<PAGE> 1
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission File Number: 0-11532
INLAND ENTERTAINMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Utah 33-0618806
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16868 Via Del Campo Court, Suite 200, San Diego, California 92127
(Address of principal executive offices)
Issuer's telephone number, including area code: (619) 716-2100
Former name: Inland Casino Corporation
--------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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__
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: as of February 6, 1998,
3,886,348 shares of common stock, $.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format (check one) Yes No X
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<PAGE> 2
INLAND ENTERTAINMENT CORPORATION
FORM 10-QSB
FOR THE PERIOD ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited):
Balance Sheets -
June 30, 1997 and December 31, 1997................................ 1
Statements of Operations -
Three months ended December 31, 1996 and 1997...................... 2
Six months ended December 31, 1996 and 1997........................ 3
Statements of Cash Flows -
Six months ended December 31, 1996 and 1997........................ 4
Notes to Interim Financial Statements.............................. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.................................. 10
.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 15
ITEM 5. OTHER INFORMATION................................................. 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 16
SIGNATURES 17
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INLAND ENTERTAINMENT CORPORATION
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1997
------------- -----------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,004,078 $ 8,729,697
Accounts receivable 70,100 321,776
Prepaid expenses and other current assets 58,069 314,015
----------- -----------
Total current assets 8,132,247 9,365,488
RESTRICTED CASH AND OTHER INVESTMENTS 1,981,750 2,115,320
OTHER NON-CURRENT ASSETS
Receivables due after one year 240,000 500,258
Furniture and equipment, net 159,633 789,790
Deferred contract costs, net 5,843,023 4,430,150
Deferred taxes 270,183 78,183
Deposits and other assets 87,291 123,424
----------- -----------
$16,714,127 $17,402,613
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Advances of future consulting fees--Barona Casino $ 2,173,135 $ 2,612,448
Current portion of long-term debt 1,020,054 400,000
Accounts payable and accrued expenses 975,424 972,762
Income taxes payable 190,737 36,737
----------- -----------
Total current liabilities 4,359,350 4,021,947
----------- -----------
LONG TERM DEBT, LESS CURRENT PORTION 6,469,591 6,700,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.001 par, 100,000,000 shares
authorized, 3,886,348 shares outstanding 3,855 3,886
Additional paid in capital 117,284
Retained earnings 5,881,331 6,559,496
----------- -----------
Total shareholders' equity 5,885,186 6,680,666
----------- -----------
$16,714,127 $17,402,613
=========== ===========
</TABLE>
1
<PAGE> 4
INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
CONTRACT REVENUE
Barona Casino $3,742,500 $3,012,500
Other 65,817 38,469
---------- ----------
3,808,317 3,050,969
---------- ----------
OPERATING EXPENSES:
General and administrative expenses 2,188,231 2,082,027
Amortization of deferred contract costs 635,720 885,925
---------- ----------
2,823,951 2,967,952
---------- ----------
Operating profit 984,366 83,017
Other income and (expense):
Interest income 76,843 162,047
Interest expense (103,250) (160,722)
---------- ----------
(26,407) 1,325
---------- ----------
Income before income taxes 957,959 84,342
Income tax provision 402,000 38,000
---------- ----------
Net income $ 555,959 $ 46,342
========== ==========
Earnings per share - basic $ 0.14 $ 0.01
========== ==========
Earnings per share - diluted $ 0.14 $ 0.01
========== ==========
Shares used in the computation of income
per share - basic 3,854,548 3,878,308
========== ==========
Shares used in the computation of income
per share - diluted 4,106,864 4,809,728
========== ==========
</TABLE>
2
<PAGE> 5
INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
CONTRACT REVENUE
Barona Casino $7,692,500 $6,792,500
Other 65,817 190,469
---------- ----------
7,758,317 6,982,969
---------- ----------
OPERATING EXPENSES:
General and administrative expenses 4,066,623 4,044,324
Amortization of deferred contract costs 1,240,091 1,758,793
---------- ----------
5,306,714 5,803,117
---------- ----------
Operating profit 2,451,603 1,179,852
Other income and (expense):
Interest income 133,497 308,354
Interest expense (119,000) (263,041)
---------- ----------
14,497 45,313
---------- ----------
Income before income taxes 2,466,100 1,225,165
Income tax provision 1,117,000 547,000
---------- ----------
Net income $1,349,100 $ 678,165
========== ==========
Earnings per share - basic $ 0.19 $ 0.18
========== ==========
Earnings per share - diluted $ 0.18 $ 0.15
========== ==========
Shares used in the computation of income
per share - basic 7,243,670 3,866,428
========== ==========
Shares used in the computation of income
per share - diluted 7,307,451 4,594,731
========== ==========
</TABLE>
3
<PAGE> 6
INLAND ENTERTAINMENT CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Net cash generated by (used in) operating activities:
Net income $ 1,349,100 $ 678,165
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,265,295 1,811,662
Deferred taxes 168,000 192,000
Changes in assets and liabilities:
Notes receivable (1,121,009)
Accounts receivable (390,820) (251,676)
Prepaid expenses and other current assets (34,754) (255,946)
Deposits and other assets (36,133)
Accounts payable and accrued expenses 631,480 (2,662)
Income taxes payable 86,800 (154,000)
Advances of future consulting fees 594,925 439,313
----------- ----------
Net cash provided by operating activities 2,549,017 2,420,723
----------- ----------
Cash flows provided by (used) in investing activities:
Purchase of furniture and equipment (41,185) (683,596)
Deferred contract costs (765,484) (115,511)
Acquisition of revenue bonds and restricted cash (2,397,993) (133,000)
----------- ----------
Net cash used in investing activities (3,204,662) (932,107)
----------- ----------
Cash flows provided by (used in) financing activities:
Payment of notes payable (620,054)
Loans to employees (132,462)
Investments/other loans (127,796)
Proceeds from exercise of stock options 117,315
Repurchase and cancellation of common stock (200,000) ____
----------- ----------
Net cash provided by (used in) financing activities (200,000) (762,997)
----------- ----------
Increase (decrease) in cash (855,645) 725,619
Cash, beginning of period 4,347,985 8,004,078
----------- ----------
Cash, end of period $ 3,492,340 $8,729,697
=========== ==========
Supplemental disclosures of cash flow information:
Interest expense paid $ $ 400,942
=========== ==========
Interest income received $ 57,862 $ 280,107
=========== ==========
Income taxes paid $ 212,000 $ 509,000
=========== ==========
Issuance of notes payable in connection
with the repurchase of common stock $ 3,500,000
===========
</TABLE>
4
<PAGE> 7
INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. PRESENTATION OF INTERIM FINANCIAL INFORMATION.
Basis of Presentation - The accompanying interim unaudited financial statements
have been prepared by Inland Entertainment Corporation, a Utah corporation (the
"Company" or "Inland"), in conformity with generally accepted accounting
principles for interim financial information and with the rules and regulations
of the U.S. Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. The interim unaudited financial statements reflect
all normal, recurring adjustments and disclosures which are, in the opinion of
management, necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results of the full fiscal
year. The interim financial statements should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997.
Earnings per share - As of December 31, 1997 the company has adopted Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share". The
company is required to change the method used to calculate earnings per share
and to restate all comparative prior periods reported. The new requirements
include a calculation of basic earnings per share, using only the weighted
number of shares outstanding ("EPS - basic"), and diluted earnings per share
("EPS - diluted"), in which the dilutive effect of equivalent shares are used
assuming the exercise of all vested stock options.
2. BUSINESS AND BASIS OF ACCOUNTING. The Company provides consulting and
other professional services for gaming operations under consulting agreements
with Native American Tribes. Currently, the Company provides services to The
Barona Group of Capitan Grande Band of Mission Indians (the "Barona Tribe") in
connection with the Barona Tribe's operation of a gaming facility located north
of Lakeside, California, in eastern San Diego County. The Company reports
revenues and expenses using the accrual method of accounting. All of the
Company's fee revenue for the six months ended December 31, 1996 and 1997 was
generated from services provided to the Barona Tribe, with the exception of
$66,000 in fees received for work performed for a tribe in New Mexico for the
six months ended December 31, 1996, and $190,000 in fees received for work
performed for a tribe in Oregon for the six months ended December 31, 1997.
The Company has continued to explore new business opportunities, including the
research, review and evaluation of other services and products that the Company
may develop and market in electronic format, including through the Internet.
3. AGREEMENTS WITH THE BARONA TRIBE. The Company has provided services to the
Barona Tribe since 1991. The Company currently provides consulting services in
accordance with the terms and conditions of an Amended and Restated Consulting
Agreement (the "Barona Consulting Agreement" or "Consulting Agreement").
The Barona Consulting Agreement expires in March 1999; however, it contains an
option to extend the Consulting Agreement for an additional five year period.
Under the terms of the Barona Consulting Agreement, the Barona Tribe has the
right to draw from the gross revenues of the Barona Casino an annual income
stream at least equal to the distributions received by the Barona Tribe for the
twelve month period ended December 31, 1995, and fees paid or payable to the
Company may accordingly be reduced.
5
<PAGE> 8
INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
In March 1996, the Barona Tribe submitted the Initial Consulting Agreement, (the
predecessor agreement to the Consulting Agreement), to the National Indian
Gaming Commission (the "NIGC") and, in May 1996, the NIGC determined that the
Initial Consulting Agreement was not a management agreement and, therefore, not
subject to NIGC approval, and forwarded such agreement to the Bureau of Indian
Affairs (the "BIA"). In July 1997, the BIA reviewed the Initial Consulting
Agreement and determined that no further action by it with respect to such
agreement was required.
In January 1997, the Company entered into a settlement agreement with the NIGC
regarding the Company's relationship with the Barona Tribe. Under the terms of
the settlement agreement, the NIGC held, among other things, that the
relationship between the Barona Tribe and the Company had benefited the Barona
Tribe, and that the Company had not violated any law. The Company agreed to
reimburse the NIGC for administrative, investigative and legal expenses in the
aggregate amount of $250,000. In addition, the Company agreed to contribute $2
million to the Barona Tribe for general improvements on the reservation, payable
in five equal annual installments, commencing in January 1997. The Company
accounted for the $2 million commitment as deferred contract costs, which will
be amortized over the remaining initial term of the Consulting Agreement with
the Barona Tribe.
In January 1997, the Company submitted the Consulting Agreement to the NIGC. In
April 1997, the Company received a letter from the NIGC questioning whether the
Consulting Agreement was in fact a management contract. The Company believes
that the NIGC will ultimately determine that the Consulting Agreement is not a
management contract, based on (i) the May 1996 and July 1997 determinations of
the NIGC and BIA respectively, with respect to the Initial Consulting Agreement,
(ii) the NIGC's findings in the January 1997 settlement agreement and (iii) the
actual elements of the relationship between the Barona Casino and the Company.
However, there is no assurance that the NIGC will determine that the Consulting
Agreement is not a management contract. If such a determination is not made by
the NIGC, the failure of the NIGC to approve the Consulting Agreement could have
a material adverse effect on the business and financial condition of the
Company. If the NIGC concludes that the Consulting Agreement is not a management
agreement, the NIGC will forward the Agreement to the BIA for its review. To the
extent that the BIA determines that its approval is required, there can be no
assurance that the BIA will approve such Agreements, and such failure to approve
the Consulting Agreement may have a material adverse effect on the business and
financial condition of the Company.
4. DEFERRED CONTRACT COSTS. Pursuant to oral agreements with the Barona Tribe,
the Company has agreed to fund, or to arrange acceptable financing for, the
construction of facility improvements, furniture and equipment, the
establishment of initial working capital, and the losses, if any, of the Barona
Casino's operations. Because the Barona Tribe will not allow its land to be
encumbered and has not assumed liability for any of these obligations, the
Company has capitalized those costs incurred as deferred contract costs since
(i) the Company had the ultimate responsibility for such costs incurred in
connection with developing the Barona Casino and (ii) management believes that
these costs are fully recoverable over the life of the Consulting Agreement
through receipt of fee income from the Barona Casino. However, given the nature
of the asset, if the recoverability is determined to be not probable, the
Company will expense the unamortized portion. On an ongoing basis, the Company
reviews the valuation and recoverability of these unamortized deferred contract
costs. As part of this review, the Company estimates the discounted present
value of the future projected net income generated by the Barona Casino and the
resulting revenue to the Company to determine whether impairment has occurred.
6
<PAGE> 9
INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
Amortization of the deferred costs is calculated using the straight-line method
over the remaining term of the Consulting Agreement. Under the terms of the
Consulting Agreement, title to the Barona Casino facilities, furniture and
equipment rests solely with the Barona Tribe, unless the Barona Tribe agrees
otherwise. The Consulting Agreement may be terminated by the Barona Tribe for
any material breach by the Company, as defined in such agreement. Management is
not aware of any material breach of the Consulting Agreement.
5. RESTRICTED CASH AND OTHER INVESTMENTS. From June 1996 to May 1997, the
Company provided consulting services to the Klamath and Modoc Tribes and the
Yahooskin Band of Snake Indians (collectively, the "Klamath Tribes"). The
Klamath Tribes constructed the Kla-Mo-Ya Casino near Chiloquin, in south central
Oregon, a temporary gaming facility funded by revenue bonds issued by the
Klamath Tribes. In connection with such bond financing, the Company has a net
investment of $464,320 in revenue bonds with a principal face amount of
$500,000. In addition, as a condition of the bond financing, the Company agreed
to hold the bonds for a five year period. Pre-opening costs and expenses of
approximately $1.5 million were financed by loans made pursuant to a third-party
bank credit agreement with the Klamath Tribes. The Company pledged to such bank
a certificate of deposit for $1,518,000 as collateral for such loans.
If the Klamath Tribes are unable to pay its obligations, the Company may lose
all or a portion of its investment in the revenue bonds it purchased and its
certificate of deposit pledged as collateral for bank loans to the Klamath
Tribes, which could have a material adverse effect on the financial condition of
the Company.
Additionally, the Company issued an irrevocable letter of credit for $133,000 to
satisfy the terms of the corporate office lease agreement. Such letter of credit
will automatically renew on an annual basis until October 31, 2002 unless
canceled by the lessor.
6. STOCK REPURCHASE/LONG-TERM DEBT.
Stock Repurchase Obligations - The Company repurchased its own common stock and
outstanding options from a former executive officer, director and principal
shareholder of the Company. The purchase price consisted of a $500,000 cash
payment and issuance of a $900,000, 7% unsecured promissory note, payable in
three equal installments of $342,947. The notes were paid in full in September
1997. If the Company's common stock trading price reaches certain levels during
measurement periods prior to March 1998 and 1999, such former executive officer
will be entitled to up to $250,000 in additional compensation for each
measurement period.
The Company entered into a Stock Purchase and Settlement and Release Agreement
with two shareholders, including a former director in September 1996 (the "Stock
Purchase Agreement"). The terms of the Stock Purchase Agreement included (i) an
aggregate cash payment of $200,000 to such shareholders upon closing, (ii) the
issuance of two unsecured promissory notes in the aggregate principal amount of
$3,500,000, with interest at the rate of 10% per annum, payments of interest
only for the first three years, followed by three equal annual installments of
principal repayment, with interest on the remaining balance commencing December
31, 1997, (iii) a contingent obligation (the "Initial Contingent Obligations")
to issue an aggregate principal amount of $9,856,488 in unsecured promissory
notes to such shareholders including $2,000,000 in principal amount of notes
each year for four years and $1,856,488 in principal amount of notes to be
issued in a fifth year, each note with interest at 10%, payment of interest only
for three years, followed by three equal annual installments of principal plus
interest on the remaining principal balance, and (iv) another
7
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INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
contingent obligation (the "Second Contingent Obligation") to issue an
additional aggregate principal amount of $3,000,000 in unsecured promissory
notes (or cash, if Company has closed a firm commitment underwritten public
offering of securities of not less than $35 million prior to the contingencies
being met).
The Initial Contingent Obligations are contingent upon the Company's retained
earnings balance, with certain adjustments, being at least $4,000,000 for the
fiscal year ending immediately prior to the date the notes are to be issued. The
test is to be made each year for eight successive years commencing with the
fiscal year ending June 30, 1997. The Second Contingent Obligation is subject to
the following conditions: (i) the Barona Tribe enters into a Class III Gaming
Compact (the "Compact") with the State of California which permits the operation
of video gaming machines at the Barona Casino in San Diego County; (ii) at the
time that the Barona Tribe enters into the Compact, the Company has a consulting
agreement or similar contractual arrangement with the Barona Tribe; and (iii)
consulting fees paid to the Company by the Barona Tribe relating to the Barona
Casino for any consecutive 12-month period within five years after the Barona
Tribe has entered into the Compact, equals or exceeds one and one-half times
such consulting fees for the year ended June 30, 1996. The Company intends to
record as the additional cost of the repurchase of its common stock, each
contingent obligation as each contingency or condition is met. All payments
pursuant to the Stock Purchase Agreement are further subject to compliance with
certain state law provisions and the Company's Articles of Incorporation
concerning repurchase transactions.
As of June 30, 1997, the Company's retained earnings exceeded $4,000,000.
Accordingly, a $2,000,000 obligation has been recorded at June 30, 1997, and has
been treated as additional consideration for the common stock repurchased under
the Stock Purchase Agreement.
NIGC Settlement Obligation - In January 1997, the Company entered into a
settlement agreement with the NIGC regarding the Company's relationship with the
Barona Tribe. Under the terms of the agreement, the Company agreed to contribute
$2,000,000 to the Barona Tribe for general improvements on the Barona
reservation, payable in five equal annual installments, commencing in January
1997. Debt at December 31, 1997, includes $1,600,000 relating to the January
Settlement Agreement, of which $400,000 is currently payable.
7. CONTINGENCIES. Indian Gaming is the subject of numerous lawsuits in various
court jurisdictions at both the federal and state levels. These court cases are
attempting to define the permissible gaming activities on Indian reservations,
the states' rights or limitations on control of gaming, and numerous other
issues. While the Barona Tribe is a party to certain of these cases, it is not a
party to many of these cases, nor is the Barona Reservation within the
jurisdiction of the courts in which many of these cases will be decided;
therefore, the impact, if any, on the operations of the Barona Casino cannot be
determined at this time.
The impact of decisions in various cases, however, could have a significant
impact on the operations of Barona Casino and the Company when decided.
Specifically, current cases are addressing the legality of electronic gaming
equipment and certain card games in California (currently used in the Barona
Casino) and the enforcement rights applicable to Federal and State governments.
Various courts have ruled in different cases, or in different hearings on the
same case, both in the states' favor and in tribes' favor on the same or similar
issues. There are appeals remaining in a number of cases and other cases may
rise. Until there are definitive rulings by the courts, the legality of the
gaming activities in California will not be known.
8
<PAGE> 11
INLAND ENTERTAINMENT CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
On June 30, 1994, the U.S. Attorney's Office of the Southern District of
California ("USAO") announced a verbal understanding with a number of Southern
California tribes, including the Barona Tribe (collectively, the "Southern
District Tribes"), that allowed the Barona Tribe to continue to operate without
expansion of gaming activities subject to certain conditions.
In June 1997, as a result of a recent Supreme Court decision, the Southern
District Tribes have acknowledged that certain currently operated video gaming
devices are not within the acceptable/permissible scope of compactible gaming
under present federal and state law and agreed to the commencement of a
voluntary phase-out plan with the USAO. The phase-out plan commenced in August
1997, with the removal of 6% of each Southern District Tribe's existing video
gaming machines and continued in September 1997 with the removal of another 10%
of each Southern District Tribe's video gaming machines. The USAO stated that
the phase-out plan (i) demonstrates a good faith effort by the Southern District
Tribes to continue to cooperate with the USAO and comply with state and federal
laws, (ii) is necessary in order to minimize the impacts to affected Tribal
employees and local negative economic impacts resulting from the reduction in
gaming operations, and (iii) is expected to facilitate negotiations between the
State of California and the Southern District Tribes designed to determine the
type of machine gaming permissible (otherwise referred to as "compactible")
under federal and state laws.
In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and the State of California, and the State of California and the other
California Tribes, including those that are presently engaged in gaming.
The State of California is currently engaged in negotiations with the Pala
Tribe, which also is located in San Diego County, to determine what type of
gaming is permissible and the circumstances under which it may be conducted.
Management believes that these negotiations may lead to a model compact between
the State of California and the Pala Tribe.
The Southern District Tribes have renewed their request that the State of
California begin negotiations with them (similar to those being held with the
Pala Tribe) with a view towards reaching compacts allowing permissible machine
gaming in their facilities. However, the Governor of the State of California has
stated that he will not negotiate compacts with tribes currently operating
casino games which he believes are not permissible under California law.
To the extent that the Governor alters his position and decides to negotiate
with the Southern District Tribes and other tribes currently operating
electronic gaming machines, an issue in such compact negotiations will be the
conversion of electronic video machines to a lottery or pari-mutual format
designed to comply with both federal and state law. The USAO has stated that it
believes that the question of machine conversion would be consistent with the
criteria being established in the current Pala compact negotiations.
If the Barona Casino removes additional machines at the request of USAO, the
Company's consulting fees could be reduced further. If the Barona Casino is
forced to remove all of its current video machines and is unable to obtain a
compact with the State of California, the Company could lose all of its
consulting fee revenue from the Barona Casino, which could have a material
adverse effect on the financial condition of the Company.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
Inland Entertainment Corporation (the "Company" or "Inland") has provided
services to the Barona Group of Capitan Grande Band of Mission Indians (the
"Barona Tribe") since 1991. Since April 1, 1996, the Company has provided
consulting services to the Barona Tribe at the Barona Casino under the terms of
an Amended and Restated Consulting Agreement (the "Consulting Agreement"). The
Company provided certain personnel, at its expense, to facilitate the activities
at the Barona Casino, and it entered into agreements such as leases or other
contracts for the benefit of the Barona Casino in which the Company was the
obligor (e.g., leases for gaming equipment, the Big Top lease, etc.).
In addition to its obligations under the Consulting Agreement and collateral
contracts for the benefit of the Barona Tribe, the Company's consulting
activities include assisting clients in arranging or providing financing to
support casino construction projects and monitoring of Indian Gaming legislative
and litigation matters. The financing costs have been recognized as an asset in
the financial statements of the Company, designated as deferred contract costs,
and are being amortized to expense over the remaining life of the Consulting
Agreement through March 1999. The recovery of these deferred costs is achieved
through the fees earned by Inland pursuant to agreements with the Barona Tribe.
From June to October 1996, the Company provided consulting services to the
Confederated Tribes of Siletz Indians of Oregon (the "Siletz Tribes") at the
Chinook Winds Gaming and Convention Center in Lincoln City, Oregon, and with the
Associated Tribes of Northwest Indians in Oregon. Fees of $190,000 were earned
during this period and paid during the six months ended December 31, 1997.
From June 1996 to May 1997, the Company provided consulting services to the
Klamath and Modoc Tribes and the Yahooskin Band of Snake Indians (collectively,
the "Klamath Tribes") to assist with the development, construction and eventual
operation of the Kla-Mo-Ya Casino, near Chiloquin, in south-central Oregon.
In connection with the financing of the Kla-Mo-Ya Casino project, the Company
expended $879,933 to purchase revenue bonds with a principal amount of $900,000,
as part of a $4,735,000 bond financing. In January 1997, the Company sold
$200,000 principal face amount of such bonds for $195,582 and in June 1997 sold
another $200,000 principal face amount of such bonds for $185,500. In addition
to the bond financing, the Company pledged a certificate of deposit for
$1,518,000 as collateral for third-party bank loans to the Klamath Tribes. If
the Kla-Mo-Ya Casino sustains operating losses after opening, the Company may
lose a portion or all of its $464,320 investment, ($500,000 principal amount),
in revenue bonds and its pledged $1,518,000 certificate of deposit, which could
have a material adverse effect on the Company's liquidity and financial
condition.
As a result of negotiations between the U.S. Attorney's Offices of the Southern
District of California ("USAO") and several Southern California Indian tribes,
including the Barona Tribe (the "Southern District Tribes"), each of the
Southern District Tribes agreed to commence a phase-out plan of certain
electronic gaming machines.
The phase-out plan commenced in August 1997, with the removal of 6% of each
Southern District Tribe's existing video gaming machines and continued in
September 1997 with the removal of another 10% of each Southern District Tribe's
video gaming machines. The USAO stated that the phase-out plan (i) demonstrates
a good faith effort by the Southern District Tribes to continue to cooperate
with the USAO and comply with state and federal laws, (ii) is necessary in order
to minimize the impacts to affected Tribal employees and local negative economic
impacts resulting from the reduction in gaming operations, and (iii) is expected
to facilitate negotiations between the State of California and the Southern
District Tribes designed to determine the type of machine gaming permissible
(otherwise referred to as "compactible") under federal and state laws.
10
<PAGE> 13
In September 1997, the USAO announced that it would defer further decisions
relating to the phase-out plan until (i) the completion of the ongoing compact
negotiations between the Pala Band of Mission Indians (the "Pala Tribe") and
(ii) the establishment of a framework for future negotiations between the Pala
Tribe and the State of California, and the State of California and the other
California Tribes, including those that are presently engaged in gaming.
If the Barona Casino removes additional machines at the request of USAO, the
Company's consulting fees could be reduced further. If the Barona Casino is
forced to remove all of its current video machines and is unable to obtain a
compact with the State of California, the Company could lose all of its
consulting fee revenue from the Barona Casino, which could have a material
adverse effect on the financial condition of the Company.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS.
Federal, State and Tribal governments extensively regulate gaming on Indian
land. The present regulatory environment is extremely uncertain because of
certain pending litigation and legislation. Adverse findings for any of the
Indian tribes in any of the pending actions could have a material adverse effect
on the operations of the Company, as would criminal and civil enforcement
actions taken by federal agencies which could be commenced before the outcome of
such litigation is known.
In addition, all regulatory authorities have not yet approved the Company's
Consulting Agreement with the Barona Tribe. If the Consulting Agreement is not
approved or is significantly modified from the standpoint of consulting revenue,
such action would have a material adverse effect on the business and financial
condition of the Company. (See Notes to Interim Financial Statements, Note 3,
Agreements with the Barona Tribe.)
In any event, any material reduction in fees payable to the Company, whether as
a result of (i) a modification to the Consulting Agreement between the Company
and the Barona Tribe as a result of regulatory compliance requirements or (ii)
weakness in the operations of the Barona Casino, could have a material adverse
effect on the business and financial condition of the Company, if the Company
could not either reduce expenses or increase revenues from other sources.
Currently, the State of California is engaged in negotiations with the Pala Band
of Mission Indians to determine what type of gaming is permissible and the
circumstances under which it may be conducted. These negotiations are important
to the Barona Tribe, as well as other California tribes, in connection with
establishing a framework for future permissible gaming activities for Indian
tribes in California. (See Notes to Interim Financial Statement, Note 7.
Contingencies.)
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THE THREE MONTHS ENDED
DECEMBER 31, 1997.
REVENUE. Revenue decreased 19.9% from approximately $3,808,000 for the three
months ended December 31, 1996 to approximately $3,051,000 for the three months
ended December 31, 1997, as a result of lower profit margins at the Barona
Casino due to an increase in operating expenses at their facility. The Company's
revenue for the three months ended December 31, 1996 and 1997 was entirely from
fees earned as a consultant to the Barona Tribe with the exception of $66,000 in
fees received from consulting services provided to a tribe in New Mexico during
the three months ended December 31, 1996 and $38,000 in fees received from
consulting services provided to a tribe in Oregon during the three months ended
December 31, 1997.
OPERATING EXPENSES. General and administrative expenses decreased 4.9% from
approximately $2,188,000 for the three months ended December 31, 1996 to
approximately $2,082,000 for the three months ended December 31, 1997, resulting
primarily from decreases in travel and entertainment, licensing fees incurred
pursuing certain consulting engagements, political contributions, and the
provision for
11
<PAGE> 14
doubtful accounts as allowances were established during the quarter ending
December 31, 1996 to cover anticipated losses resulting from the Klamath Tribes
consulting engagements. The decreased expenses are partially offset by increases
in compensation, marketing, and facilities costs attributed to the Company's
exploration of new business opportunities and the relocation of its corporate
offices.
Amortization of deferred contract costs increased 39.4% from approximately
$636,000 for the three months ended December 31, 1996 to approximately $886,000
for the three months ended December 31, 1997, as a result of an increase in
deferred contract costs, primarily resulting from the addition of the $2,000,000
commitment to the Barona Tribe. (See Notes to Interim Financial Statements, Note
3. Agreements with the Barona Tribe and Note 4.
Deferred Contract Costs.)
OTHER INCOME AND EXPENSE. For the three months ended December 31, 1997, interest
income was approximately $162,000 compared to approximately $77,000 for the
three months ended December 31, 1996. The increase was due to the increase in
the Company's investments and cash equivalents.
Interest expense increased from approximately $103,000 for the three months
ended December 31, 1996 to approximately $161,000 for the three months ended
December 31, 1997, primarily as a result of an increase in notes payable to two
major shareholders, including a former director of the Company, in connection
with the repurchase of shares of the Company's common stock. (See Notes to
Interim Financial Statements, Note 6. Stock Repurchase/Long-term Debt.)
INCOME TAX PROVISION. The income tax provision decreased 90.5% from $402,000 for
the three months ended December 31, 1996 to $38,000 for the three months ended
December 31, 1997, based on decreased operating profit in the current quarter.
SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED WITH THE SIX MONTHS ENDED DECEMBER
31, 1997.
REVENUE. Revenue decreased 10.0% from approximately $7,758,000 for the six
months ended December 31, 1996 to approximately $6,983,000 for the six months
ended December 31, 1997, as a result of lower profit margins at the Barona
Casino due to an increase in operating expenses at their facility. The Company's
revenue for the six months ended December 31, 1996 and 1997 was entirely from
fees earned as a consultant to the Barona Tribe with the exception of $66,000 in
fees received from consulting services provided to a tribe in New Mexico during
the six months ended December 31, 1996 and $190,000 in fees received from
consulting services provided to a tribe in Oregon during the six months ended
December 31, 1997.
OPERATING EXPENSES. General and administrative expenses decreased 0.5% from
approximately $4,067,000 for the six months ended December 31, 1996 to
approximately $4,044,000 for the six months ended December 31, 1997, resulting
primarily from decreases in political contributions, unreimbursed marketing
expenses related to consulting engagements in the Northwest and in the provision
for doubtful accounts as allowances were established during the quarter ending
December 31, 1996 to cover anticipated losses resulting from certain consulting
engagements. The decrease is partially offset by increases in compensation, and
facilities costs attributed to the Company's exploration of new business
opportunities and the relocation of its corporate offices.
Amortization of deferred contract costs increased 41.8% from approximately
$1,240,000 for the six months ended December 31, 1996 to approximately
$1,759,000 for the six months ended December 31, 1997, as a result of an
increase in deferred contract costs, primarily resulting from the addition of
the $2,000,000 commitment to the Barona Tribe. (See Notes to Interim Financial
Statements, Note 3. Agreements with the Barona Tribe and Note 4.
Deferred Contract Costs.)
OTHER INCOME AND EXPENSE. For the six months ended December 31, 1997, interest
income was approximately $308,000 compared to approximately $133,000 for the six
months ended December 31, 1996. The increase was due to the increase in the
Company's investments and cash equivalents.
12
<PAGE> 15
Interest expense increased from $119,000 for the six months ended December 31,
1996 to approximately $263,000 for the six months ended December 31, 1997,
primarily as a result of an increase in notes payable to two major shareholders,
including a former director of the Company, in connection with the repurchase of
shares of the Company's common stock. (See Notes to Interim Financial
Statements, Note 6. Stock Repurchase/Long-term Debt.)
INCOME TAX PROVISION. The income tax provision decreased 51.0% from $1,117,000
for the six months ended December 31, 1996 to $547,000 for the six months ended
December 31, 1997, based on decreased operating profit.
LIQUIDITY AND CAPITAL RESOURCES.
The Company's principal source of liquidity at December 31, 1997 consisted of
cash of $8,729,697, future revenues generated from operations and advances of
future fees under the Consulting Agreement with the Barona Tribe. The Company
finances its operations through cash provided by its operations and advances of
future fees, all (in the case of future fees) or substantially all (in the case
of cash provided by operations) derived from agreements with the Barona Tribe.
The Company believes that these sources of liquidity will be sufficient to meet
the Company's operating and capital requirements for the foreseeable future.
During the six months ended December 31, 1997, the Company's cash position
increased $725,619 from the June 30, 1997 balance of $8,004,078, to $8,729,697
at December 31, 1997. The increase was provided by net cash generated by
operating activities of approximately $2,421,000 during the period reduced by
cash flows used in financing activities of approximately $932,000 and investing
activities of approximately $763,000.
Deferred income taxes decreased $192,000 as the amortization of deferred
contract costs for tax purposes exceeded amortization of such costs for
financial statement purposes during the six months ended December 31, 1997.
Accounts receivable increased approximately $260,000 primarily due to the
purchase and pending sale of a home to facilitate the relocation of an employee
and for a portion of the tenant improvements paid for by the Company to be
reimbursed by the lessor.
Prepaid expenses and other current assets increased approximately $256,000
primarily due to the purchase of software and licensing agreements related to
the Company's new business development activities.
From the inception of the Company, the Company's most significant expenditure
has been the funding of the deferred contract costs related to expansion of the
facilities at the Barona Casino. The Company has received advances against
future fees from the Barona Tribe to assist in financing such activities. The
decrease in net deferred contract costs from approximately $5,843,000 at June
30, 1997 to approximately $4,430,000 at December 31, 1997, resulted from
amortization of approximately $1,759,000, partially offset by a $346,000
increase in deferred contract costs financed by the use of $116,000 in cash flow
and $230,000 in long-term advances of future fees from the Barona Casino during
the same period. At December 31, 1997, outstanding advances of future fees from
the Barona Casino totaled approximately $2,612,000. Advances do not bear
interest and are due on demand. Debt at December 31, 1997 includes $1,600,000
due to the Barona Tribe related to the NIGC Settlement Obligation of which
$400,000 is currently payable.
Cash flows used in investing activities for the six months ended December 31,
1997 includes investments of approximately $684,000 in fixed assets consisting
primarily of computer software and hardware related to the Company's new
business ventures and leasehold improvements at the new corporate facilities.
13
<PAGE> 16
Restricted cash and other investments of approximately $2,115,000 is comprised
of a bank certificate of deposit of $1,518,000 pledged as collateral by the
Company to secure loans made pursuant to a bank credit agreement with the
Klamath Tribes in connection with the development of the Kla-Mo-Ya Casino, and
the Company's net investment of $464,000 in revenue bonds issued by the Klamath
Tribes. Additionally, the Company issued an irrevocable letter of credit for
$133,000 to satisfy the terms of the corporate office lease agreement. Such
letter of credit will automatically renew on an annual basis until October 31,
2002 unless canceled by the lessor. (See Notes to Interim Financial Statements,
Note 5. Restricted cash and other investments.)
Cash flows used in financing activities include approximately $620,000 for
repayment of promissory note to a former executive officer, director, and
principal shareholder for the repurchase of shares of common stock. This
repayment also decreased the current portion of long-term debt by approximately
$620,000. (See Notes to Interim Financial Statements, Note 6. Stock
repurchase/Long-term debt.) For the six months ended December 31, 1997, the
Company expended approximately $132,000 in loans made to employees and expended
approximately $128,000 in loans to third parties, in part, as investment
opportunities.
Cash flows provided by financing activities of approximately $117,000 is a
result of the exercise of 31,800 stock options during the six months ended
December 31, 1997.
It is the Company's intention to assist the Barona Tribe in funding, or finding
acceptable sources of funding, for future improvements in the Barona Casino.
Depending on the nature and extent of the improvement project and to the extent
practicable, it is the Company's intent to first explore funding such
improvement projects from the Company's working capital and through advances of
future fees, before seeking outside debt or equity financing.
However, outside sources of financing may be required or sought at any time.
The Barona Casino and all of the related facilities are capital improvements
upon land that belongs to the Barona Tribe. As such, the Company has no
ownership in any of the improvements to such land. All such improvements belong
to the Barona Tribe.
FORWARD-LOOKING STATEMENTS.
Included in the Notes to the Interim Financial Statements, Management's
Discussion and Analysis or Plan of Operation, and elsewhere in this report are
certain forward-looking statements reflecting the Company's current
expectations. Although the Company believes that its expectations are based on
reasonable assumptions, there can be no assurance that the Company's financial
goals or expectations will be realized. Numerous factors may affect the
Company's actual results and may cause results to differ materially from those
expressed in forward-looking statements made by or on behalf of the Company.
Some of these factors include the uncertainties regarding the current and
ongoing discussions between the Southern District Tribes (including the Barona
Tribe) and the U.S. Attorney for the Southern District of California regarding
the staged phase-out of electronic gaming machines at Indian-operated casinos,
the uncertainties regarding the compact negotiations between the State of
California and the Indian tribes, particularly the Barona Tribe, the
uncertainties involved in the regulatory approval process relating to the
Consulting Agreement, the outcome of a variety of pending litigation and
legislation at the federal and state levels regarding Indian gaming, the
possible loss of the Company's various investment and guaranties related to the
Kla-Mo-Ya Casino, the availability of funding alternatives to fulfill
development projects at the Barona Casino, the general economic factors
affecting the gaming industry in general and Indian gaming in particular in the
respective geographic markets within which the Company competes, particularly
Southern California, and the success of the Company in its efforts to enter into
new business ventures, including, but not limited to, internet and computer
gaming activities. The Company assumes no obligation to update or revise any
such forward-looking statements to reflect events or circumstances that may
arise after this report is filed, and that may have an effect on the Company's
overall performance.
14
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 11, 1997, the Company held its Annual Meeting of Shareholders. At
such Meeting, the following matters were approved by the shareholders:
(a) Mary Jo Boring, Duane M. Eberlein, Thomas G. Holmes, Andrew B.
Laub, Jana McKeag, G. Fritz Opel, Arthur R. Pfizenmayer, Charles Reibel,
Cornelius E. ("Neil") Smyth and L. Donald Speer II were each elected to served
as directors of the Company to hold office for a term of one year and until
their respective successors are elected and qualified. The tabulation of the
votes cast for election of Directors was as follows:
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C>
Mary Jo Boring 3,247,787 2,647
Duane M. Eberlein 3,247,787 2,647
Thomas G. Holmes 3,247,777 3,157
Andrew B. Laub 3,247,797 2,637
Jana McKeag 3,247,787 2,647
G. Fritz Opel 3,247,787 2,647
Arthur R. Pfizenmayer 3,247,797 2,637
Charles Reibel 3,247,787 2,647
Cornelius E. ("Neil") Smyth 3,247,777 2,657
L. Donald Speer II 3,247,797 2,637
</TABLE>
and
(b) An amendment to the Company's Articles of Incorporation to change
its name from Inland Casino Corporation to Inland Entertainment Corporation was
approved. The tabulation of the votes was as follows:
<TABLE>
<S> <C>
Votes For 3,243,266
Votes Against 5,713
Abstentions 1,455
Broker Non-Votes 0
</TABLE>
and
(c) An amendment to the Company's 1995 Stock Option Plan to increase
the number of shares of the Company's common stock available for issuance
thereunder by 2,000,000. The tabulation of the votes was as follows:
<TABLE>
<S> <C>
Votes For 2,930,582
Votes Against 136,501
Abstentions 3,623
Broker Non-Votes 179,728
</TABLE>
15
<PAGE> 18
ITEM 5. OTHER INFORMATION
On February 6, 1998, Duane M. Eberlein resigned as an employee, executive
officer and director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The Exhibits listed below are hereby filed with the U.S.
Securities and Exchange Commission (the "Commission") as part of this Quarterly
Report on Form 10-QSB.
Exhibit No. Description
----------- -----------
3 Articles of Amendment of Inland Casino Corporation
dated December 11, 1997 and received by the Utah
Department of Commerce, Division of Corporations and
Commercial Code on December 16, 1997.
27 Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K were filed with the Commission
during the Company's second quarter ended December 31, 1997.
16
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INLAND ENTERTAINMENT CORPORATION,
a Utah Corporation
Date: February 12, 1998 By: /S/ ANDREW B. LAUB
------------------------------------
Andrew B. Laub
Executive Vice President,
Chief Financial Officer, and
Treasurer
(Principal Financial Officer)
Date: February 12, 1998 By: /S/ MARY JO BORING
------------------------------------
Mary Jo Boring
Chief Accounting Officer and
Controller
(Principal Accounting Officer)
17
<PAGE> 20
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3 Articles of Amendment of Inland Casino Corporation
dated December 11, 1997 and received by the Utah
Department of Commerce, Division of Corporations and
Commercial Code on December 16, 1997.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 3
State of Utah
Department of Commerce
Division of Corporations and Commercial Code
I Hereby certify that the foregoing has been filed
and approved on the 16th day of December, 1997
in the office of this Division and hereby issue
this Certificate thereof.
Examiner /s/ BS Date 12/16/97
[SEAL] /s/ KORLA T. WOODS
----------------------
KORLA T. WOODS
Division Director
ARTICLES OF AMENDMENT
OF
INLAND CASINO CORPORATION
To the Division of Corporations and Commercial Code
State of Utah
Pursuant to the provisions of Section 16-10a-1006 of the Utah Revised
Business Corporation Act, the corporation hereinafter named (the "Corporation")
does hereby adopt the following Articles of Amendment:
1. The name of the Corporation is Inland Casino Corporation.
2. Article I of the Articles of Incorporation of the Corporation is
hereby amended so as henceforth to read as follows:
"The name of the corporation is Inland Entertainment Corporation."
3. The date of adoption of the aforesaid amendment was December 11, 1997.
4. The designation, the number of outstanding shares, the number of
shares entitled to be cast by the voting group entitled to vote on the said
amendment, and the number of votes of the voting group indisputably represented
at the meeting at which the said amendment was approved are as follows:
a. Designation of voting group: Common Stock, par value $.001
per share
b. Number of outstanding shares of voting group: 3,855,048
c. Number of shares of voting group entitled to vote on the
amendment: 3,855,048
d. Number of shares of voting group indisputably represented at the
meeting: 3,250,434
5. The total number of votes cast for and against the said amendment by
the voting group entitled to vote on the said amendment is as follows:
a. Designation of voting group: Common Stock, par value $.001 per
share
b. Number of votes of voting group cast for the amendment: 3,243,266
c. Number of votes of voting group cast against the amendment: 5,713
d. Number of votes of voting group abstaining from voting: 1,455
<PAGE> 2
6. The said number of votes cast for the said amendment was sufficient
for the approval thereof by the said voting group.
Executed on December 11, 1997
Inland Casino Corporation
By: /S/ ANDREW B. LAUB
--------------------------------------
Andrew B. Laub
Executive Vice President,
Chief Executive Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 8,729,697
<SECURITIES> 0
<RECEIVABLES> 321,776
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,365,488
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 17,402,613
<CURRENT-LIABILITIES> 4,021,947
<BONDS> 6,700,000
0
0
<COMMON> 121,170
<OTHER-SE> 6,559,496
<TOTAL-LIABILITY-AND-EQUITY> 17,402,613
<SALES> 3,050,969
<TOTAL-REVENUES> 3,050,969
<CGS> 0
<TOTAL-COSTS> 2,967,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160,722
<INCOME-PRETAX> 84,342
<INCOME-TAX> 38,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,342
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
