-JUN-99 30-JUN-98
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 550,109 $ 233,906
Adjustments to reconcile net income to net cash:
Depreciation and amortization 233,072 310,353
Deferred tax expense 111,500 -
Gain on disposal of assets (662,065) -
Income from equity investments (70,085) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (68,465) 81,395
Inventories (12,177) 22,434
Prepaid insurance/expenses 16,544 (17,860)
Deposits 13,559 (262,422)
Increase (decrease) in:
Accounts payable and accrued liabilities (14,799) 183,864
--------- ---------
Net cash provided (used) by operating activities 97,193 551,670
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (353,021) (70,929)
Proceeds from Kings sale of fixed assets 325,000 -
Proceeds to borrowers - 7,746
Repayment by borrowers 25,016 (7,500)
Purchase of intangibles (11,320) -
--------- ---------
Net cash provided (used) by investing activities (14,325) (70,683)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 125,887
Payments on borrowings (288,716) (319,460)
--------- ---------
Net cash provided (used) by financing activities (162,829) (319,460)
--------- ---------
NET INCREASE (DECREASE) IN CASH (79,961) 161,527
CASH - beginning of period 281,109 615,712
--------- ---------
CASH - ending of period $ 201,148 $ 777,239
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
June 30, 1999 AND 1998
Note 1. OPINION OF MANAGEMENT
The preceding financial information has been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of the Company, includes all normal and recurring adjustments
necessary for a fair statement of the results of each period shown. Certain
information and footnote disclosures normally included in the consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations.
The Company believes that the disclosures made are adequate to make the
information presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1998.
Note 2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RELATED MATTERS
Effective April 15, 1998, the Company and Donald I. Williams entered into
Amendment No. One (the "Amendment") to the Operating Agreement (the "Operating
Agreement") of OM Operating, L.L.C. ("OM") to effect a restructuring of OM which
the Company believed effectively addressed certain preliminary questions and
concerns raised by the Louisiana Gaming Control Board ("Gaming Control Board")
and the Video Gaming Division of the Gaming Enforcement Section of the Office of
State Police within the Department of Public Safety and Corrections (the
"Division") in their review of OM's application for renewal of its license to
operate video poker casinos. The Company elected to voluntarily effect the
restructure of OM even though the Gaming Control Board had not made a final
determination whether OM's existing structure satisfied the Louisiana residency
requirements of the Louisiana Video Draw Poker Devices Control Law and the Rules
and Regulations promulgated thereunder (the "Louisiana Act"). However, after
the Company presented the Amendment and related documents to the Division, the
Company had a meeting on November 13, 1998 with the Division, wherein the
Division expressed serious concerns and doubts that the Amendment would satisfy
the Louisiana Act and indicated the Division would recommend that OM's license
to operate video poker casinos in Louisiana not be renewed, unless various
changes were implemented to comply with the Louisiana Act. Among the concerns
expressed by the Division were the 20% gross income allocation to the Company
under the Operating Agreement and its contribution, pursuant to the Amendment,
by the Company to OM for additional interests in OM which were then assigned to
Williams in exchange for a $4 million nonrecourse note (the "Note"), in addition
to certain other aspects of Amendment No. One and the related documents. Rather
than risk loss of OM's license, the Company entered into further amendments to
the Operating Agreement and various documents put into place in conjunction with
the Amendment, and agreed to transfer 50% of its remaining Louisiana gaming
interests (including 50% of its interest in OM, River Port Truck Stop, LLC
("RPLLC") and the Gold Rush Truck Stop) to certain former holders of Class A
Preferred Stock of the Company and certain related persons and entities in
exchange for mutual releases and settlements, dismissal of pending litigation
and cancellation of debentures, accrued dividends and Common Stock of the
Company ("Common Stock"). The Company believes the further restructuring of OM
effectively addresses the concerns raised by the Division. The Company has
submitted to the Division and Gaming Control Board the documents effecting the
further restructure of OM for their review in connection with OM's license
renewal request. There can be no assurance that the Gaming Control Board will
agree with the Company's conclusion that OM, as further restructured, complies
with the residency requirements of the Louisiana Act, but the Company believes
the Gaming Control Board will agree with such restructure and with the Company's
conclusion.
As part of the further restructure of OM, the Company entered into a
Release and Settlement Agreement (the "Settlement Agreement") with, among
others, Williams and ten former holders of Class A Preferred Stock of the
Company (the "North Louisiana Group") on February 2, 1999, but to become
automatically effective as of midnight March 31, 1999. At February 2, 1999, the
North Louisiana Group owned 5,614,632 shares of Common Stock (representing
approximately 13.4% of the issued and outstanding shares of Common Stock) and
were owed $306,960 in original principal amount of subordinated debentures, and
were owed accrued dividends of $255,072 accrued on the Class A Preferred Stock
prior to its conversion to Common Stock. As part of the Settlement Agreement
and pursuant to related documents executed in connection therewith, the North
Louisiana Group agreed, among other things, to (I) dismiss with prejudice its
pending lawsuit against the Company for the payment of accrued dividends and
agreed to cancel all accrued dividends payable to the North Louisiana Group;
(ii) mark their subordinated debentures "canceled" and return them to the
Company and cancel all principal and accrued interest thereunder; (iii) return
to the Company for cancellation 5,614,632 shares of Common Stock owned by the
North Louisiana Group; (iv) be responsible on a 50/50 basis with the Company for
any funds expended in settlement with any other former holders of Class A
Preferred Stock which the Company may desire to pursue; (v) assume 50% of the
debt owed by the Company, to Regions Bank, Springhill Branch, formerly known as
Springhill Bank & Trust Company, relating to the Company's Gold
5
<PAGE>
Rush Truck Stop; and (vi) release all claims, known or unknown, which the North
Louisiana Group might have against, among others, the Company, International
Tours, Inc. ("International") and the officers and directors of the Company as
of the date of the Settlement Agreement. In return, the Company (a) released all
claims it might have, known or unknown, against, among others, the North
Louisiana Group as of the date of the Settlement Agreement; (b) agreed to assign
to one or more members of the North Louisiana Group a 24.5% interest in OM and a
25% interest in RPLLC; and agreed to assign to one or more members of the North
Louisiana Group 50% of the Company's ownership of the Gold Rush Truck Stop.
Under the Settlement Agreement, Williams agreed to release all claims he
might have, known or unknown, against, among others, the Company, International,
the officers and directors of the Company and the North Louisiana Group as of
the date of the Settlement Agreement, and the Company agreed to release all
claims the Company might have, known or unknown, against, among others, Williams
as of the date of the Settlement Agreement. Williams also agreed, among other
things, to (I) mark his subordinated debenture in the original principal amount
of $93,900 "canceled" and return it to the Company and cancel all principal and
accrued interest thereunder; (ii) return to the Company for cancellation 824,000
shares of Common Stock owned by Williams, 1,279,000 shares of Common Stock owned
by P. & J. Williams, L.L.C. (an affiliated entity) and 450,000 shares of Common
Stock owned by New Orleans Video Poker Company, Inc. (an affiliated entity), an
aggregate of 2,553,000 shares (representing approximately 6.1% of the issued and
outstanding shares of Common Stock); (iii) cancel the $78,000 of accrued
dividends payable to Williams accrued on the Class A Preferred Stock prior to
its conversion to Common Stock; and (iv) pay to the Company certain amounts
which could aggregate between $150,000 and $300,000 over six years in
conjunction with the possible additional settlements by the Company with other
former holders of Class A Preferred Stock which the Company may desire to
pursue. The Company and Williams also entered into amendments to several other
existing agreements in connection with the Settlement Agreement as described in
the following paragraphs.
The Company and Williams entered into a Second Amendment (the "Second
Amendment") to the Operating Agreement, effective midnight March 31, 1999. The
Second Amendment amends the Operating Agreement, as amended by the Amendment, to
delete all references to the Note and to the contribution of the 20% special
gross income allocation so that neither provision shall ever have been deemed to
have existed and neither provision shall have ever been of any force or effect.
As a result, the Note is deemed to never have existed and the 20% special gross
income allocation was not deemed to have been contributed by the Company for
additional ownership interests in OM. Under the Second Amendment, the Operating
Agreement was amended to terminate, and to delete all references to, the 20%
gross income allocation after March 31, 1999 and no further allocation or
distributions will be made to the Company pursuant to such 20% special gross
income allocation. Thereafter, distributions will be made in accordance with
capital accounts and the Sharing Ratios of the Members, which will be 51% to
Williams, 24.5% to the Company and 24.5% to one or more members of the North
Louisiana Group; provided, however, Williams is entitled under the Second
Amendment to distribution of the initial $4,166 to be distributed per month up
to a maximum of $50,000 per year, which distributions are to be credited against
any other distributions to Williams during such year. Pursuant to the Second
Amendment, OM will no longer be managed by a manager and, instead, will be
managed by the members, who shall take actions by the vote of members owning at
least 65% of the Sharing Ratios, except for certain enumerated major decisions
which require unanimous vote. Related agreements were also entered into
effective as of midnight March 31, 1999 canceling the Note and the Company's
security interest in the ownership interests of Williams securing the Note.
The Company and OM also entered into a Termination of Consulting and
Administrative Agreement (the "Termination") effective midnight March 31, 1999.
The Termination has the effect of terminating the Consulting and Administrative
Agreement entered into between the Company and OM on April 15, 1998 (the
"Consulting Agreement") pursuant to which the Company agreed to provide
consulting and administrative services relating to the daily management of each
of OM's video poker casinos, and pursuant to which the Company received a fee of
$400,000 per year for rendering such services, reduced by $50,000 for each
existing video poker casino OM loses the right to operate, and increased by
$50,000 for each new video poker casino operated by OM during the term of the
Consulting Agreement.
Williams and OM also entered into a Second Amendment to Employment
Agreement (the "Employment Amendment") effective midnight March 31, 1999 which
amends the Employment Agreement dated April 15, 1998 pursuant to which Williams
received an annual salary of $250,000, was eligible to participate in any
employee benefit plans of OM, was furnished the use of a company automobile and
was reimbursed for expenses incurred on behalf of OM during the course of his
employment. Under the Employment Amendment, Williams will receive an annual
salary of $100,000 and will continue to be eligible to participate in any
employee benefit plans of OM, but will no longer be furnished the use of a
company automobile or be reimbursed for expenses. Under the Employment
Agreement, as amended by the Employment Amendment, the Employment Agreement
terminates on March 31, 2004.
As part of the Settlement Agreement, the Company and OM have modified the
terms of the lease of the Gold Rush Truck Stop by the Company to OM. The
Company and OM have entered into a Lease Agreement (the "Lease") effective
midnight March 31, 1999 for an initial term of six months and thereafter to be a
month-to-month lease until terminated by either party, with or without cause, on
60 days' prior written notice. The Company will be responsible for major
repairs and OM will be responsible for non-major repairs and maintenance, and OM
will pay a rental of $33,333.33 per month for the term of the Lease. The
Company and Williams also mutually
6
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agreed to terminate the right of first refusal previously granted to Williams to
purchase the land and buildings constituting the Gold Rush Truck Stop, or any
portion thereof, if the Company proposed to sell them to a third party. In
conjunction with the Lease, the Company has agreed to be solely responsible for
the indebtedness to Regions Bank, Springhill Branch, formerly known as
Springhill Bank & Trust Company, which is secured by a mortgage on the Gold Rush
Truck Stop. As of March 31, 1999, the outstanding principal balance of such
indebtedness was approximately $499,821.
Pursuant to the Second Amendment, the parties agreed to delete the
requirement that all video poker gaming opportunities within Louisiana that
either party desires to pursue must first be presented to OM for its review and
determination whether it desires to pursue such opportunity. Effective midnight
March 31, 1999, all parties will be free to pursue any video poker gaming
opportunities they may desire without first offering the opportunity to OM or
any other member. Likewise, Williams is no longer entitled to receive a
finder's fee of $50,000 for each opportunity brought by him to OM which is
consummated by OM.
As part of the Settlement Agreement, Williams and the Company also agreed
that to the extent any of the truck stop, convenience store, restaurant or
gaming interests that are part of King's Lucky Lady (See Note 5), Pelican
Palace, Lucky Longhorn, The Diamond Jubilee or the Video Poker Tavern Route are
held or operated in the name of the Company, effective midnight March 31, 1999
they shall be deemed to be in the name of and operated by OM, unless prohibited
by applicable laws or regulations.
Pursuant to the Settlement Agreement, the Operating Agreement of RPLLC (the
"River Port Operating Agreement") was also amended to provide that it shall be
managed by the members in the same manner as described above for OM under its
amended Operating Agreement, and to provide that Williams will own 50% of the
membership interests and Sharing Ratios, and the Company will own 25% and one or
more members of the North Louisiana Group will own the remaining 25%. Other
conforming changes were made to make the River Port Operating Agreement
consistent with the Operating Agreement of OM, as amended by the Second
Amendment. The amendments to the River Port Operating Agreement also became
effective March 31, 1999.
The Second Amendment and amendment to the River Port Operating Agreement, which
were effective midnight March 31, 1999, constitute a transfer of ownership
interest and control in all of the Company's gaming operations. As of April 1,
1999, ownership of OM, RPLLC and the Gold Rush Truck stop are as follows:
North Louisiana
Company Group Williams Total
------- --------------- -------- -------
OM 24.5% 24.5% 51.0% 100.0%
RPLLC 25.0% 25.0% 50.0% 100.0%
The Gold Rush Truck Stop 50.0% 50.0% - 100.0%
Therefore, the Company recorded its investment in OM, RPLLC and the Gold Rush
Truck Stop under the equity method for the quarter ended June 30, 1999.
Prior to the effective date of the Second Amendment and amendment to the River
Port Operating Agreement, the application of the existing agreements resulted in
the Company controlling the gaming operations and 100% of the net gaming income
being allocated to the Company and 0% to Williams. Therefore, the financial
statements of OM, RPLLC and the Gold Rush Truck Stop were consolidated with the
Company through March 31, 1999.
The following are condensed unaudited balance sheets for OM, RPLLC and the Gold
Rush Truck Stop as of June 30, 1999 and December 31, 1998 and the condensed
unaudited statements of income for the three months and six months ended June
30, 1999:
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1999
<S> <C> <C> <C> <C> <C>
Gold December
Assets OM RPLLC Rush Total 31, 1998
---------- ---------- -------- ---------- ----------
Cash $ 555,000 $ 4,000 $102,000 $ 661,000 $ 398,000
Accounts receivable 182,000 3,000 72,000 257,000 200,000
Restricted cash - - - - 200,000
Prepaid expenses 28,000 7,000 8,000 43,000 40,000
Inventories 36,000 - 77,000 113,000 138,000
Notes receivable - - - - 17,000
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Property and
equipment, net 220,000 1,648,000 485,000 2,353,000 1,086,000
Casino and truck
stop under
construction - - - - 1,605,000
Intangibles and
other, net 199,000 7,000 28,000 234,000 375,000
---------- ---------- -------- ---------- ----------
Total Assets $1,220,000 $1,669,000 $772,000 $3,661,000 $4,059,000
========== ========== ======== ========== ==========
LIABILITIES
Accounts payable
and accrued
liabilities $ 713,000 $ 192,000 $100,000 $1,005,000 $ 932,000
Notes payable 34,000 1,639,000 231,000 1,904,000 2,172,000
---------- ---------- -------- ---------- ----------
Total Liabilities 747,000 1,831,000 331,000 2,909,000 3,104,000
---------- ---------- -------- ---------- ----------
Capital 473,000 (162,000) 441,000 752,000 955,000
---------- ---------- -------- ---------- ----------
Total Liabilities and
Capital $1,220,000 $1,669,000 $772,000 $3,661,000 $4,059,000
========== ========== ======== ========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------- -----------------
Revenues $4,702,000 $10,736,000
Costs of revenue 3,153,000 7,036,000
General and administrative 1,271,000 2,914,000
---------- -----------
Operating income 278,000 786,000
Interest expense, net (48,000) (101,000)
Other income (expense) (26,000) (500,000)
---------- -----------
Net income $ 204,000 $ 186,000
========== ===========
Note 3. NEW CASINO OPERATIONS
Construction of the River Port Truck Stop convenience store was completed in
January 1999. Final design and permitting were completed during May 1999 and
construction commenced in June 1999, with completion targeted for the end of the
third quarter of 1999. Effective July 17, 1998, River Port LLC borrowed
$1,750,030 from Cottonport Bank ("Bank") for purposes of funding construction of
the truck stop and video poker casino to be owned and operated by River Port
LLC. This note bears interest at an annual rate of 10.25% until December 10,
1999, at which time all interest must be paid and the Bank has agreed to renew
the loan for a five year term, with monthly payments of principal and interest
at an interest rate equal to 2% above the prime rate of Chase. The full amount
of the loan is guaranteed by the Company and OM; $1,000,000 of the loan is
guaranteed by Williams and his spouse; and $750,000 is guaranteed by E.H. Hawes,
II, the President and Chief Executive Officer of the Company, and an
unaffiliated individual (which guaranty will be secured by a second lien on the
Company's Gold Rush property). The lease of the property upon which the truck
stop and video poker casino is being constructed has been pledged as collateral
for the loan, and the improvements being constructed thereon have been also
pledged as collateral for the loan. River Port LLC plans to borrow an
additional $250,000 from the Bank during the third quarter of 1999.
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Note 4. PRESENT CASH SHORTFALL
As of June 30, 1999, the Company was twenty four principal payments in
arrears (for a total of $997,573 of principal; interest has been paid current
through June 30, 1999). The Company made an interest and principal payment in
June 1999. The note was issued to International by the Company's partial
consideration for a acquisition in 1996. The note had an original principal
balance of $1,400,000, requires monthly payments of principal and interest of
$50,000, had an unpaid principal balance of $997,573 at June 30, 1999, and is
secured by a pledge of the outstanding capital stock of I.T. Cruise and GalaxSea
owned by the Company. On March 22, 1999, International agreed to allow the
$1,119,346 then accrued and owed to it to continue to remain outstanding (with
interest accruing thereon) until the earlier of January 1, 2000 or the time that
excess cash flow is available to pay such amount (or any portion thereof) and,
further, granted relief to the Company to allow it to pay the lesser of $50,000
per month or excess available cash flow, until January 1, 2000, at which time
any accrued amounts will be due and payable and the regular $50,000 scheduled
monthly payments will recommence. Until such time as the regular scheduled
payments on the International note recommence and the International note is
current, all payments are suspended on the subordinated debentures issued by the
Company in connection with the redemption of 313,000 shares of Class A Preferred
Stock, which have aggregate remaining principal balances of $514,067 and accrued
interest of $103,974 at June 30, 1999 (after cancellation of the remaining
principal of $382,279 owing on debentures in the original principal amount of
$400,860 and $68,810 of accrued interest as part of the Settlement Agreement;
(see Note 2.) and required aggregate payments of principal and interest of
$11,250 per month until July 1, 1997, $31,114 per month, from July 1, 1997
through December 31, 1997, and $16,670 per month thereafter. As of June 30,
1999, 26 monthly payments, for a total of $270,840 (after the redemption of
debentures in accordance with the Settlement Agreement; see Note 2), have not
been made pursuant to the subordinated debentures. The subordinated debentures
and the amounts unpaid are expressly made subordinate to the International note
as well as other senior debt of the Company.
Note 5. LEASE TERMINATION
As of April 1, 1999, the Company and OM will no longer operate King's Lucky
Lady Truck Stop and the video poker casino as a result of settlement of
litigation involving this truck stop. During the course of the litigation, OM
was ordered by the court to escrow 50% of the monthly operating profit generated
by King's Lucky Lady, and effective from the date of the judgment on March 3,
1998 OM was required to escrow 100% of the operating profit. As of March 1,
1999, OM had placed in escrow $775,595 for the period from May 1997 through
February 1999. OM and the Company also petitioned the court to grant a
management fee for services from April 30, 1997 through the date the appeal was
concluded and also asserted a claim for damages for unjust enrichment against
Guillory. On March 31, 1999, the parties agreed to a full settlement regarding
the remaining outstanding issues including the ownership of the escrowed funds.
As a result of the settlement, the Company and OM agreed to vacate the property
effective 12:01 a.m., April 1, 1999. Under the terms of the settlement, the
Company and OM received $325,000 as proceeds for the sale of all video poker
related equipment and inventory of the escrow fund and are entitled to 20% of
the net profits of King's Lucky Lady for the month of March 1999. All remaining
claims were dismissed.
Note 6 GAIN (LOSS) ON SALE OF ASSETS
On March 31, 1999, in connection with the King's Lucky Lady lease termination
(Note 5), the Company and OM sold all of their video poker related equipment and
inventory for $325,000.
Effective midnight March 31, 1999, the Company sold a portion of its interest in
OM, RPLLC and the Gold Rush Truck Stop for the assumption of debt, cancellation
of debentures, accrued interest, accrued dividends and the redemption of stock
(Note 2).
The following is a summary of the resulting gain (loss) from the above
transactions which is included in other income (expense) in the accompanying
financial statements:
9
<PAGE>
OM, RPLLC and
the Gold Rush King's
Truck Stop Lucky Lady
-------------- -----------
Proceeds:
Cash $ - $ 325,000
Assumption of debt 278,000 -
Common stock with a fair value of $.01 82,000 -
Cancellation of debentures, accrued interest
and accrued dividends 784,000 -
---------- ---------
1,144,000 325,000
---------- ---------
Cost of Assets Sold 339,000 368,000
---------- ---------
Gain (Loss) before selling costs 805,000 (43,000)
Less selling costs (100,000) -
---------- ---------
Gain (Loss) on sale of assets $ 705,000 $( 43,000)
========== =========
THIS SPACE WAS INTENTIONALLY LEFT BLANK
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources
Present Cash Shortfall. As of June 30, 1999, the Company was twenty four
months in arrears (a total of $997,573 of principal) in payments to
International on the promissory note issued to International by the Company as
partial consideration for a 1996 acquisition. The note had an original
principal balance of $1,400,000, requires monthly payments of principal and
interest of $50,000, had an unpaid principal balance of $997,573 at June 30,
1999, and is secured by a pledge of the outstanding capital stock of I.T. Cruise
and GalaxSea owned by the Company.
The cash flow currently being generated by the Company is presently not
sufficient to allow it to make the required payments on the International note
and to continue to remain current on its other indebtedness and payables.
Consequently, International agreed to allow the $1,119,346 accrued and owed to
it at March 22, 1999 to continue to remain outstanding (with interest accruing
thereon) until the earlier of January 1, 2000 or the time that excess cash flow
is available to pay such amount (or any portion thereof) and, further, granted
relief to the Company to allow it to pay the lesser of $50,000 per month or
excess available cash flow, until January 1, 2000, at which time any accrued
amounts will be due and payable and the regular $50,000 scheduled monthly
payments will recommence. Until such time as the regular scheduled payments on
the International note recommence and the International note is current, all
payments are suspended on the subordinated debentures issued by the Company in
connection with the redemption of 313,000 shares of Class A Preferred Stock,
which have aggregate remaining principal balances of $514,067 and accrued
interest of $103,974 at June 30, 1999 (after cancellation of the remaining
principal of $382,279 owing on debentures in the original principal amount of
$400,860, and $68,810 of accrued interest as part of the Settlement Agreement;
see Note 2) and required aggregate payments of principal and interest of $11,250
per month until July 1, 1997, $31,114 per month, from July 1, 1997 through
December 31, 1997, and $16,670 per month thereafter. As of June 30, 1999, 26
monthly payments, for a total of $270,840 (after the redemption of debentures in
accordance with the Settlement Agreement; see Note 2)) have not been made
pursuant to the subordinated debentures. The subordinated debentures and the
amounts unpaid are expressly made subordinate to the International note as well
as other senior debt of the Company.
As noted previously, the structure of OM and the various interests
(including revenue and profits interests) of the Company in OM are being
reviewed by the Louisiana Gaming Control Board. Any adverse ruling by the
Louisiana Gaming Control Board could further compound the Company's cash flow
situation and possibly result in the inability to meet its scheduled debt
payments, even as revised. The Company does not believe the review will result
in material adverse changes in OM's structure, but it cannot predict the results
of the review until the review is completed. Strict enforcement of the
Louisiana Act and the perceived anti-gaming sentiment in Louisiana within
certain segments of the population and with certain politicians may also impact
the review of OM and any possible restructuring of OM, or even a possible loss
of OM's license to operate the video poker casinos.
The Company will seek to meet its long-term liquidity needs primarily
through cash flow from operations, restructuring its payment obligations on
certain debt described above, additional borrowings from the Company's
traditional lending sources and possible sales of equity or debt securities or
assets. While the Company believes it will be able to generate and obtain the
necessary capital to meet such needs if it is able to satisfactorily restructure
its payment obligations as described above, there can be no assurance that all
of such capital will be available on terms acceptable to the Company, which
could delay or cause the Company to postpone certain planned activities.
General Condition. The Company ended the second quarter of 1999 with
$201,148 in cash and other current assets amounting to $225,229, including
accounts receivable of $152,283, prepaid expenses of $20,296 and other assets
of $52,650. The Company also reflects an asset of $306,451, representing the
Company's equity investment in previously wholly-owned subsidiaries (see Note
2.) The Company's total liabilities were $2,347,644 at June 30, 1999 including
accounts payable and accrued liabilities of $372,036, current notes payable of
$477,462, long-term notes payable of $1,051,128 and preferred stock dividends
payable of $447,018. The current portion of other notes payable totaling
$477,462 includes debt with contractual maturities of less than one year and the
current portion of long term debt. See discussion of Present Cash Shortfall
above.
Effective June 10, 1996, the Company acquired GalaxSea and I.T. Cruise,
companies engaged in the cruise travel industry. Cruise revenue as reported is
presented on an accrual basis, and is estimated based on the receipt of
quarterly cash payments of previous years actual revenue; adjusted for seasonal
variations. Cruise revenue is comprised of overrides and commissions on cruise
sales generated by I.T. Cruise from the International network and GalaxSea's
franchise system. The Cruise lines make payments of overrides and commissions
on a quarterly basis which are received 30-45 days following the end of each
quarter. Bonus overrides and commissions are paid by the cruise lines on an
annual basis, which are received 30-45 days into the next calendar year.
GalaxSea franchisees are billed monthly for license fees.
11
<PAGE>
Results of Operations
The Company 's operations resulted in a net income before taxes of $743,374
for the six months ended June 30, 1999, an increase of 182%, from 1998's
$263,506. A gain on sale of assets was recorded during the six months ended
June 30, 1999 of $662,065; (see Note 6.) in the second quarter of 1999. The
Company's operating profit before depreciation, amortization, interest and other
revenue/expense amounted to $384,422 through June 30, 1999, down 57% from
1998's $898,368.
The following comparisons are based on the operational results of the
Company and the underlying second quarter operations of the entities in which
the Company holds an equity investment. This presentation is to provide
comparable video poker and retail operation results for the three months ended
June 30, 1999.
Revenues totaled $11,240,171 through June 30, 1999 compared to $12,490,439
for 1998, down 10% (including approximately $4,702,000 of revenue generated by
OM, RPLLC and the Gold Rush Truck Stop during the three months ended June 30,
1999, which is included in the income from equity investments for the same
period in the accompanying financial statements). (see the unaudited condensed
statements of income in Note 2.)
Video Poker revenues totaled $7,468,138 through June 30, 1999, down
$467,713, or 6% from 1998's $7,935,851. The primary reason for the loss in
revenues is due to the discontinuation of operations at King's Lucky Lady in
Port Barre, Louisiana resulting in a loss of revenue of approximately $635,000.
Gains were achieved at the Pelican Palace of approximately $242,000 and a loss
of approximately $74,000 at the remaining casinos.
Retail revenues from fuel and convenience store, food and beverage
operations amounted to $3,268,143 for the six months ended June 30, 1999,
compared to 1998's $4,045,437, a decrease of 19%. The loss of the King's Truck
Stop and convenience store contributed approximately $620,000 to 1998's revenue
accounting for this reduction in revenue.
Cruise revenues accrued for I.T. Cruise and GalaxSea totaled $504,390 for
the six months ended June 30, 1999 compared to 1998's $509,151.
Cost of revenues totaled $7,280,990 through June 30, 1999 compared to
$8,020,177 for 1998, down 9% (including approximately $3,153,000 of costs of
revenue generated by OM, RPLLC and the Gold Rush Truck Stop during the three
months ended June 30, 1999, which is included in the income from equity
investments for the same period in the accompanying financial statements). (see
the unaudited condensed statement of income in Note 2.)
Video poker operations recorded a direct cost of revenue amounting to
$4,363,222 in 1999 and $4,488,749 in 1998, a decrease of 3%. The primary
reason for the decrease in costs was due to the decline in revenue. As a
percentage of revenue, video poker costs increased to 58% from 57% as a result
of increased profit share payments for the six months ended June 30, 1999.
Retail operations (fuel, convenience store, food and beverage) recorded cost
of revenue of $2,672,463 for the six months ended June 30, 1999 compared to
$3,307,380 for 1998, a decrease of $634,917 or 19%, due to discontinued
operations at King's Truck Stop as of March 31, 1999. As a percentage of retail
revenues, total cost of revenues remained constant with 1998's percentage of
82%.
In order to comply with State regulations governing truck stops, the
Company continued to be very competitive in its marketing and pricing of fuel
during the first six months of 1999, in order to maintain and/or increase fuel
sales. The regulations require a minimum sales level of 100,000 gallons per
month per location, in order to maintain a complement of 50 video poker
machines.
Cruise operations recorded a direct cost of revenue amounting to $245,305
for the first six months ended June 30, 1999, compared to 1998's $224,048, an
increase of 9%. Significant improvement has been demonstrated in the
marketing/promotional area. Also, previous third party commission commitments
have expired.
Combined Cruise Operations recorded a gross profit totaling $259,085, while
1998's gross profit was $285,103, a decrease of $26,018, or 9%. The loss in
margin was for the most part due to a restructuring of contracts by certain
cruise lines. Marketing fees accrued are the result of a broad based program
coordinated by GalaxSea to produce cruise industry publications and promotions
subscribed to by the cruise lines. The GalaxSea franchise system included 70
franchisees at June 30, 1999 compared to 73 at the end of the second quarter of
1998.
12
<PAGE>
Other expenses totaled $3,164,852 through June 30, 1999, compared to
$4,251,387, down 26% (including approximately $1,345,000 of other expenses
generated by OM, RPLLC and the Gold Rush Truck Stop during the three months
ended June 30, 1999, which is included in the income from equity investments for
the same period in the accompanying financial statements). (see the unaudited
condensed statement of income in Note 2.)
General operating and administrative expenses of $3,305,851 in 1999 and
$3,616,525 in 1998 represented 30% and 29% of total revenue for 1999 and 1998,
respectively. The decrease amounted to $285,674 or 8%. The decrease is
accountable to the discontinuation of operations at King's Truck Stop as of
March 31, 1999.
Depreciation and amortization amounted to $295,567 six months ended June 30,
1999 and $310,353 in 1998. Interest expense was $181,848 in 1999 and $137,679
in 1998. This 32% increase is due to the accrual of interest on the River Port
Truck Stop construction note. Net other revenue/(expense) was ($113,736) in
1999, compared to ($186,830) in 1998. Income from equity investments in the
amount of $70,085 was recorded beginning April 1, 1999, representing the
Company's share of net income/loss in gaming and truck stop ventures; (see Note
2.) A gain on sale of assets was recorded totaling $662,065; (see Note 6.)
Year 2000 Issues
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive. As a result of certain programs being written using two
digits rather than four digits to define the applicable year, any of the
Company's computer programs that have data sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculation causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities. The Company has
implemented a year 2000 program to review the functionality of the Company's
information technology and non-information technology systems and applications
beyond 1999 as well as year 2000 issues related to the Company's third-party
vendors. OM and River Port LLC operate, or will operate, video poker devices
under licenses granted by the Louisiana State Police Video Gaming Division. OM
currently operates 244 video poker machines which are linked to an on-line
tracking and accounting system maintained by the Division's technical
department. The Division's technical department is currently in the testing
stages for an upgrade to its computer system to satisfy the year 2000 compliance
issue. The Division installed its new computer system in March 1999 and will
require software upgrades for all video poker "Clerk Validation Terminals". The
mandatory chip upgrade was complete during the second quarter of 1999 to
coincide with Year 2000 compliance. The chip cost totaled $3,000 and will
require OM to spend approximately $18,600 to $24,800 on hardware, and it is
anticipated that to complete the conversion OM will also incur an estimated
amount of $15,000 for labor and testing. The second major system which controls
payrolls is managed by a third party (Automatic Data Processing). The
conversion of this system was completed during the third quarter of 1998.
Another third party vendor who provides accounting software support (Great
Plains Software) has warranted that its software will accurately reflect the
change from the year 1999 to the year 2000 and beyond.
The Company integrates all of its execute office systems through a "Novell" Lan
software networking environment. The Company has plans to upgrade its current
server with software upgrades provided by Novell and intends to upgrade all
networked hardware to ensure compatibility and compliance with year 2000
requirements. It is estimated that this conversion will cost approximately
$15,000 and is scheduled for completion during the third quarter of 1999.
Computer terminals in use at Louisiana truck stop locations are not currently in
full compliance with the year 2000 roll-over requirements. Older personal
computers will not support an automatic roll-over to January 1, 2000. It is
planned that a BIOS upgrade will be scheduled for all older personal computers
to ensure that the units will comply. The estimated cost of BIOS upgrades will
not exceed $300 per personal computer, a total of $3,600. The Company has
identified 12 units which will require a BIOS upgrade. In addition, custom
application programs, written internally, will also require an upgrade at an
estimated cost of $10,000. It is also anticipated that to complete the
conversion and upgrade, certain hardware purchases might be necessary if old
equipment fails to meet the new standards. The Company estimates that this
could cost up to $20,000.
The Company's current plan contemplates expenditures totaling $90,000 to
implement all conversions to meet year 2000 compliance.
13
<PAGE>
Forward Looking Statements
Statements that are not historical facts included in this Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, debt restructuring, the possible effects of anti-gaming sentiment, the
restructuring of Operator, maintaining or increasing fuel sales, compliance with
other gaming law requirements, maintaining a competitive position in the
Company's markets, pending legal proceedings, business strategies, expansion and
growth of the Company's operations, and cash flow. Factors that could cause
actual results to differ materially ("Cautionary Disclosures") are described
throughout this Form 10-QSB. Cautionary Disclosures include, among others:
general economic conditions, the Company's ability to find, acquire, market,
develop and produce new properties, the strength and financial resources of the
Company's competitors, anti-gaming sentiment, labor relations, availability and
cost of material and equipment, the results of debt restructuring efforts,
regulatory developments and compliance, and pending legal proceedings. All
written and oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
THIS SPACE WAS INTENTIONALLY LEFT BLANK
14
<PAGE>
PART II. OTHER INFORMATION
Items 1, 2, 4 and 5 are omitted from this report as inapplicable.
Item 3.
See, the discussion of the Company's default under certain debt instruments
described in Item 2 - "Management's Discussion and Analysis or Plan of
Operation - Liquidity and Capital Resources - Present Cash Shortfall."
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Quarterly Report on Form
10-QSB:
Exhibit
Number Description of Exhibits
- -------------------------------
(a) The following exhibits are filed as part of this Form 10QSB pursuant to
Item 601 of Regulation S-B:
3.1.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1986 (the "1986 Form 10-K"), and incorporated herein by
reference.
3.1.2 Certificate of Amendment of Certificate of Incorporation of the Company
dated April 18, 1994, filed as Exhibit 3.1.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 (the
"1993 Form 10-K"), and incorporated herein by reference.
3.1.3 Certificate of Amendment of Certificate of Incorporation of the Company
effecting one-for-three reverse stock split filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated October 17, 1994, and
incorporated herein by reference.
3.1.4 Certificate of Amendment of Certificate of Incorporation of the Company
effecting name change, increase of authorized shares, authorization of
Class A preferred stock and stock ownership limitations filed as Exhibit
3.2 to the Company's Current Report on Form 8-K dated October 17, 1994,
and incorporated herein by reference.
3.1.5 Form of "Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock" creating the Series B Preferred Stock filed
as Exhibit 10.1.4 to the Company's Current Report on Form 8-K dated June
10, 1996, and incorporated herein by reference.
3.1.6 Certificate of Amendment of Certificate of Incorporation of the Company
increasing the number of authorized shares of Common Stock to 100,000,000
shares filed as Exhibit 2.1.6 to the company's Quarterly Report on Form
10-QSB for the second quarter of 1998, and incorporated herein by
reference.
3.2 Amended and Restated Bylaws of the Company filed as Exhibit 3.2
to the Company's Quarterly Report on Form 10-QSB for the third quarter of
1998, and incorporated herein by reference.
*27.1 Financial data schedule required by Item 601 of Regulation S-B.
______________________
* Filed herewith.
(b) Reports on Form 8-KA:
The Company filed a Current Report on Form 8-K dated February 1,
1999, and Amendment No. One to such Form 8-K, on April 14, 1999
reporting information under the following items:
15
<PAGE>
Item 2. Acquisition or Disposition of Assets
Item 4. Changes in Registrant's Certifying Accountant
Item 5. Other Events
Item 7. Financial Statements and Exhibits, which included an unaudited
pro forma balance sheet as of December 31, 1998 and unaudited pro
forma statement of operations for the year ended December 31,
1998 reflecting the pro forma effect on the Company of the
Settlement Agreement.
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH AMERICAN GAMING AND
ENTERTAINMENT CORPORATION
(Registrant)
By: /s/ E.H. Hawes II
------------------------------------
Chairman of the Board and
Chief Executive Officer
Date: August 13, 1999
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 201,148
<SECURITIES> 0
<RECEIVABLES> 152,283
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 426,377
<PP&E> 130,975
<DEPRECIATION> 80,681
<TOTAL-ASSETS> 1,701,661
<CURRENT-LIABILITIES> 1,296,516
<BONDS> 0
0
0
<COMMON> 336,210
<OTHER-SE> (982,193)
<TOTAL-LIABILITY-AND-EQUITY> 1,701,661
<SALES> 6,538,520
<TOTAL-REVENUES> 6,538,520
<CGS> 4,128,364
<TOTAL-COSTS> 2,025,734
<OTHER-EXPENSES> 6,319
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,807
<INCOME-PRETAX> 743,374
<INCOME-TAX> 193,265
<INCOME-CONTINUING> 550,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 550,109
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
