SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-21754
SODAK GAMING, INC.
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0407053
(State of Incorporation) (I.R.S. Employer Identification No.)
5301 S. Highway 16
Rapid City, South Dakota 57701
(Address of principal executive offices)
(605) 341-5400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
At June 30, 1997, there were outstanding 22,758,408 shares of the Company's
common stock.
<PAGE>
Sodak Gaming, Inc.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Earnings for the
three months ended June 30, 1997 and 1996 3
Consolidated Statements of Earnings for the
six months ended June 30, 1997 and 1996 4
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 7
Note to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBIT INDEX 23
<PAGE>
PART I - FINANCIAL INFORMATION
Item I. Consolidated Financial Statements
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Product sales $14,229,925 $26,095,641
Gaming operations 14,331,280 5,396,376
Wide area progressive systems 3,479,657 1,858,252
Financing income on notes receivable and
other financing arrangements 1,297,189 1,440,738
Other 3,396 8,265
----------- -----------
Total revenue 33,341,447 34,799,272
----------- -----------
Costs and expenses:
Cost of product sales 10,547,418 20,393,810
Gaming operations 13,522,427 2,962,672
Selling, general and administrative 4,596,558 4,522,758
Interest and financing costs 834,408 518,853
----------- -----------
Total costs and expenses 29,500,811 28,398,093
----------- -----------
Income from operations 3,840,636 6,401,179
Other income 12,026 8,974
----------- -----------
Earnings before income taxes 3,852,662 6,410,153
Provision for income taxes 1,425,481 2,328,828
----------- -----------
Net earnings $ 2,427,181 $ 4,081,325
=========== ===========
Earnings per common and common equivalent share $ 0.11 $ 0.18
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 22,900,152 22,894,150
=========== ===========
</TABLE>
The accompanying note is an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Product sales $25,667,179 $40,578,248
Gaming operations 27,788,786 9,239,039
Wide area progressive systems 5,913,355 3,613,110
Financing income on notes receivable and
other financing arrangements 3,068,973 2,902,865
Other 7,070 15,047
----------- -----------
Total revenue 62,445,363 56,348,309
----------- -----------
Costs and expenses:
Cost of product sales 19,974,809 31,293,408
Gaming operations 26,446,856 4,481,555
Selling, general and administrative 9,074,056 8,931,024
Interest and financing costs 1,623,202 967,227
----------- -----------
Total costs and expenses 57,118,923 45,673,214
----------- -----------
Income from operations 5,326,440 10,675,095
----------- -----------
Other income:
Gain on sale of receivables 536,527 0
Other 20,665 15,761
----------- -----------
Total other income 557,192 15,761
----------- -----------
Earnings before income taxes 5,883,632 10,690,856
Provision for income taxes 2,176,940 3,911,804
----------- -----------
Net earnings $ 3,706,692 $ 6,779,052
=========== ===========
Earnings per common and common equivalent share $ 0.16 $ 0.30
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 22,926,165 22,877,962
=========== ===========
</TABLE>
The accompanying note is an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 *
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,848,733 $ 4,077,107
Receivables:
Trade accounts, net of allowance for doubtful accounts 13,351,961 20,258,980
Short-term notes receivable 14,940,740 391,018
Notes receivable, current maturities 19,348,766 23,197,351
Accrued interest 717,512 570,024
Inventories:
Gaming machines 13,388,408 16,410,597
Parts and other gaming accessories 3,377,898 4,225,674
Prepaid expenses 1,516,075 1,674,172
Refundable income taxes 0 875,000
Deferred income taxes 824,000 553,000
------------- -------------
Total current assets 73,314,093 72,232,923
------------- -------------
Property and equipment:
Land and improvements 1,512,744 1,357,616
Buildings and improvements 19,723,903 17,758,478
Leasehold improvements 1,350,806 1,083,466
Riverboat 13,687,115 13,687,115
Gaming operations equipment 24,186,086 23,314,614
Office furniture and equipment 2,780,173 2,496,142
Transportation equipment 2,176,242 2,150,488
Shop equipment 521,843 503,652
Systems, in progress 1,274,331 0
------------- -------------
67,213,243 62,351,571
Less accumulated depreciation and amortization (7,111,033) (4,410,249)
------------- -------------
Total property and equipment, net 60,102,210 57,941,322
------------- -------------
Other assets:
Notes receivable, net of current maturities 22,961,480 26,657,133
Real estate held for sale 596,658 596,658
Goodwill, net 7,876,192 8,155,401
Other assets, net 6,676,460 4,697,196
------------- -------------
Total other assets 38,110,790 40,106,388
------------- -------------
$ 171,527,093 $ 170,280,633
============= =============
</TABLE>
* From audited financial statements.
The accompanying note is an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996 *
------------- -------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 16,479,076 $ 28,328,425
Current maturities of long-term debt 1,792,000 1,751,000
Income taxes payable 930,773 161,615
Accrued liabilities 4,911,181 4,263,912
------------- -------------
Total current liabilities 24,113,030 34,504,952
------------- -------------
Long-term debt, net of current maturities 34,963,728 27,188,869
------------- -------------
Deferred income taxes 1,758,000 1,350,000
------------- -------------
Shareholders' equity:
Preferred stock at $0.001 par value, 25,000,000 shares
authorized, none issued and outstanding 0 0
Common stock at $0.001 par value, 75,000,000 shares authorized,
22,758,408 and 22,757,688 shares issued and outstanding
at June 30, 1997 and December 31, 1996, respectively 22,758 22,758
Additional paid-in capital 64,075,996 64,072,273
Retained earnings 47,474,570 43,767,878
Cumulative translation adjustment (880,989) (626,097)
------------- -------------
Total shareholders' equity 110,692,335 107,236,812
------------- -------------
$ 171,527,093 $ 170,280,633
============= =============
</TABLE>
* From audited financial statements.
The accompanying note is an integral part of the consolidated financial
statements.
<PAGE>
Sodak Gaming, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,706,692 $ 6,779,052
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 3,271,386 832,955
Provision for doubtful accounts 357,061 303,000
Deferred income taxes 137,000 47,000
Gain on sale of receivables (536,527) 0
Changes in operating assets and liabilities:
Trade receivables 5,902,469 (7,894,637)
Notes receivable relating to financed sales 1,416,668 (883,038)
Inventories (1,131,516) (3,855,064)
Prepaid expenses 158,097 60,253
Accounts payable (12,093,288) 7,690,970
Accrued liabilities 647,269 (50,920)
Income taxes payable, net of refundable income taxes 1,644,158 403,133
------------ ------------
Net cash provided by operating activities 3,479,469 3,432,704
------------ ------------
Cash flows from investing activities:
Cash advanced on notes receivable (3,874,961) (29,739)
Payments received on notes receivable 1,734,756 2,259,475
Purchases of property and equipment (4,997,994) (6,140,300)
Increase in amounts due from riverboat lessee, prior to acquisition 0 (2,630,945)
Principal payments received on direct financing-type lease 0 338,057
Increase in other assets (2,241,883) (1,911,898)
------------ ------------
Net cash used in investing activities (9,380,082) (8,115,350)
------------ ------------
Cash flows from financing activities:
Proceeds from long-term borrowings 22,750,000 16,250,000
Principal repayments of long-term debt (14,934,141) (8,777,526)
Net proceeds from exercise of stock options 3,723 73,317
------------ ------------
Net cash provided by financing activities 7,819,582 7,545,791
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (147,343) 0
------------ ------------
Net increase in cash and cash equivalents 1,771,626 2,863,145
Cash and cash equivalents, beginning of period 4,077,107 974,221
------------ ------------
Cash and cash equivalents, end of period $ 5,848,733 $ 3,837,366
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,600,370 $ 786,300
Cash paid during the period for income taxes $ 395,782 $ 3,461,671
Supplemental schedule of noncash investing activity:
Gaming machine inventory transferred to
gaming operations equipment $ 0 $ 2,477,133
</TABLE>
The accompanying note is an integral part of the consolidated financial
statements.
<PAGE>
SODAK GAMING, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
Note 1 - Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of Sodak
Gaming, Inc. and its consolidated subsidiaries have been prepared by the Company
in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the Securities
and Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in the
consolidated financial statements have been condensed or omitted. The results
for the periods indicated are unaudited, but reflect all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of operating results.
Results of operations for interim periods are not necessarily
indicative of a full year of operations.
These condensed consolidated financial statements should be read in
conjunction with the 1996 consolidated financial statements and notes thereto.
Certain 1996 amounts have been reclassified to conform to 1997
presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
After its inception in 1989, the Company's sole line of business was
the marketing and distribution of gaming equipment to Native American casinos.
Since 1993, a part of the Company's business strategy has been to diversify its
revenue base and has focused on the development of gaming opportunities that
generate recurring revenue sources.
As part of this strategy, the Company implemented the first interstate
wide area progressive systems and has entered the Iowa riverboat casino market
and emerging gaming markets in Latin America, where it develops, equips and
operates gaming halls and routes and a casino. In 1996, the Company acquired the
operating company of the MISS MARQUETTE riverboat casino, Gamblers Supply
Management Company (GSMC), and assumed full operational responsibility of the
casino entertainment facility, which also includes a restaurant, lounge, marina
and hotel. The Company also began a casino operation in Ecuador and a video
bingo gaming hall in Brazil.
The Company also entered into an agreement in 1996 with the
Confederacao Brasileira de Futebol (CBF, or the Brazilian Soccer Federation) to
own and operate linked progressive video gaming systems in Brazil. In January
1997, the Company entered into a joint venture agreement with IGT and Dreamport
(a wholly-owned subsidiary of GTECH Holdings) to proceed with the development
and operations of this system. The three companies will share equally in the
investment funding, expenses and profits or losses of the CBF project.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996
Net earnings for the three months ended June 30, 1997 decreased 41% to
$2.4 million, or $0.11 per share, compared to net earnings of $4.1 million, or
$0.18 per share, for the three months ended June 30, 1996. The primary factors
causing the decrease in net earnings were decreased product sales and lower
margins in gaming operations. Total revenue decreased 4% to $33.3 million in
1997, compared to $34.8 million in 1996. Total costs and expenses increased 4%
to $29.5 million in 1997, compared to $28.4 million in 1996. Earnings before
interest, taxes, depreciation and amortization (EBITDA) decreased 14% to $6.4
million in 1997 compared to $7.4 million in 1996. EBITDA is a commonly used
calculation to measure operating performance. The Company includes EBITDA in its
results of operations to assist interpretation of financial performance;
however, the Company's principal financial measures are net earnings and
earnings per share.
PRODUCT SALES
Revenue from product sales decreased 45% to $14.2 million in 1997
compared to $26.1 million in 1996. The decrease was due to a 41% decrease in
machine sales revenue to $11.1 million in 1997 compared to $18.9 million in 1996
(including $1.9 million and $0.2 million of used machines sales in 1997 and
1996, respectively) and a 57% decrease in ancillary gaming and non-gaming
product sales revenue to $3.1 million in 1997 compared to $7.2 million in 1996.
In 1997, the Company is continuing its strategy of
<PAGE>
being a full-service provider to its customers by expanding its product line to
include additional gaming and non-gaming products and supplies.
New gaming machine shipments decreased 52% to approximately 1,470
machines in 1997 compared to approximately 3,030 machines in 1996. In 1997, 65%
of the new machine shipments were to casinos in Connecticut, Iowa and Michigan.
Sales of used machines increased to approximately 450 machines in 1997 compared
to approximately 70 machines in 1996. The Company does not anticipate that new
machine shipments in 1997 will attain last year's record level. Growth of gaming
in Native American jurisdictions is outside the control of the Company and is
influenced by the legal, electoral and regulatory processes of those
jurisdictions.
The cost of product sales decreased 48% to $10.5 million in 1997, from
$20.4 million in 1996. This decrease was attributable to the decreased sales
volume of new machines and ancillary gaming and non-gaming products. The gross
margin on product sales increased to 25.9% in 1997 as compared to 21.8% in 1996.
The improvement in the gross margin was primarily due to larger margins obtained
on the sale of approximately $1.9 million of used machines.
GAMING OPERATIONS
Gaming operations revenue increased 166% to $14.3 million in 1997, from
$5.4 million in 1996. This increase was primarily attributable to the July 1,
1996 acquisition of GSMC and the growth of gaming operations in Latin America.
Direct costs of gaming operations increased $10.5 million to $13.5 million in
1997, compared to $3.0 million in 1996.
DOMESTIC GAMING OPERATIONS
THE MISS MARQUETTE. GSMC, the management company of the MISS MARQUETTE,
was acquired on July 1, 1996. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the operations of the MISS MARQUETTE
since July 1, 1996, are included in the consolidated statements of earnings. The
riverboat casino and entertainment facility had 682 machines and 36 table games
at June 30, 1997. It is located on the Mississippi River at Marquette, Iowa.
Revenue from the MISS MARQUETTE amounted to $8.1 million and direct
operating costs were $7.6 million in 1997. Prior to its acquisition, the Company
leased the riverboat vessel to GSMC, providing the Company $1.6 million in lease
revenue in 1996. Management is implementing measures to reduce costs in an
effort to improve operating performance. However, there can be no assurance that
such improvement will be realized due to the regulatory nature of gaming, the
public's acceptance of gaming and other factors affecting performance.
PARTICIPATION WITH HARRAH'S. The Company recognized revenue of $0.5
million in 1997 and $0.4 million in 1996 as its share of Harrah's Entertainment,
Inc.'s (Harrah's) management fee from the Harrah's Phoenix Ak-Chin casino
located near Phoenix, Arizona (Harrah's is a 14% shareholder of the Company).
The Company receives this revenue from Harrah's in connection with its role in
introducing Harrah's to tribal leaders of the Ak-Chin community, which led to
the formation of a business relationship and management contract.
<PAGE>
INTERNATIONAL GAMING OPERATIONS
As part of its strategy to increase its recurring revenue sources, in
1996 the Company expanded its operation of gaming halls and routes in Peru,
established a gaming hall in Brazil, and established a casino in Ecuador.
PERU. The Company operates gaming halls and route operations in Peru.
Revenue increased 33% to $3.8 million in 1997 compared to $2.8 million in 1996.
The increase is primarily the result of an increase in the average number of
machines in operation. Direct operating costs increased $1.7 million to $4.1
million in 1997 compared to $2.4 million in 1996 as a result of an increase in
the average number of machines in operation and the Company's adaptation to a
new regulatory structure and requirements, including a 200% increase in the
per-machine tax which became effective in October 1996, the expensing of
leasehold improvements and pre-opening costs at locations where leases were
terminated in order to comply with new regulations, and increased administrative
and reorganization costs relating to regulatory changes.
In January 1997, the Peruvian government announced regulatory changes
in conjunction with the transfer of gaming regulatory authority to the federal
government. Included in these changes were minimum machine requirements at
gaming halls. In Lima, gaming halls must have at least 120 machines per location
and gaming halls in other cities must have at least 80 machines per location. In
accordance with regulatory requirements, the Company submitted documentation of
its reorganization under the new regulations. The Company is also in the process
of complying with new certification requirements on machine refurbishments.
Licensing at four additional locations is in process, pending machine
certification. The number of machines in operation has decreased to
approximately 940 at 15 locations at June 30, 1997, compared to approximately
1,300 at 21 locations at December 31, 1996 and 1,080 at 19 locations at June 30,
1996. The decrease from the end of previous quarters is a result of the
Company's preparation in complying with new regulations.
BRAZIL. The Company established a gaming hall with 200 machines in the
Arpoador district of Rio de Janeiro in June 1996. Revenue was $1.4 million in
1997 compared to $0.2 million in 1996. Direct costs were $1.4 million in 1997
compared to $0.2 million in 1996. Management is implementing measures to reduce
costs in an effort to improve operating performance. However, there can be no
assurance that such improvement will be realized due to the regulatory nature of
gaming, the public's acceptance of gaming and other factors affecting
performance.
In 1996, the Company entered into an agreement with the CBF to provide
and operate a video gaming system in Brazil. In January 1997, the Company
entered into a joint venture agreement with IGT and Dreamport to proceed with
the development and operations of this system. The three companies will share
equally in the investment funding, expenses and profits or losses of the CBF
project.
The operation of the system is subject to the CBF obtaining regulatory
approval in each state where the proposed system is to be offered. The agreement
provides for systems to be operational no later than 180 days after regulatory
authorization is obtained by the CBF. Project documentation and requests for
regulatory authorization have been submitted for approval in four states or
jurisdictions: Rio de Janeiro, Goias, the Federal District of Brasilia, and
Minas Gerais. In addition, regulatory approval is being pursued in the states of
Sao Paulo and Rio Grande de Sul. However, there can be no assurance that such
approvals will be obtained or that systems can become operational in the
indicated time frame.
<PAGE>
ECUADOR. The Company established a casino operation in Quito, Ecuador,
in March 1996. The casino is located in the Crowne Plaza Hotel and has 150
machines and 10 table games. Revenue in 1997 was $0.5 million compared to $0.3
in 1996. Direct costs associated with the operation were $0.4 million in 1997
compared to $0.3 million in 1996.
WIDE AREA PROGRESSIVE SYSTEMS
Wide area progressive systems revenue increased 87% to $3.5 million in
1997 compared to $1.9 million in 1996. This increase is a result of the increase
in the number of machines on the systems. Comparing June 30, 1997 to June 30,
1996, the Company offered systems in two additional states, Oregon and Kansas;
three new systems became operational, DOLLARS DELUXE, FABULOUS 50'S and WHEEL OF
FORTUNE; and the number of machines on the systems increased to approximately
1,480 from approximately 950. At June 30, 1997, the Company offered wide area
progressive systems in Arizona (which permits the operation of intrastate
systems in lieu of interstate systems), Connecticut, Iowa, Kansas, Louisiana,
Michigan, New Mexico, North Dakota, Oregon, South Dakota and Wisconsin. At June
30, 1997, nine systems were in operation: MEGABUCKS (one interstate and one
intrastate), DOLLARS DELUXE, FABULOUS 50'S, QUARTERMANIA (one interstate and two
intrastate), NICKELMANIA and WHEEL OF FORTUNE (which began operating in March
1997). In July 1997, the WHEEL OF GOLD system and in August 1997, the HIGH
ROLLERS system were introduced and became operational.
Based on current market trends, the Company anticipates increased
revenue from its wide area progressive systems in 1997 as it proceeds with its
strategy to place additional systems and machines in jurisdictions currently
permitting the operation of wide area progressive systems. The Company believes
additional jurisdictions may authorize the operation of such systems, thereby
enabling additional growth. However, there can be no assurance that necessary
regulatory approvals will be obtained in those prospective jurisdictions.
Furthermore, public acceptance of these systems and the entry of competing
systems of other gaming companies could affect the Company's future revenue.
FINANCING
Financing income on notes receivable and other financing arrangements
decreased 10% to $1.3 million in 1997, compared to $1.4 million in 1996. This
decrease was primarily due to a decrease in the amount of financed sales during
1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 2% to $4.6
million in 1997, from $4.5 million in 1996. As a percentage of total revenue,
selling, general and administrative expenses increased to 13.8% in 1997 compared
to 13.0% in 1996. This increase as a percentage of total revenue is primarily
due to a decrease in product sales revenue.
INTEREST AND FINANCING COSTS
Interest and financing costs increased 61% to $0.8 million in 1997,
from $0.5 million in 1996. The increase in interest and financing costs was
primarily attributable to increased borrowings for the expansion of gaming
operations in Latin America and for the assumption of debt in connection with
the acquisition of GSMC. The Company believes that interest and financing costs
will continue to increase in future years as the Company pursues its growth
strategy.
<PAGE>
INCOME FROM OPERATIONS
The cumulative effect of the above described changes resulted in a 40%
decrease in income from operations to $3.8 million in 1997, from $6.4 million in
1996. As a percentage of revenue, income from operations decreased to 11.5% in
1997, from 18.4% in 1996. The decrease in the operating margin was primarily the
result of decreased product sales and lower margins in gaming operations that
commenced subsequent to the second quarter of 1996.
OTHER
Earnings before income taxes decreased 40% to $3.9 million in 1997,
compared to $6.4 million in 1996. Provision for income taxes was $1.4 million in
1997, compared to $2.3 million in 1996, representing 37% and 36.3% of earnings
before income taxes for 1997 and 1996, respectively.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996
Net earnings for the six months ended June 30, 1997 decreased 45% to
$3.7 million, or $0.16 per share, compared to net earnings of $6.8 million, or
$0.30 per share, for the six months ended June 30, 1996. The primary factors
causing the decrease in net earnings were decreased product sales and lower
margins in gaming operations. Total revenue increased 11% to $62.4 million in
1997, compared to $56.3 million in 1996. Total costs and expenses increased 25%
to $57.1 million in 1997, compared to $45.7 million in 1996. EBITDA decreased
14% to $10.8 million in 1997 compared to $12.5 million in 1996. EBITDA is a
commonly used calculation to measure operating performance. The Company includes
EBITDA in its results of operations to assist interpretation of financial
performance; however, the Company's principal financial measures are net
earnings and earnings per share.
PRODUCT SALES
Revenue from product sales decreased 37% to $25.7 million in 1997
compared to $40.6 million in 1996. The decrease was due to a 38% decrease in
machine sales revenue to $18.6 million in 1997 compared to $30.2 million in 1996
(including $5.3 million and $0.6 million of used machines sales in 1997 and
1996, respectively) and a 32% decrease in ancillary gaming and non-gaming
product sales revenue to $7.0 million in 1997 compared to $10.4 million in 1996.
In 1997, the Company is continuing its strategy of being a full-service provider
to its customers by expanding its product line to include additional gaming and
non-gaming products and supplies.
New gaming machine shipments decreased 57% to approximately 2,100
machines in 1997 compared to approximately 4,880 machines in 1996. In 1997, 75%
of the new machine shipments were to casinos in Connecticut, Iowa, Kansas,
Michigan and Wisconsin. Sales of used machines increased to approximately 1,810
machines in 1997 compared to approximately 160 machines in 1996. The Company
does not anticipate that new machine shipments in 1997 will attain last year's
record level. Growth of gaming in Native American jurisdictions is outside the
control of the Company and is influenced by the legal, electoral and regulatory
processes of those jurisdictions.
<PAGE>
The cost of product sales decreased 36% to $20.0 million in 1997, from
$31.3 million in 1996. This decrease was attributable to the decreased sales
volume of new machines and ancillary gaming and non-gaming products. The gross
margin on product sales declined to 22.2% in 1997 as compared to 22.9% in 1996.
The decrease in the gross margin was primarily due to the sale of approximately
$5.3 million of used machines, which had a gross margin of 18.1%.
GAMING OPERATIONS
Gaming operations revenue increased 201% to $27.8 million in 1997, from
$9.2 million in 1996. This increase was primarily attributable to the July 1,
1996 acquisition of GSMC and the growth of gaming operations in Latin America.
Direct costs of gaming operations increased $21.9 million to $26.4 million in
1997, compared to $4.5 million in 1996.
DOMESTIC GAMING OPERATIONS
THE MISS MARQUETTE. GSMC, the management company of the MISS MARQUETTE,
was acquired on July 1, 1996. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the operations of the MISS MARQUETTE
since July 1, 1996, are included in the consolidated statements of earnings. The
riverboat casino and entertainment facility had 682 machines and 36 table games
at June 30, 1997. It is located on the Mississippi River at Marquette, Iowa.
Revenue from the MISS MARQUETTE amounted to $15.5 million and direct
operating costs were $14.9 million in 1997. Prior to its acquisition, the
Company leased the riverboat vessel to GSMC, providing the Company $3.3 million
in lease revenue in 1996. Management is implementing measures to reduce costs in
an effort to improve operating performance. However, there can be no assurance
that such improvement will be realized due to the regulatory nature of gaming,
the public's acceptance of gaming and other factors affecting performance.
PARTICIPATION WITH HARRAH'S. The Company recognized revenue of $1.0
million in 1997 and $0.9 in 1996 as its share of Harrah's Entertainment, Inc.'s
(Harrah's) management fee from the Harrah's Phoenix Ak-Chin casino located near
Phoenix, Arizona (Harrah's is a 14% shareholder of the Company). The Company
receives this revenue from Harrah's in connection with its role in introducing
Harrah's to tribal leaders of the Ak-Chin community, which led to the formation
of a business relationship and management contract.
INTERNATIONAL GAMING OPERATIONS
As part of its strategy to increase its recurring revenue sources, in
1996 the Company expanded its operation of gaming halls and routes in Peru,
established a gaming hall in Brazil, and established a casino in Ecuador.
PERU. The Company operates gaming halls and route operations in Peru.
Revenue increased 66% to $7.6 million in 1997 compared to $4.6 million in 1996.
The increase is primarily the result of an increase in the average number of
machines in operation. Direct operating costs increased $4.1 million to $8.0
million in 1997 compared to $3.9 million in 1996 as a result of an increase in
the average number of machines in operation and the Company's adaptation to a
new regulatory structure and requirements, including a 200% increase in the
per-machine tax which became effective in October 1996, the expensing of
<PAGE>
leasehold improvements and pre-opening costs at locations where leases were
terminated in order to comply with new regulations, and increased administrative
and reorganization costs relating to regulatory changes.
In January 1997, the Peruvian government announced regulatory changes
in conjunction with the transfer of gaming regulatory authority to the federal
government. Included in these changes were minimum machine requirements at
gaming halls. In Lima, gaming halls must have at least 120 machines per location
and gaming halls in other cities must have at least 80 machines per location. In
accordance with regulatory requirements, the Company submitted documentation of
its reorganization under the new regulations. The Company is also in the process
of complying with new certification requirements on machine refurbishments.
Licensing at four additional locations is in process, pending machine
certification. The number of machines in operation has decreased to
approximately 940 at 15 locations at June 30, 1997, compared to approximately
1,300 at 21 locations at December 31, 1996 and 1,080 at 19 locations at June 30,
1996. The decrease from the end of previous quarters is a result of the
Company's preparation in complying with new regulations.
BRAZIL. The Company established a gaming hall with 200 machines in the
Arpoador district of Rio de Janeiro in June 1996. Revenue was $2.7 million in
1997 and $0.2 million in 1996. Direct costs were $2.7 million in 1997 and $0.2
million in 1996. Management is implementing measures to reduce costs in an
effort to improve operating performance. However, there can be no assurance that
such improvement will be realized due to the regulatory nature of gaming, the
public's acceptance of gaming and other factors affecting performance.
In 1996, the Company entered into an agreement with the CBF to provide
and operate a video gaming system in Brazil. In January 1997, the Company
entered into a joint venture agreement with IGT and Dreamport to proceed with
the development and operations of this system. The three companies will share
equally in the investment funding, expenses and profits or losses of the CBF
project.
The operation of the system is subject to the CBF obtaining regulatory
approval in each state where the proposed system is to be offered. The agreement
provides for systems to be operational no later than 180 days after regulatory
authorization is obtained by the CBF. Project documentation and requests for
regulatory authorization have been submitted for approval in four states or
jurisdictions: Rio de Janeiro, Goias, the Federal District of Brasilia, and
Minas Gerais. In addition, regulatory approval is being pursued in the states of
Sao Paulo and Rio Grande de Sul. However, there can be no assurance that such
approvals will be obtained or that systems can become operational in the
indicated time frame.
ECUADOR. The Company established a casino operation in Quito, Ecuador,
in March 1996. The casino is located in the Crowne Plaza Hotel and has 150
machines and 10 table games. Revenue in 1997 was $1.0 million compared to $0.3
million in 1996. Direct costs associated with the operation were $0.9 million in
1997 compared to $0.3 million in 1996.
WIDE AREA PROGRESSIVE SYSTEMS
Wide area progressive systems revenue increased 64% to $5.9 million in
1997 compared to $3.6 million in 1996. This increase is a result of the increase
in the number of machines on the systems. Comparing June 30, 1997 to June 30,
1996, the Company offered systems in two additional states, Oregon and Kansas;
three new systems became operational, DOLLARS DELUXE, FABULOUS 50'S and WHEEL OF
FORTUNE; and the number of machines
<PAGE>
on the systems increased to approximately 1,480 from approximately 950. At June
30, 1997, the Company offered wide area progressive systems in Arizona (which
permits the operation of intrastate systems in lieu of interstate systems),
Connecticut, Iowa, Kansas, Louisiana, Michigan, New Mexico, North Dakota,
Oregon, South Dakota and Wisconsin. At June 30, 1997, nine systems were in
operation: MEGABUCKS (one interstate and one intrastate), DOLLARS DELUXE,
FABULOUS 50'S, QUARTERMANIA (one interstate and two intrastate), NICKELMANIA and
WHEEL OF FORTUNE (which began operating in March 1997). In July 1997, the WHEEL
OF GOLD system and in August 1997, the HIGH ROLLERS system were introduced and
became operational.
Based on current market trends, the Company anticipates increased
revenue from its wide area progressive systems in 1997 as it proceeds with its
strategy to place additional systems and machines in jurisdictions currently
permitting the operation of wide area progressive systems. The Company believes
additional jurisdictions may authorize the operation of such systems, thereby
enabling additional growth. However, there can be no assurance that necessary
regulatory approvals will be obtained in those prospective jurisdictions.
Furthermore, public acceptance of these systems and the entry of competing
systems of other gaming companies could affect the Company's future revenue.
FINANCING
Financing income on notes receivable and other financing arrangements
increased 6% to $3.1 million in 1997, compared to $2.9 million in 1996. This
increase was due to a $0.5 million fee earned from arranging interim financing
for a casino project during the first three months of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 2% to $9.1
million in 1997, from $8.9 million in 1996. As a percentage of total revenue,
selling, general and administrative expenses decreased to 14.5% in 1997 compared
to 15.8% in 1996. This decrease as a percentage of total revenue is primarily
due to the $6.1 million increase in revenue in 1997, which was mostly a result
of the increase in gaming operations revenue.
INTEREST AND FINANCING COSTS
Interest and financing costs increased 68% to $1.6 million in 1997,
from $1.0 million in 1996. The increase in interest and financing costs was
primarily attributable to increased borrowings for the expansion of gaming
operations in Latin America and for the assumption of debt in connection with
the acquisition of GSMC. The Company believes that interest and financing costs
will continue to increase in future years as the Company pursues its growth
strategy.
INCOME FROM OPERATIONS
The cumulative effect of the above described changes resulted in a 50%
decrease in income from operations to $5.3 million in 1997, from $10.7 million
in 1996. As a percentage of revenue, income from operations decreased to 8.5% in
1997, from 18.9% in 1996. The decrease in the operating margin was primarily the
result of decreased product sales and lower margins in gaming operations that
commenced subsequent to the second quarter of 1996.
OTHER
Other income includes $0.5 million of income recognized as a result of
the sale of receivables at a premium in 1997. Earnings before income taxes
decreased 45% to $5.9 million in 1997, compared to
<PAGE>
$10.7 million in 1996. Provision for income taxes was $2.2 million in 1997,
compared to $3.9 million in 1996, representing 37% and 36.6% of earnings before
income taxes for 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital increased $11.5 million to $49.2 million during the six
months ended June 30, 1997. This increase is due to a $10.4 million decrease in
current liabilities and a $1.1 million increase in current assets.
CASH FLOWS
During the six months ended June 30, 1997, the Company's cash and cash
equivalents increased $1.8 million to $5.8 million. Cash provided by operating
activities was $3.5 million in 1997 compared to $3.4 million provided in 1996.
The cash flows from operations for 1997 were primarily affected by net income,
depreciation and amortization, and changes in receivables, inventories and
accounts payable.
Cash used in investing activities amounted to $9.4 million in 1997 and
$8.1 million in 1996. Cash used in investing activities consisted primarily of
$3.9 million advanced on notes receivable for customer financing in 1997; $5.0
million and $6.1 million used to purchase property and equipment in 1997 and
1996, respectively; $2.2 million and $1.9 million increase in other assets in
1997 and 1996, respectively; and $2.6 million increase in amounts due from
riverboat lessee, prior to the acquisition of GSMC, in 1996. The 1997 property
and equipment purchases were primarily attributable to a building addition to
the corporate facility, progress costs for purchase of hardware and software and
implementation of a new corporate information system and gaming operations
equipment. The increase in other assets during 1997 was primarily due to
capitalizing start-up costs associated with the CBF project. Cash used in
investing activities was partially offset by $1.7 million and $2.3 million in
payments received on notes receivable from casino development financing in 1997
and 1996, respectively.
Financing activities provided $7.8 million cash in 1997 compared to
$7.5 million provided in 1996, primarily from the net proceeds of long-term
borrowings under a revolving credit facility in both years. The increase in debt
since December 31, 1996 was primarily used to fund working capital needs.
INDEBTEDNESS/LINES OF CREDIT
The Company had $36.8 million of debt outstanding at June 30, 1997. Of
that amount, $32 million was borrowed under a long-term revolving credit
facility from a syndicate of banks. The revolving line has two components, a $20
million tranche (Tranche A) to be used for general corporate purposes and a $30
million tranche (Tranche B) for acquisitions and major capital equipment
expenditures. The amount available under Tranche B is reduced by $1.875 million
quarterly beginning in June 1997. As a result, the maximum credit amount under
the revolving credit facility was $48.125 million at June 30, 1997. Tranche A
matures in February 1999, plus two one-year renewal options subject to bank
approval, and Tranche B matures in February 2001. The unused portion of the
revolving credit facility is subject to a commitment fee, based upon a
calculation as defined in the revolving credit agreement. Interest is payable
based on variable rates which, at the Company's option, are based on the prime
rate, federal funds rate plus 1% or a Eurodollar rate plus an applicable margin.
Amounts borrowed are secured by substantially all Company assets, excluding real
estate, but including a first preferred ship mortgage on the MISS MARQUETTE
riverboat.
<PAGE>
Of the remaining $4.8 million of debt, $3.2 million relates to debt
payable to the former shareholders of GSMC, $1.1 million relates to various
other debt secured by certain property of the MISS MARQUETTE riverboat casino
and $0.5 million is secured by certain transportation equipment.
CAPITAL COMMITMENTS
During 1994, the Company assisted a casino management company in
acquiring $8 million in financing from a financial institution. The Company also
guaranteed the $8 million debt and in return receives a loan guarantee fee based
on a percentage of the outstanding loan balance. As of August 2, 1997, the
outstanding loan balance was approximately $1.4 million.
During 1996, the Company entered into an agreement with the CBF to own
and operate, on behalf of the CBF, linked progressive video gaming systems in
Brazil. In January 1997, the Company, IGT and Dreamport formed a joint venture
for purposes of development and operation of the CBF project under which equity,
loans, and profits or losses will be shared equally. Under the terms of the
joint venture agreement, the Company has committed to provide initial equity and
loans of up to $4 million. In addition, as of June 30, 1997, the Company has
incurred start-up costs associated with the CBF project of approximately $4.7
million which are included in other assets in the consolidated balance sheets.
If and when the CBF project becomes operational, these costs will be amortized
on a straight-line basis over the life of the contract, but not to exceed five
years.
INTERNATIONAL OPERATIONS
Approximately 18% of total revenue for the six months ended June 30,
1997 was derived outside of the United States, compared to 9% in 1996.
International operations are subject to certain risks, including but not limited
to unexpected changes in regulatory requirements, fluctuations in exchange
rates, tariffs and other barriers, and political and economic instability. There
can be no assurance that these factors will not have an adverse impact on the
Company's operating results. To date, the Company has not experienced
significant translation or transaction losses related to foreign exchange
fluctuations due to the limited size of its international operations. As the
Company continues to expand its international operations, exposure to gains and
losses on foreign currency transactions may increase. The Company has not yet
engaged, but may in the future engage, in currency hedging transactions intended
to reduce the effect of fluctuations in foreign currency exchange rates.
IMPACT OF INFLATION
Inflation did not have a significant effect on the Company's operations
during the six months ended June 30, 1997.
CAUTIONARY NOTICE
This report contains forward-looking statements reflecting the
Company's expectations or beliefs concerning future events which could
materially affect Company performance in the future. Terms indicating future
expectation, optimism about future potential, anticipated growth in revenue,
earnings of the Company's business lines and like expressions typically identify
such statements. Actual results and events may differ significantly from those
discussed in forward-looking statements.
<PAGE>
All forward-looking statements are subject to the risks and
uncertainties inherent with predictions and forecasts. They are necessarily
speculative statements, and unforeseen factors, such as competitive pressures,
changes in regulatory structure, failure to gain the approval of regulatory
authorities, changes in customer acceptance of gaming, general risks associated
with the conduct of international business (such as foreign currency exchange
rate fluctuation, changes of governmental control or laws, changes in relations
between the United States and other countries, or changes in economic
conditions) could cause results to differ materially from any that may be
expected.
Forward-looking statements are made in the context of information
available as of the date stated. The Company undertakes no obligation to update
or revise such statements to reflect new circumstances or unanticipated events
as they occur.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On April 26, 1994, the Company was named as a defendant in a class
action filed in the United States District Court, Middle District of Florida, by
William A. Poulos and William Ahearn, respectively, each of whom asserted claims
on behalf of themselves and "all other similarly situated" parties (the
plaintiffs). The suit was filed against Sodak and approximately 41 other
defendants (the defendants). These initial two lawsuits were transferred to
Nevada and consolidated with a September 16, 1995 third lawsuit filed in the
United States District Court, District of Nevada, by Larry Schreier, which also
named the Company as a defendant, along with the same 41 other defendants.
Additionally, a class action was filed in the United States District Court,
Middle District of Florida, by William Poulos, against various cruise lines (the
"Cruise Ship" case). While the "Cruise Ship" case did not name the Company as a
defendant, it has been transferred to Nevada and consolidated with the above
named cases pursuant to an order issued by Judge David Ezra in December, 1996.
All of the above mentioned actions (the consolidated action) involve
defendants who are involved in the gaming business as either a gaming machine
manufacturer, distributor, casino operator, or cruise ship operator. The
consolidated action arises out of alleged fraudulent marketing and operation of
casino video poker machines and electronic slot machines. The plaintiffs allege
that the defendants have engaged in a course of fraudulent and misleading
conduct intended to induce people into playing their gaming machines based on a
false belief concerning how those machines actually operate as well as the
extent to which there is actually an opportunity to win on any given play. The
plaintiffs allege that the defendants' actions constitute violations of the
Racketeer Influenced and Corrupt Organizations Act (RICO) and give rise to
claims of common law fraud and unjust enrichment. The plaintiffs are seeking
monetary damages in excess of $1 billion and are asking that any damage awards
be trebled under applicable federal law.
In his consolidation order of December, 1996, Judge Ezra ordered the
plaintiffs to file a consolidated amended complaint. He also ordered that all
prior motions to dismiss be deemed withdrawn, with leave for the defendants to
refile them upon receipt of the consolidated amended complaint. He also ordered
that the consolidated amended complaint have no substantive changes from the
original complaints on file.
<PAGE>
Contrary to Judge Ezra's order, the consolidated amended complaint was
filed with many substantive changes, some of them directly contradicting the
order. Consequently, the defendants, through a "steering committee" formed
pursuant to the same order, filed a motion to strike the consolidated amended
complaint. The defendants, also through the steering committee, filed motions to
dismiss on the grounds of failure to state a claim and failure to plead fraud
with particularity.
The plaintiffs responded to defendants' motions of May 2, 1997 and the
defendants filed their replies on May 23, 1997. The motions are currently under
advisement and the parties are awaiting a ruling by the court.
The Company believes the Consolidated action is without merit. The
Company intends to vigorously pursue all legal defenses available to it and to
participate in the defense as fully as possible through the defendants' steering
committee.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on May 6, 1997 for
the purposes of electing members of the Board of Directors of the Company and to
ratify the selection of KPMG Peat Marwick LLP as independent auditors of the
Company for the fiscal year ending December 31, 1997.
There were 22,757,688 shares of Common Stock entitled to vote at the
meeting and a total of 21,934,598 shares (96.38%) were represented at the
meeting. The shareholder voting was as follows:
1. Election of Directors:
WITHHOLD
FOR AUTHORITY
---------- ---------
Michael G. Wordeman 21,912,934 21,664
Roland W. Gentner 21,912,934 21,664
Thomas Celani 21,913,034 21,564
Colin V. Reed 21,912,734 21,864
Manuel Lujan, Jr. 21,911,934 22,664
Ronnie Lopez 21,912,734 21,864
2. To ratify the selection of KPMG Peat Marwick LLP as independent auditors of
the Company for the fiscal year ending December 31, 1997:
For - 21,913,611 Against - 4,099 Abstain - 16,888 Broker Non-Vote - 0
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
11.1 Calculation of Earnings Per Common and Common Equivalent Share.
b. Reports on Form 8-K
None.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1997
SODAK GAMING, INC.
By: \s\ David R. Johnson
David R. Johnson
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Sequentially
Number Numbered Page
- ------ -------------
11.1 Calculation of Earnings Per Common and Common 24
Equivalent Share
27 Financial Data Schedule (submitted with the
EDGAR filing only)
Exhibit 11.1
SODAK GAMING, INC.
CALCULATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SHARES OUTSTANDING
Weighted average common shares outstanding 22,758,231 22,727,970 22,757,961 22,725,122
Adjustments for common stock equivalents(1) 141,921 166,180 168,204 152,840
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 22,900,152 22,894,150 22,926,165 22,877,962
=========== =========== =========== ===========
NET EARNINGS $ 2,427,181 $ 4,081,325 $ 3,706,692 $ 6,779,052
=========== =========== =========== ===========
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE $ 0.11 $ 0.18 $ 0.16 $ 0.30
=========== =========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
(1) Represents adjustment computed under the treasury stock method for stock
options granted at fair market value at date of grant.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF SODAK GAMING, INC.'S FORM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,848,733
<SECURITIES> 0
<RECEIVABLES> 14,549,081
<ALLOWANCES> 1,197,120
<INVENTORY> 16,766,306
<CURRENT-ASSETS> 73,314,093
<PP&E> 67,213,243
<DEPRECIATION> 7,111,033
<TOTAL-ASSETS> 171,527,093
<CURRENT-LIABILITIES> 24,113,030
<BONDS> 36,755,728
0
0
<COMMON> 22,758
<OTHER-SE> 110,669,577
<TOTAL-LIABILITY-AND-EQUITY> 171,527,093
<SALES> 25,667,179
<TOTAL-REVENUES> 62,445,363
<CGS> 19,974,809
<TOTAL-COSTS> 57,118,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 357,061
<INTEREST-EXPENSE> 1,623,202
<INCOME-PRETAX> 5,883,632
<INCOME-TAX> 2,176,940
<INCOME-CONTINUING> 3,706,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,706,692
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
