UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
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. 0-22436
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<S> <C> <C>
Delaware Lady Luck Gaming Corporation 88-0295602
(State or other jurisdiction of (Exact name of Registrant as specified in its charter) (I.R.S. employer
incorporation or organization) identification number)
206 North Third Street, Las Vegas, Nevada 89101
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (702) 477-3000
</TABLE>
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 1, 1998, there
were 29,285,698 shares of common stock, $.001 par value per share, outstanding.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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<CAPTION>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
ASSETS
March 31, 1998 December 31, 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 25,670 $ 19,552
Restricted cash.......................................... 9,810 15,388
Accounts receivable, net................................. 969 786
Inventories.............................................. 982 957
Assets held for sale..................................... 712 2,791
Prepaid expenses......................................... 2,224 2,456
Total current assets................................. 40,367 41,930
Property and equipment, net of accumulated
depreciation and amortization of $26,118 and
$26,525 as of March 31, 1998 and December 31,
1997, respectively....................................... 127,131 128,375
Other assets:
Deferred financing fees and costs, net of
accumulated amortization of $3,564 and
$3,347 as of March 31, 1998 and
December 31, 1997, respectively...................... 2,523 2,740
Investment in unconsolidated affiliates, net 10,781 9,313
Other.................................................... 2,739 2,948
16,043 15,001
TOTAL ASSETS.................................................. $ 183,541 $ 185,306
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
2
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<TABLE>
<CAPTION>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS'
March 31, 1998 December 31, 1997
<S> <C> <C>
Current liabilities:
Current portion of long-term debt........................ $ 1,279 $ 4,481
Accrued interest......................................... 1,861 1,846
Accounts payable......................................... 4,065 5,178
Construction and retention payables 1,952 1,957
Accrued property taxes................................... 637 1,375
Other accrued liabilities................................ 8,437 7,421
Total current liabilities............................ 18,231 22,258
Long-term debt:
Mortgage notes payable................................... 173,500 173,500
Other long-term debt..................................... 3,019 3,314
Total long-term debt................................. 176,519 176,814
Total liabilities............................... 194,750 199,072
Commitments and contingencies (Notes 5 through 10)
Series A mandatory cumulative redeemable preferred
stock, $43.66 and $42.44, as of March 31, 1998
and December 31, 1997, respectively per share
liquidation value, 1,800,000 shares authorized,
433,638 shares issued and outstanding 18,931 18,402
Stockholders' deficit:
Common stock, $.001 par value, 75,000,000
shares authorized, 29,285,698 shares issued
and outstanding ..................................... 29 29
Additional paid-in capital............................... 31,382 31,382
Accumulated deficit...................................... (61,551) (63,579)
Total stockholders' deficit.......................... (30,140) (32,168)
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT.................................... $ 183,541 $ 185,306
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
3
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<CAPTION>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Revenues:
Casino.......................................... $ 36,478 $ 36,799
Food and beverage............................... 4,688 4,439
Hotel........................................... 995 991
Equity in net income of unconsolidated
affiliates................................... 1,468 942
Other........................................... 1,002 1,430
Gross revenues.............................. 44,631 44,601
Less: Promotional allowances................ (3,958) (3,393)
Net revenues................................ 40,673 41,208
Costs and expenses:
Casino.......................................... 15,432 14,899
Food and beverage............................... 1,477 1,688
Hotel........................................... 267 563
Other........................................... 61 74
Selling, general and
administrative.............................. 12,696 13,384
Related party management/license fees 457 514
Depreciation and amortization................... 2,390 2,953
Total costs and expenses.................... 32,780 34,075
Operating income .................................... 7,893 7,133
Other income (expense):
Interest income................................. 263 159
Interest expense................................ (5,584) (5,672)
Other........................................... - 52
Total other income (expense)................ (5,321) (5,461)
Income before income tax provision................... 2,572 1,672
Income tax provision................................. 15 -
-------- --------
NET INCOME........................................... 2,557 1,672
Preferred stock dividends............................ (529) (472)
Income applicable to common stockholders $ 2,028 $ 1,200
BASIC AND DILUTED NET INCOME PER SHARE
Applicable to common stockholders $ 0.07 $ 0.04
Weighted average number of common shares
outstanding..................................... 29,285,698 29,285,698
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
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<CAPTION>
LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
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Cash flows from operating activities:
Net income................................... $ 2,557 $ 1,672
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,390 2,953
Amortization of bond offering
fees and costs............................ 217 217
Equity in net income of unconsolidated
affiliates................................ (1,468) (942)
(Increase) decrease in assets:
Accounts receivable....................... (183) 284
Inventories............................... (25) (41)
Prepaid expenses.......................... 232 130
Increase (decrease) in liabilities:
Accounts payable.......................... (1,113) 1,102
Other accrued liabilities................. 333 (111)
Net cash provided by (used in)
operating activities......................... 2,940 5.264
Cash flows from investing activities:
Purchase of property and equipment........... (1,571) (698)
Restricted cash.............................. 5,578 -
Other........................................ 205 (183)
Net cash provided by (used in) investing
activities................................... 4,212 (876)
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
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LADY LUCK GAMING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands, except supplemental schedule)
(Unaudited)
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from financing activities:
Payments on debt and slot contracts......... (1,034) (1,022)
Net cash provided by (used in) financing
activities.................................. (1,034) (1,022)
Net increase (decrease) in cash and cash
equivalents................................. 6,118 3,366
Cash and cash equivalents,
beginning of period......................... 19,552 15,490
Cash and cash equivalents, end of period $ 25,670 $ 18,856
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest.............................. $ 5,353 $ 5,402
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The liquidation value of the Series A mandatory cumulative redeemable preferred
stock increased by approximately $529,000 and $472,000 in unpaid accrued
dividends for the three month periods ended March 31, 1998 and 1997,
respectively.
The Company entered into several contracts with manufacturers for the purchase
of slot machines and other assets which totaled approximately $287,000 and
$280,000 for the three month periods ended March 31, 1998 and 1997,
respectively.
Effective February 19, 1998, a subsidiary of the Company sold substantially all
of its real property and operating assets to the holder of its mortgage note in
exchange for forgiveness of the $2.8 million mortgage note and the assumption of
certain liabilities.
The accompanying notes an integral part of these condensed consolidated
statements.
6
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company and Basis of Presentation
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 1997 Annual Report on Form 10-K. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. The results for the three month
period ended March 31, 1998 are not necessarily indicative of future financial
results. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Among the estimates made by
management is the evaluation of the recoverability of the carrying values of the
land held for development. The Company has made certain financial statement
reclassifications for the three month period ended March 31, 1997 in order to
classify amounts in a manner consistent with the three month period ended March
31, 1998.
The consolidated financial statements of Lady Luck Gaming Corporation
("LLGC"), a Delaware corporation, include the accounts of LLGC and its
subsidiaries (collectively the "Company"). The Company's operations primarily
include those of LLGC, Lady Luck Gaming Finance Corporation ("LLGFC"), a
Delaware corporation; Lady Luck Mississippi, Inc. ("LLM"), Lady Luck Biloxi,
Inc. ("LLB"), Magnolia Lady, Inc. ("MLI"), and Lady Luck Tunica ("LLT"), each a
Mississippi corporation (collectively the "Mississippi Companies"). The Company
also owns an interest in a joint venture with Bettendorf Riverfront Development
Company ("BRDC") and previously owned an investment in a joint venture with
Bally's Entertainment Corp. ("Bally's") (see Note 4) which are and have been
accounted for under the equity method. LLGC and its subsidiaries were organized
to develop and operate gaming and hotel properties in emerging jurisdictions.
LLGC and LLGFC were formed in February 1993. LLM began dockside casino
operations on February 26, 1993 in Natchez, Mississippi and acquired and took
over operation of the 147-room River Park Hotel in Natchez, Mississippi on April
15, 1996; Lady Luck Central City, Inc., formerly Gold Coin Incorporated
("LLCC"), a Delaware corporation and subsidiary of the Company, opened on May
28, 1993 and sold its real property and operating assets and ceased operations
effective February 19, 1998 (see Note 9); LLB began dockside casino operations
on December 13, 1993 in Biloxi, Mississippi; MLI, which does business as Lady
Luck Rhythm & Blues, commenced dockside gaming operations on June 27, 1994 in
Coahoma County, Mississippi, commenced operation of a 173-room hotel on August
16, 1994, commenced gaming operations of Country Casino and the Pavilion on May
21, 1996 and acquired and took over operation of the 120- room Riverbluff Hotel
in Helena, Arkansas on July 3, 1996; Lady Luck Quad Cities, Inc. ("LLQC"), a
Delaware corporation and subsidiary of the Company, formed a joint venture with
BRDC (the "Bettendorf Joint Venture") to operate a casino in Bettendorf, Iowa
which commenced operation on April 21, 1995 (see Note 4); Old River Development,
Inc., a subsidiary of the Company, commenced operation of a 240-room hotel on
August 24, 1994, contributed it to the Bally's Joint Venture in March 1995 and
sold its equity investment to Bally's effective September 30, 1997 (see Note 4);
and, L.L. Gaming Reservations, Inc., a Nevada corporation and subsidiary of the
Company, began operating a central reservations center for the Company's hotels
September 3, 1996. Lady Luck Vicksburg, Inc. ("LLV"), a subsidiary of the
Company and Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned subsidiary of the
Company and a Missouri corporation, are in various stages of development and
have no operating history.
2. Certain Risks and Uncertainties
The Company's operations in Mississippi and Iowa are dependent on the
continued licensability or qualifications of the Company and its subsidiaries
that hold the gaming licenses in these jurisdictions. Such licensing and
qualifications are reviewed periodically by the gaming authorities in these
states.
7
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Coahoma County, Mississippi casino
operations. These casinos are highly dependent on patronage by residents in
Arkansas. A change in general economic conditions, closure of the Helena Bridge
or a change in the extent and nature of regulations enabling casino gaming in
Arkansas could adversely affect these casinos' future operating results.
3. Net Income Per Share
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128 "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128
establishes new accounting standards for the computation and financial statement
presentation of earnings per share data. The adoption of SFAS No. 128 did not
affect the Company's earnings per share calculations. As of March 31, 1998,
options to purchase 408,000 shares of common stock at exercise prices ranging
from $2.50 to $3.12 per share were outstanding and could potentially dilute
earnings per share in future periods. The related weighted average number of
common shares were not included in the computations of earnings per share
because the options' exercise prices were greater than the average market prices
of common stock during the three month periods ended March 31, 1998 and 1997.
The Company is considering an amendment to the Amended Certificate of
Incorporation of the Company in order to enable the Company to effect a 1-for-6
reverse stock split and an increase in the par value of the Company's Common
Stock from $0.001 to %0.006.
4. Investment in Unconsolidated Affiliates
The Company's investment in the joint ventures with BRDC and its former
investment in the joint venture with Bally's are accounted for under the equity
method and the Company's portion of income or loss from the joint ventures is
included in Equity in Net Income of Unconsolidated Affiliates in the
accompanying Consolidated Statements of Operations for the three month periods
ended March 31, 1998 and 1997.
Bettendorf Joint Venture
In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint Venture") with BRDC to complete and operate a casino in Bettendorf, Iowa
("Lady Luck Bettendorf"). The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest. In addition, BRDC is leasing certain real
property to the Bettendorf Joint Venture at a lease rate equal to $150,000 per
month. The Company is leasing a gaming vessel with a cost of $21,635,000 and a
carrying value net of accumulated depreciation as of March 31, 1998 of
$19,847,000 to the Bettendorf Joint Venture for approximately $189,000 per
month, which amount was determined based upon arms-length negotiations between
the Company and BRDC and the Company's cost of capital at the time. In addition,
from inception of the Bettendorf Joint Venture through December 31, 1997, the
Company had been leasing certain gaming equipment to the Bettendorf Joint
Venture with a cost of $3,705,000 for approximately $122,000 per month, its fair
market rental value. An agreement has been reached pursuant to the gaming
equipment lease to sell the gaming equipment to the Bettendorf Joint Venture,
effective January 1, 1998. As of March 31, 1998, the equipment is included in
assets held for sale. A sales price of $712,000 has been negotiated and is
expected to be received during the three month period ending June 30, 1998.
Accordingly, the Company has not received rental income from such equipment
during the three month period ended March 31, 1998. The Company's rental income
relating to the gaming vessel lease was $567,000 for each of the three month
periods ended March 31, 1998 and 1997. The Company's rental income relating to
the gaming equipment lease was $366,000 for the three month period ended
March 31, 1997.
8
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Lady Luck Bettendorf commenced operations on April 21, 1995. All net
profits and losses from all operations of Lady Luck Bettendorf are allocated
equally between the Company and BRDC. Effective January 1, 1996, the Company was
granted the right to manage Lady Luck Bettendorf with substantially the same
terms and fees as the Company's wholly-owned casinos, less $37,500 abated per
month, with up to $325,000 annually of the fees received by the Company paid to
BRDC as consultants.
Lady Luck Bettendorf incurred management fees for the three month periods
ended March 31, 1998 and 1997 as follows (in thousands):
Three Months Ended March 31,
1998 1997
Lady Luck Bettendorf management fees,
net of monthly abatement $ 508 $ 359
The Bettendorf Joint Venture is currently constructing a $39.5 million
expansion project pursuant to its master-plan (See Note 8).
Summarized balance sheet information for the Bettendorf Joint Venture as of
March 31, 1998 and December 31, 1997 is as follows (in thousands):
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<CAPTION>
March 31, 1998 December 31, 1997
<S> <C> <C>
Current assets $ 5,959 $ 4,758
Other 870 732
Property and equipment, net 34,153 25,459
Total assets $ 40,982 $ 30,949
Current liabilities $ 13,645 $ 12,276
Long-term liabilities 5,776 48
Members' equity 21,561 18,625
Total liabilities and
members' equity $ 40,982 $ 30,949
</TABLE>
Summarized results of operations for the Bettendorf Joint Venture for each
of the three month periods ended March 31, 1998 and 1997 are as follows (in
thousands):
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<CAPTION>
1998 1997
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Net revenues $ 19,125 $ 17,417
Costs and expenses 16,189 15,976
Net income $ 2,936 $ 1,441
</TABLE>
A summary of changes in the Company's investment in the Bettendorf Joint
Venture for each of the three month periods ended March 31, 1998 and 1997 are as
follows (in thousands):
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<CAPTION>
1998 1997
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Beginning investment $ 9,313 $ 5,886
Equity in net income
of unconsolidated affiliate 1,468 720
Ending investment $ 10,781 $ 6,606
</TABLE>
9
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Included in the Company's Retained Earnings at March 31, 1998 is $7,781,000
of undistributed earnings of the Bettendorf Joint Venture.
Bally's Joint Venture
The Company entered an agreement effective September 30, 1997 to sell its
35% minority interest in Bally's Saloon, Gambling Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation, the majority owner and manager of the
property (the "Partnership Interest Redemption Agreement") (See Note 5).
5. Long-Term Debt
At March 31, 1998 and December 31, 1997, long-term debt consisted of the
following (in thousands):
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<CAPTION>
March 31, 1998 December 31, 1997
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11 7/8% First Mortgage Notes; quarterly
payments of interest only; due March 2001;
collateralized by substantially all assets of the
Company and guaranteed by LLGC........................... $ 173,500 $ 173,500
Note payable to a corporation; monthly payments of
interest only at 10%; principal due July 2001,
collateralized by a deed of trust (See Note 9) - 2,750
Note payable to a corporation; annual payments of
principal of $119 plus accrued interest at 8%;
due June 2003; collateralized by a land deed of
trust.................................................... 714 714
Notes payable to corporations; monthly payments of
principal and interest at rates up to prime plus
7%; due through February 1999 secured by the
equipment................................................ 644 1,122
Mortgage note payable to a corporation; quarterly
payments of principal and interest at prime plus
1 1/2% based on a 20 year amortization; due
April 2006; collateralized by a deed of trust 2,735 2,773
Note payable to a corporation; quarterly payments
of principal and accrued interest at 9%; due
October 1998, collateralized by a deed of trust 55 110
Other........................................................ 150 326
177,798 181,295
Less: current portion........................................ (1,279) (4,481)
Total long-term debt..................................... $ 176,519 $ 176,814
</TABLE>
10
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LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Indenture, as amended and supplemented (the "Indenture"), covering the
Company's 11 7/8% First Mortgage Notes due 2001 (the "2001 Notes") provides for,
among other things, restrictions on the Company's and certain of its
subsidiaries' abilities (a) to pay dividends or other distributions on its
capital stock, (b) to incur additional indebtedness, (c) to make asset sales,
(d) to engage in other lines of business, and (e) to maintain a minimum
consolidated net worth, as defined in the Indenture. The Company believes it is
in compliance with the Indenture, as amended and supplemented, as of March 31,
1998.
The 2001 Notes bear interest at the rate of 11-7/8% per annum effective
retroactive to October 15, 1995 (prior to that time they bore interest at the
rate of 10-1/2% per annum). Interest on the 2001 Notes held by each holder who
consented to certain amendments and waivers in 1996 will be payable quarterly on
each March 1, June 1, September 1 and December 1, so long as the 2001 Notes are
outstanding (interest on the notes held by each holder who did not consent to
certain Amendments and Waivers will continue to be payable semi-annually on
March 1 and September 1). In addition, the Company is obligated within 180 days
after the end of each year, commencing with the year ending December 31, 1996,
to purchase on the open market, or to make an offer to purchase from the holders
at par, 2001 Notes with a principal amount equal to Excess Cash Flow (as defined
in the Indenture) for such year, provided that the Company will be able to
credit towards the amount of 2001 Notes required to be purchased in any year any
amount of 2001 Notes it has purchased since January 1, 1996 which it has not
previously used as a credit in any prior year. There was no Excess Cash Flow for
the years ended December 31, 1997 and 1996. The Company may also repurchase a
portion of the 2001 Notes from time to time in early satisfaction of any
required repurchase expected pursuant to the Indenture or otherwise, the amount
of which and the timing of repurchase cannot currently be estimated and is
dependent on adequate cash availability and market conditions.
Pursuant to a Partnership Interest Redemption Agreement, on November 3,
1997, the Company received $15,250,000 cash for its investment in the Bally's
Joint Venture. In accordance with the Indenture, the Company has 180 days after
receiving the $15,250,000 to invest the money and any earnings thereon in a
Related Business (as defined in the Indenture). If the Company does not invest
the funds in a Related Business before such time, under certain circumstances,
the Company must make an offer to repurchase a portion of the 2001 Notes at a
price of 101% of par for the amount of the funds that was not invested in a
Related Business.
During the three month period ended March 31, 1998, the Company received a
release from restriction for $5.7 million of the proceeds from the sale of its
interest in the Bally's Joint Venture to be invested in a Related Business.
Accordingly, the remainder of the proceeds from the sale and earnings thereon
have been classified as Restricted Cash (as defined in the Indenture) as of
March 31, 1998. On April 16, 1998, the Company offered to repurchase up to $9.6
million principal amount of the 2001 Notes (the "Tender Offer") at a price of
101% of par plus accrued and unpaid interest thereon. The Tender Offer is not
conditioned on any minimum principal amount of the 2001 Notes being tendered.
The Tender Offer expires on May 14, 1998 unless extended by the Company. Any
remaining funds not used to repurchase the 2001 Notes tendered, if any, will
become unrestricted and available for general purposes. In addition, the Company
reserves the right to repurchase more than $9.6 million of 2001 Notes in the
Tender Offer, but has no obligation nor present intention to do so.
The Company has begun to explore various options to refinance the 2001
Notes. However, there can be no assurance the Company will continue these
pursuits and, if pursued, that terms acceptable to the Company can be
negotiated.
6. Employment Agreements
On October 24, 1994, LLGC entered Letter Agreements with Alain J. Uboldi,
LLGC's President, Chief Operating Officer and Director, and Rory J. Reid, LLGC's
Senior Vice-President, General Counsel, Secretary and Director (the
"Agreements"). The Agreements provide that in the event of a Change of Control,
as defined in the Agreements, and the subsequent termination of the employment
of either Mr. Uboldi or Mr. Reid, under certain circumstances, LLGC would be
required to pay to Mr. Uboldi and Mr. Reid a lump sum severance payment equal to
2.99 times the sum of their respective annual base salary plus the amount of any
11
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
bonus paid in the year preceding such termination. In the event of such
termination, Mr. Uboldi and Mr. Reid would also receive in cash an amount equal
to the product of the difference between subtracting the exercise price of each
option held by Mr. Uboldi or Mr. Reid (whether or not fully exercisable) from
the current price of LLGC's common stock, as defined. Further, in connection
with the Agreements, Mr. Uboldi and Mr. Reid would receive life, disability,
accident and health insurance benefits substantially similar to those they are
receiving immediately prior to their termination for a 36-month period after
such termination.
7. Litigation
Shareholder Class Action Lawsuits
The Company has been named as a defendant in a purported shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of 1933 and the Securities Exchange Act of 1934 for alleged material
misrepresentations and omissions in connection with the Company's 1993
prospectus and initial public offering of Common Stock. The complaint seeks,
inter alia, injunctive relief, rescission and unspecified compensatory damages.
In addition to the Company, the complaint also names as defendants Andrew H.
Tompkins, Chairman and Chief Executive Officer of LLGC, Alain Uboldi, Director
and Chief Operating Officer of LLGC, Michael Hlavsa, the former Chief Financial
Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc., who acted
as lead underwriters for the initial public offering. The Company has retained
outside counsel to respond to the complaint. On October 8, 1997, the Company was
served with an order of the court dismissing all of the Plaintiff's Section
10(b) and eleven of the Plaintiff's sixteen Section 11, 12 and 15 allegations
with prejudice for failing to adequately state a claim. The court also ordered
the Plaintiffs to and the Plaintiffs have filed an amended complaint regarding
the five Section 11, 12 and 15 claims which were not dismissed with prejudice.
While the outcome of this matter cannot presently be determined, the Company
believes based in part on advice of counsel, that it has meritorious defenses.
Greek Lawsuits
The Company and certain of its joint venture partners (the "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism before the Greek Multi-Member Court of First Instance. The action
alleges that the Defendants failed to make certain payments in connection with
the gaming license bid process for Patras, Greece. The payments the Company is
alleged to have been required to make aggregate approximately 2.1 billion
drachma (which was approximately $6.7 million as of April 24, 1998 based upon
published exchange rates). Although it is difficult to determine the damages
being sought from the lawsuit, the action may seek damages up to such aggregate
amount. The cases are still in their preliminary stages and their outcome cannot
be predicted with any degree of certainty; however, the Company believes, based
in part on advice of counsel, that it has meritorious defenses.
A Greek architect filed an action against the Company alleging that he was
retained by the Company to provide professional services with respect to a
casino in Loutraki, Greece. The plaintiff in such action sought damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter. The Greek
Court entered judgment against the Company in the amount of approximately 87.1
million drachma (which was approximately $279,000 as of April 24, 1998 based
upon published exchange rates) plus interest. The Company has appealed the
Court's decision. During the fourth quarter of 1997, the Company's Greek counsel
informed the Company that it is more likely than not that the appellate court
will not overturn the Athens Court of First Instance's decision. A reserve has
been provided during the fourth quarter of 1997; however, the Company intends to
continue to defend itself in this matter.
Other Matters
On November 5, 1996, the United States Bankruptcy Court for the Northern
District of Mississippi dismissed a lawsuit which had been brought by Superior
Boat Works, Inc. ("Superior") against LLM on or about September 23, 1993.
Superior had previously done construction work for LLM on its Natchez barge
12
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately $3,400,000 was alleged for additional construction work on
Lady Luck Natchez and the remaining amount was alleged for unjust enrichment,
for causing the bankruptcy of Superior and for future work Superior expected to
perform for the Company. Superior has appealed the decision to dismiss the
action. The Company, based in part on the advice of its counsel, believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material adverse effect on the Company's financial condition or
results of operations.
8. Commitments and Contingencies
Lease Commitments
LLGC on its own or through its operating subsidiaries, has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution and are cancelable at the option
of LLGC with a maximum period of notice of 60 days with the exception of certain
leases entered into by LLB and Lady Luck Gulfport, Inc., also a subsidiary of
the Company, which are cancelable upon six months notice on the fifth
anniversary of the commencement date of such leases and upon six months notice
on any fifth anniversary date thereafter. In addition, LLGC, on its own or
through its operating subsidiaries, has entered into certain options to either
lease or purchase additional property in other states. Most of the leases are
contingent upon regulatory approval of the lease and all leases contain certain
periodic rent adjustments.
Construction Commitments
Bettendorf Joint Venture
The Bettendorf Joint Venture is currently constructing an expansion project
pursuant to its master-plan at a cost of approximately $39.5 million. The
project, which began construction June 23, 1997, is planned to include an
approximately 260 room hotel with a fully enclosed walkway to the riverboat
casino, 30-50 slip marina, a 500-car parking garage and a bypass over the nearby
railroad to improve access. In addition, during April 1998, the Iowa Racing and
Gaming Commission approved the addition of up to 230 new slot machines and six
table games at the Bettendorf Joint Venture. The expansion project financing is
non-recourse to the Company and includes a $17.5 million bank first mortgage
note, a $5.0 million second mortgage from an affiliated company of BRDC, and
$7.5 million in tax increment financing from the City of Bettendorf to be repaid
from property taxes and in exchange for deeding the overpass to the City of
Bettendorf. The cost of the overpass is not expected to exceed such financing
from the City of Bettendorf. The balance of the expansion project's cost is to
be paid from the Bettendorf Joint Venture's cash on hand. The project is
scheduled to be completed in the Fall of 1998.
Service Marine Vessel
The Company has entered into an agreement for the construction of a
cruising gaming vessel in the amount of $16.0 million and as of March 31, 1998,
approximately $6.0 million has been expended under this contract and
approximately $1.9 million is included in construction payables. Construction
has been discontinued and is not anticipated to resume until such time as a
suitable development project proceeds.
Natchez Site
Lady Luck Natchez was required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to its
existing lease by February 1998. Management has not relocated the casino barge
and the lessor has allowed the casino to remain in its current location.
Management and the lessor have reached an agreement in principle to allow the
barge to remain in its current location. Pursuant to such agreement the lessor
13
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
agrees to allow the barge to remain at its current location in consideration of
the Company's agreement to extend the lease for an additional 10 year period. In
addition, the preliminary agreement would require the Company to pay liquidated
damages of $1.2 million in the event it terminates the lease during the 10 year
extension period. Should an amendment to the lease reflecting the preliminary
agreement discussed above not be executed, the cost of relocating the barge is
currently estimated not to exceed $1.0 million.
Development Stage Projects
In addition to its Operating Casinos, the Company has dockside or riverboat
casino projects in various stages of development in Kimmswick, Missouri;
Vicksburg, Mississippi; and Vancouver, British Columbia. The current status of
each of these Development Stage Projects is described below.
Kimmswick, Missouri
The first two phases of the project, as planned, include a land-based hotel
and casinos onboard two separate vessels (the "Missouri Project"). LLK has
entered into an option to lease the Kimmswick Site. The proposed site is located
on an approximately 45-acre parcel of land in Jefferson County, Missouri,
approximately 25 miles south of St. Louis (the "Kimmswick Site").
As of March 31, 1998, the Company has invested approximately $8.6 million
in the Missouri Project which investment has been fully reserved. The Missouri
Project is estimated to cost an additional $93.1 million to complete development
of the first two phases. The proposed project has received the appropriate
zoning approval from the Jefferson County Planning Commission and has received a
U.S. Army Corps of Engineers 404 permit. However, a new permit might be
necessary due to changes in the proposed project design subsequent to receiving
the permit.
The Company has continued its efforts towards obtaining a license for the
Missouri Project and provided updated information to the Missouri Gaming
Commission. However, the Missouri Gaming Commission investigates applicants at
its discretion and has not yet selected the Company to be investigated.
Furthermore, there can be no assurance that the Company will be selected or
obtain such approvals from the Missouri Gaming Commission. While the Company
intends to continue seeking license approval by the Missouri Gaming Commission,
the eventual development of the Missouri Project may also be subject to: (i)
satisfactory resolution of a November 1997 Missouri Supreme Court ruling that
several existing Missouri gaming facilities are illegal due to not being located
upon the Mississippi or Missouri rivers (the Kimmswick Site is located upon the
Mississippi River, but resolution of the decision could delay selection of
additional applicants for licensing investigation); (ii) the selection of three
new Missouri Gaming Commission members, which the Company believes may not be
familiar with the Company's application; (iii) gaming revenues in the major
metropolitan areas of Missouri have not increased commensurate with recent
increases in capacity, causing concerns of potential competitive saturation;
and, (iv) regulatory factors, including loss limits have generally caused gaming
operations to underperform relative to facilities in neighboring jurisdictions
without such restrictions.
The Vicksburg Project
The development as planned will include a riverboat casino, an approximate
200-room hotel, an 800-car parking garage, and additional amenities (the
"Vicksburg Project"). The Vicksburg Project is expected to be located on
approximately 23.9 acres of land owned by the Company immediately south of the
I-20 bridge along the Mississippi River, with access to Washington Street, in
Vicksburg, Mississippi.
During 1997, the Company entered into an agreement (the "Horseshoe Joint
Venture Agreement") with Horseshoe Gaming, LLC ("Horseshoe") to form a joint
venture to complete and operate the Vicksburg Project. Under the terms of the
joint venture agreement: (i) the Vicksburg Project will be operated by a wholly
14
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
owned subsidiary of Horseshoe Gaming, LLC; (ii) Horseshoe will own an equity
interest of 75%, with LLV, holding the remaining 25%; and, (iii) the partners
will contribute real property and other previously acquired assets with a
combined agreed-upon value of approximately $42.0 million.
A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed. As of March 31, 1998, the Company has invested approximately $14.4
million in the Vicksburg Project with a net investment remaining of
approximately $8.2 million after project development cost write-downs and
reserves for assets which may not be usable in the project as currently
contemplated. Management's estimate of net realizable value is based upon
assumptions regarding future economic, market and gaming regulatory conditions
including the viability of the Vicksburg Site for the development of a casino
project. Changes in these assumptions could result in changes in the estimated
net realizable value of the property. The total cost of the project is initially
estimated to be approximately $100.0 million including the agreed-upon value of
contributed assets.
The consummation of the transactions contemplated by the Horseshoe Joint
Venture Agreement are subject to the fulfillment of several conditions (the
"Conditions"), including but not limited to, the partners' future agreement as
to the scope and cost of the project, required regulatory approval, and
completion of project financing. The Horseshoe Joint Venture Agreement provides
that it may be terminated by LLV or Horseshoe as of April 1, 1998 (the
"Termination Date") if the Conditions are not satisfied or waived as of the
Termination Date or without cause. All of the Conditions were not satisfied
prior to the Termination Date. While the partners have not elected to terminate
the Horseshoe Joint Venture Agreement as of the termination date, there can be
no assurance that LLV or Horseshoe will not terminate the Horseshoe Joint
Venture Agreement. Furthermore, there can be no assurance that if consummated,
that the joint venture will be successful.
In addition, during the fourth quarter of 1996, the Mississippi Gaming
Commission found a proposed casino site on the Big Black River unsuitable. The
Big Black River is located about 13 miles from Vicksburg, between Vicksburg and
Jackson, the major population base from which Vicksburg casinos draw their
customers. An affected landowner on the Big Black River sued the Mississippi
Gaming Commission after it rejected the site, and in the fourth quarter of 1997,
a circuit court found the site suitable. The Mississippi Gaming Commission and
City of Vicksburg have appealed the circuit court decision to the State Supreme
Court.
Casino developments on the Big Black River could significantly adversely
affect operating casinos in Vicksburg, as well as the viability of the Vicksburg
Project. While the Company believes that, based on previous rulings in favor of
the Mississippi Gaming Commission, the Big Black River will not be found
suitable for casino development, it will be some time before a ruling comes
forth, and there can be no assurances that the circuit court ruling will be
overturned.
Lady Luck Vancouver
The Province of British Columbia (the "Province"), through its Lotteries
Advisory Committee (the "LAC") subsequently sent to interested parties a Request
for Proposal ("RFP") relating to a planned expansion of gaming in the Province.
The gaming expansion is intended to include destination-style casinos, limited
to 30 table games and 300 slots, with the slot machines being provided and owned
by the Province. Bingo halls may also be included in the projects. The
Provincial government will participate in the revenue and net income generated
by gaming operations, with an initial licensing period of ten years. In
addition, local host governments will participate in the net income generated by
projects in their respective jurisdictions for providing requisite services.
The Company responded to the RFP during the fourth quarter of 1997, with a
proposed project to be developed on Tsawwassen First Nation Band Reserve lands
(the "Vancouver Project"), located about 20 miles south of downtown Vancouver.
The Vancouver Project, which is expected to cost approximately $25.0 to $30.0
million, includes a 55,000 square foot gaming and entertainment facility and an
11,000 square foot Aboriginal cultural center, all to be located on
approximately 20 acres. The proposed gaming facility will also include an
800-seat bingo hall.
15
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The LAC has been reviewing the various responses to the RFP, and has
informed the Company that its response has successfully been short-listed. The
Company is negotiating a development agreement with the Tsawwassen First Nation
as host community, and expects to have it completed during the three month
period ending June 30, 1998. The Company believes that the LAC will make
selections of successful proponents during the three month period ending June
30, 1998. After a proponent is selected, it then must negotiate the various
operating agreements with the Provincial government and obtain financing for the
project. While the Company believes that it may be selected for a gaming
license, there can be no assurances that it will be selected, nor that
agreements with the Tsawwassen First Nation and Province of British Columbia can
be successfully negotiated or that financing can be obtained. As of March 31,
1998, the Company has invested approximately $500,000 of capital in these
projects (which was expensed when incurred) and does not anticipate investing
additional material amounts of capital prior to licensing.
Environmental Matters
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes.
Although the Company knows of no pre-existing conditions at the intended
sites for the Development Stage Projects that will result in any material
environmental liability or delay, there can be no assurance that pre-existing
conditions will not be discovered and result in material liability or delay to
the Company.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
Leverage
The Company is highly leveraged. As of March 31, 1998, the Company's total
indebtedness was approximately $177.8 million and its stockholders' deficit was
approximately $30.1 million. This level of indebtedness could have important
consequences to stockholders. While management believes the Company will have
sufficient cash flow to meet its debt service and other cash outflow
requirements and maintain compliance with the covenants of the Indenture as
supplemented, to the extent that a substantial portion of the Company's cash
flow from operations remains dedicated to the payment of principal and interest
on its indebtedness, such cash flow is not available for other purposes such as
general operations, maintenance and improvement of casino and hotel facilities
or expansion of existing sites or into other gaming markets. Furthermore, the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures or acquisitions may be limited and the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its industry.
9. Sale of Lady Luck Central City
Effective February 19, 1998, LLCC sold substantially all of its real
property and operating assets to the holder of its mortgage note in exchange for
forgiveness of the $2.8 million note and the assumption of certain liabilities.
During 1997, the Company recorded a reserve of $7.3 million to write-down LLCC's
assets held for sale to fair market value less closing costs, to reserve for
operating losses in 1998 prior to the effective sale date and to reserve for
estimated future lease payments and write-downs on its parking lot leases which
were not assumed by the purchaser of the assets sold. During the three month
period ended March 31, 1998, LLGC acquired a portion of LLCC's leased property
with the remainder to be acquired in 1999.
16
<PAGE>
LADY LUCK GAMING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Subsequent Event
During April 1998, the Company entered into a letter of intent with Grand
Casinos, Inc. to sell, for $15.0 million in cash, LLB's real property, casino
barge and certain other assets, excluding gaming equipment and certain real
property where administrative offices had been located. The agreement requires,
among other things, approval by both companies' boards of directors and
regulators, consent by holders of the 2001 Notes, completion of due diligence
and the execution of definitive agreements. Accordingly, there can be no
assurance that the transaction will be completed.
11. Statement of Position 98-5
During April 1998, the American Institute of Certified Public Accountants
issued Statement of Position - "Reporting on the Costs of Start-up Activities".
The new standard requires that all companies expense costs of "start-up"
activities as those costs are incurred. The term "start-up" includes
pre-opening, pre-operating and organization activities. Previously, the Company
had capitalized these items until the property opened at which time these
cumulative costs were expensed. Although the Company has no capitalized
"start-up" costs as of March 31, 1998, any "start-up" costs related to projects
in the development stage will be required to be expensed as incurred.
17
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding the Company's current business
strategy, the Company's prospective joint ventures, asset sales and expansions
of existing projects, and the Company's plans for future development and
operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Generally, the words "anticipates," "believes," "estimates," "expects" and
similar expressions as they relate to the Company and its management are
intended to identify forward looking statements. Actual results may differ
materially. Among the factors that could cause actual results to differ
materially are the following: the availability of sufficient capital to finance
the Company's business plan on terms satisfactory to the Company; competitive
factors, such as legalization of gaming in jurisdictions from which the Company
draws significant numbers of patrons and an increase in the number of casinos
serving the markets in which the Company's casinos are located; changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated joint ventures on terms satisfactory to the Company and to obtain
necessary regulatory approvals therefor; changes in regulations affecting the
gaming industry; the ability of the Company to enter into and consummate an
agreement relating to the sale of substantially all of the assets of Lady Luck
Biloxi; the ability of the Company to comply with the Company's Indenture
covering the 2001 Notes; future acquisitions or strategic partnerships; general
business and economic conditions; and other factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission. The
Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
Results of Operations
Three Months Ended March 31, 1998 Compared to the Three Months Ended March
31, 1997
For the three month periods ended March 31, 1998 and 1997, consolidated
gross revenues remained unchanged at $44.6 million. Increases in gross revenues
were realized by: (i) Lady Luck Natchez; (ii) the Lady Luck Rhythm &
Blues/Country Casino Complex; and (iii) equity in net income of the Bettendorf
Joint Venture. These increases were offset by changes in gross revenues realized
by: (i) Lady Luck Biloxi; (ii) Lady Luck Central City; (iii) a lease in the
prior year three month period of equipment to the Bettendorf Joint Venture; and
(iv) equity in net income of the Bally's Joint Venture in the three month period
ended March 31, 1997.
Lady Luck Natchez's gross revenues increased $1.3 million because it was
able to operate for the entire three month period ended March 31, 1998. During
the three month period ended March 31, 1997, Lady Luck Natchez had been forced
to close twice for a total of approximately 14 days due to flooding on the
Mississippi river and adverse weather conditions which closings also caused
lingering disruptive effects for a period after each reopening. In addition, the
local economy has improved slightly between periods.
The Lady Luck Rhythm & Blues/Country Casino Complex's gross revenues
increased $700,000 primarily due to a $500,000 increase in slot machine
revenues. Slot machine revenues increased because of greater amounts wagered and
was offset partially by a slightly lower win percentage and a 2% decrease in the
average number of slot machines in operation. The increase in amounts wagered on
slot machines was due primarily to changes in marketing strategies including a
shift from advertising to special events and increased offerings of food and
beverage on a complimentary basis to patrons.
The Company's equity in net income of the Bettendorf Joint Venture
increased from $700,000 during the three month period ended March 31, 1997 to
$1.5 million during the three month period ended March 31, 1998, an increase of
$800,000 or 114%. This dramatic increase was achieved despite some disruption of
business at the Bettendorf Joint Venture due to construction and expansion at
the facility. The increase was primarily due to an increase in slot machine
revenues which was caused by an increase in the average amount wagered by each
customer and was offset partially by a slightly lower win percentage.
18
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Lady Luck Biloxi's gross revenues decreased from $8.1 million to $7.0
million during the three month periods ended March 31, 1998 and 1997,
respectively, a decrease of $1.1 million or 14%. The decrease is due primarily
to a $1.0 million decrease in slot machine revenues which was caused by a
decrease in the amount wagered. Amounts wagered have decreased due to the
following: (i) disruptions to operations from renovations and remodeling; (ii)
the opening of an additional competitive facility, the Imperial Palace, in
December 1997; and, (iii) a growing disparity in relation to its other
competitors in the amenities which LLB is able to offer its customers such as
on-site hotel rooms for table games players. During April 1998, the Company
entered into a letter of intent to sell substantially all of LLB's assets (See -
Liquidity and Capital Resources).
Substantially all of the operating assets of Lady Luck Central City were
sold effective February 19, 1998; therefore, comparisons between periods may not
be meaningful.
An agreement was reached effective January 1, 1998 pursuant to the gaming
equipment lease to sell the gaming equipment to the Bettendorf Joint Venture at
its negotiated value of $712,000. Accordingly, the Company did not receive any
revenues from the lease of such equipment for the three month period ended March
31, 1998. The Company had been recognizing gross revenues from leasing certain
gaming equipment to the Bettendorf Joint Venture for approximately $122,000 per
month, including the three month period ended March 31, 1997.
The Company recognized gross revenues from its equity in the net income of
the Bally's Joint Venture of approximately $200,000 during the three month
period ended March 31, 1997. The Company sold its 35% partnership interest
during 1997.
Casino operating expenses as a percentage of casino revenues increased from
40% in the three month period ended March 31, 1997 to 42% in the three month
period ended March 31, 1998, primarily due to the following: (i) decreases in
casino revenues from Lady Luck Biloxi which caused fixed costs such as gaming
device license fees to be spread over a lower revenue base; (ii) a 1% increase
in the cost of complimentary rooms, food and beverage furnished to casino
customers in relation to casino revenues; and, (iii) an increase in cash
incentives for slot machine players in relation to slot revenues.
Food and beverage costs and expenses, prior to reclassifying the cost of
complementaries, as a percentage of related revenues decreased from 92% for the
three month period ended March 31, 1997 to 89% for the three month period ended
March 31, 1998. This decrease was primarily due to reductions in labor costs
relative to food and beverage revenues at Lady Luck Natchez and the Lady Luck
Rhythm & Blues/Country Casino Complex offset partially by increases at Lady Luck
Biloxi and Lady Luck Central City.
Gross room revenues for the River Park Hotel increased 6% during the three
month period ended March 31, 1998 compared with the prior year three month
period as occupancy levels increased from 65% to 75%. Gross room revenues at the
Riverbluff Hotel increased 7% while they decreased 9% at the 173-room hotel
adjacent to Lady Luck Rhythm & Blues during three month periods ended March 31,
1998 compared with the prior year three month period while on a combined basis,
occupancy levels increased from 67% to 88% as average daily room rates
decreased. This decrease in average daily room rates was primarily due to
competitive pressures from properties which have added a significant number of
rooms in nearby Tunica County, Mississippi.
Selling, general and administrative expenses as a percentage of total gross
revenues decreased from 30% to 28% during the three month periods ended March
31, 1997 and 1998, respectively. The decrease was primarily due to the
following: (i) Lady Luck Central City's estimated net loss for the three months
ended March 31, 1998 was accrued as of December 31, 1997 such that during the
three month period ended March 31, 1998 actual net losses were reduced to zero;
(ii) reductions in casino marketing and entertainment costs at Lady Luck Natchez
19
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
while its gross revenues increased as described above; and, (iii) reductions in
labor costs and other administrative costs at Lady Luck Biloxi. These reductions
were offset partially by increased insurance costs associated with employee
medical claims.
Operating income was $7.9 million and $7.1 million for the three month
periods ended March 31, 1998 and 1997, respectively, an increase of $800,000 or
11%. The net income applicable to common stockholders was $2.0 million or $0.07
per share for the three month period ended March 31, 1998 compared with net
income applicable to common stockholders of $1.2 million or $0.04 per share for
the three month period ended March 31, 1997. In addition to the changes
described above, these increases in operating income and income applicable to
common stockholders were due to a $600,000 decrease in depreciation expense
which was primarily due to a lower cost basis of depreciable assets at LLB and
an absence of depreciation at LLCC during the three month period ended March 31,
1998 compared to the prior year three month period. The lower cost basis at LLB
was the result of an asset impairment write-down recognized during December
1997. The depreciation of LLCC's assets was recognized as part of the loss on
sale recorded as of December 31, 1997; accordingly, no depreciation for LLCC was
recognized for the three months ended March 31, 1998.
Operating Casinos
Amounts shown in the following tables are in millions except percentage,
unit and per unit amounts. Operating margin is calculated as operating income
divided by net revenues.
<TABLE>
<CAPTION>
Lady Luck Rhythm & Blues/County Casino Complex
% Increase
Three months ended (Decrease)
March 31, 1998 vs.
1998 1997 1997
<S> <C> <C> <C>
Gross revenues $26.3 $25.6 3
Net revenues 23.9 23.7 1
Management/license fee 0.9 0.9 -
Operating income 6.2 6.4 (3)
Operating margin 26% 27% (1)pt
Average daily net win per table game $698 $691 1
Average number of tables in operation 50 51 (2)
Average daily net win per slot machine $163 $155 5
Average number of slot machines in operation 1,334 1,361 (2)
</TABLE>
20
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Lady Luck Natchez (a)
% Increase
Three months ended (Decrease)
March 31, 1998 vs.
1998 1997 1997
<S> <C> <C> <C>
Gross revenues $8.8 $7.5 17
Net revenues 8.0 6.9 16
Management/license fee 0.3 0.3 -
Operating income 1.2 0.2 500
Operating margin 15% 3% 12pts
Average daily net win per table game $808 $680 19
Average number of tables in operation 16 16 -
Average daily net win per slot machine $112 $114 (2)
Average number of slot machines in operation 617 591 4
</TABLE>
(a) Lady Luck Natchez was closed for approximately 14 days during the
quarter ended March 31, 1997 due to adverse weather and river
conditions; therefore, comparisons may not be meaningful.
<TABLE>
<CAPTION>
Lady Luck Bettendorf (a)
% Increase
Three months ended (Decrease)
March 31, 1998 vs.
1998 1997 1997
<S> <C> <C> <C>
Gross revenues $20.3 $18.6 9
Net revenues 19.1 17.4 10
Management/license fee 0.5 0.4 25
Operating income 2.9 1.5 93
Operating margin 15% 9% 6pts
Average daily net win per table game $773 $710 9
Average number of tables in operation 37 38 (3)
Average daily net win per slot machine $184 $182 1
Average number of slot machines in operation 951 864 10
</TABLE>
(a) Lady Luck Bettendorf is 50% owned by LLQC. The Company includes
50% of its net income as equity in net income of affiliates using
the equity method of accounting.
21
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Lady Luck Biloxi
% Increase
Three months ended (Decrease)
March 31, 1998 vs.
1998 1997 1997
<S> <C> <C> <C>
Gross revenues $7.0 $8.1 (14)
Net revenues 6.2 7.3 (15)
Management/license fee 0.3 0.3 -
Operating income (1.0) (0.8) (25)
Operating margin (16)% (11)% (5)pts
Average daily net win per table game $573 $523 10
Average number of tables in operation 19 23 (17)
Average daily net win per slot machine $79 $98 (19)
Average number of slot machines in operation 668 650 3
</TABLE>
<TABLE>
<CAPTION>
Lady Luck Central City (a)
% Increase
Three months ended (Decrease)
March 31, 1998 vs.
1998 1997 1997
<S> <C> <C> <C>
Gross revenues $0.5 $1.5 (67)
Net revenues 0.5 1.4 (64)
Management/license fee 0.0 0.1 (100)
Operating income 0.1 (0.3) 133
Operating margin 20% (21)% 41pts
Average daily net win per table game $53 $109 (51)
Average number of tables in operation 6 6 -
Average daily net win per slot machine $22 $47 (53)
Average number of slot machines in operation 300 300 -
</TABLE>
(a) Substantially all of the operating assets of Lady Luck Central
City were sold effective February 19, 1998 and the estimated net
loss for the three months ended March 31, 1998 was accrued as of
December 31, 1997; therefore, comparisons may not be meaningful.
22
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
During the three month period ended March 31, 1998, the Company generated
$2.9 million in cash from operations. In addition, the Company received a
distribution of $5.7 million for investment in Related Business, as defined in
the Indenture covering the 2001 Notes, which had been previously classified as
restricted cash. Restricted Cash represents proceeds from the sale of the
Company's 35% partnership interest in the Bally's Joint Venture. Effective
February 19, 1998, LLCC sold substantially all of its real property and
operating assets to the holder of its mortgage note in exchange for forgiveness
of the $2.8 million mortgage note and the assumption of certain liabilities.
These cash and non-cash sources and cash on hand at the beginning of the period
were the primary sources of cash and non-cash resources during the three month
period ended March 31, 1998. The primary uses of cash and non-cash resources
during the three month period ended March 31, 1998, other than operating
expenditures and the forgiveness of LLCC's $2.8 million mortgage note and the
assumption of certain of its liabilities, include:
A. $1.6 million in cash and $300,000 in slot contracts for the purchase of
property and equipment, including the acquisition of slot machines.
B. $1.0 million cash for payment of debt and slot contracts.
In anticipation of the sale of LLCC's assets as described above, the
Company recorded during 1997, a reserve of $7.3 million to write-down LLCC's
assets held for sale to fair market value less closing costs, to reserve for
operating losses in 1998 prior to the effective sale date and to reserve for
estimated future lease payments and write-downs on its parking lot leases which
were not assumed by the purchaser of the assets sold. LLCC required cash to fund
its operating cash shortfall during the three month period ended March 31, 1998.
LLCC will require additional cash infusions related to these leases in 1998 and
beyond. During the three month period ended March 31, 1998, LLGC acquired a
portion of LLCC's leased property with the remainder to be acquired in 1999.
An agreement has been reached effective January 1, 1998, pursuant to an
existing gaming equipment lease, to sell to the Bettendorf Joint Venture the
gaming equipment that the venture has been leasing from the Company since April
1995.
As of March 31, 1998, the equipment is included as assets held for sale and
the sales price has been negotiated to be received during the three month period
ending June 30, 1998. Accordingly, the Company has not received rental income
from such equipment during the three month period ended March 31, 1998.
Additional casino and hotel capacity has been added in close proximity to
LLB and additional casino and hotel capacity are currently under construction in
Biloxi. The opening of these facilities has had and, the Company believes the
opening of the facilities under construction, will have an adverse effect upon
LLB's operating results and the Company expects LLB will require cash infusions
in 1998 of an undetermined amount. However, during April 1998, the Company
entered into a letter of intent with Grand Casinos, Inc. to sell for $15.0
million in cash LLB's real property, casino barge and certain other assets,
excluding gaming equipment and certain real property where administrative
offices had been located. The agreement requires, among other things, approval
by both companies' boards of directors and regulators, consent by holders of the
2001 Notes, completion of due diligence and the execution of definitive
agreements. Accordingly, there can be no assurance that the transaction will be
completed.
Various amounts of cash and non-cash resources have been used and/or may be
used during the remainder of 1998 for the following: (i) replacement of the
Country Casino's food court with a full-service restaurant; (ii) replacement of
the property-wide phone system for more efficient communications and lower
operating costs at the Rhythm & Blues/Country Casino Complex; (iii) site-work
for a potential hotel addition at the Country Casino including modification of
traffic patterns and additional paved parking areas for 360 automobiles and 15
23
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
tractor-trailers; (iv) remodeling portions of the Rhythm & Blues Casino; (v)
addition of a nearby off-site full-service restaurant at Lady Luck Natchez; (v)
remodeling of the casino and buffet at Lady Luck Natchez; (vii) an additional
260 spaces of parking at Lady Luck Natchez within walking distance or close
proximity of the casino; (viii) remodeling of two floors of the River Park
Hotel; and, (ix) retheming of Lady Luck Biloxi from an "Asian" theme to a
"Beach" theme. In addition, various amounts of cash and non-cash resources may
be used during 1998 for other capital improvements, expansions or acquisitions
which cannot currently be estimated and may be contingent upon market conditions
and other factors. If significant cash or other resources become available, the
Company may make additional capital expenditures. In any case, the amount of
capital expenditures will be based upon cash available and market conditions at
the time any commitment is made.
The Bettendorf Joint Venture is currently constructing an expansion project
pursuant to its master-plan at a cost of approximately $39.5 million. The
project, which began construction June 23, 1997, is planned to include an
approximately 260 room hotel with a fully enclosed walkway to the riverboat
casino, a 30-50 slip marina, a 500-car parking garage and a bypass over the
nearby railroad to improve access. In addition, during April 1998, the Iowa
Racing and Gaming Commission approved the addition of up to 230 new slot
machines and six table games at the Bettendorf Joint Venture. The expansion
project financing is non-recourse to the Company and includes a $17.5 million
bank first mortgage note, a $5.0 million second mortgage from an affiliated
company of BRDC, and $7.5 million in tax increment financing from the City of
Bettendorf to be repaid from property taxes and in exchange for deeding the
overpass to the City of Bettendorf. The cost of the overpass is not expected to
exceed such financing from the City of Bettendorf. The balance of the expansion
project's cost is to be paid from the Bettendorf Joint Venture's cash on hand.
The hotel project is scheduled to be completed in the Fall of 1998. The Company
does not expect any cash distributions from the Bettendorf Joint Venture during
1998. Construction during the three month period ending June 30, 1998 is
expected to require closure of the boat's second level for approximately 11
days.
The Company has an agreement for the construction of a cruising gaming
vessel in the amount of $16.0 million and as of March 31, 1998, approximately
$6.0 million has been paid by the Company under this contract and approximately
$1.9 million is included in construction payables. It is anticipated that this
vessel will be utilized by LLK. However, construction has been discontinued and
is not anticipated to resume until such time as a suitable development project
proceeds.
The Company responded to a request for proposal (the "RFP") during the
fourth quarter of 1997, for the Vancouver Project. The Vancouver Project is
expected to cost approximately $25.0 to $30.0 million. The Lottery Advisory
Commission (the "LAC") has been reviewing the various responses to the RFP, and
has informed the Company that its response has successfully been short-listed.
The Company is negotiating a development agreement with the Tsawwassen First
Nation as host community, and expects to have it completed during the three
month period ending June 30, 1998. The Company believes that the LAC will make
selections of successful proponents during the three month period ending June
30, 1998. After a proponent is selected, it then must negotiate the various
operating agreements with the Provincial government and obtain financing for the
project. While the Company believes that it may be selected for a gaming
license, there can be no assurances that it will be selected, nor that
agreements with the Tsawwassen First Nation and Province of British Columbia can
be successfully negotiated. The Company intends to fund any such development of
the project through a combination of cash on hand, earnings from operations,
cash remaining from the sale of its interest in Bally's after the repurchase of
2001 Notes, if any, potential proceeds from the sale of LLB's assets as
described herein, if any, and external financing. In any case, there can be no
assurance that sufficient cash, proceeds or financing will be available or, if
available, that it will be available on terms acceptable to the Company. In
addition, any such financing may require consent of the holders of the 2001
Notes.
24
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
No future significant expenditures for projects under development are
anticipated to be made by the Company from existing cash or cash flow from
operations. If the Company determines it needs additional funds, there can be no
assurance that such funds, whether from equity or debt financing or other
sources, will be available, or if available, will be on terms satisfactory to
the Company.
If significant cash or other resources become available, Lady Luck Rhythm &
Blues could add up to 250 hotel rooms which would be located adjacent to Country
Casino. Up to $6.0 million of the cost of such additional hotel rooms including
site preparation and related construction is permitted by the Indenture covering
the 2001 Notes to be funded by secured non-recourse indebtedness; however, there
can be no assurance that such financing would be available, or if available,
will be on terms satisfactory to the Company.
Lady Luck Natchez was required under its current lease to move its casino
barge several hundred feet to another docking facility on land subject to its
existing lease by February 1998. Management has not relocated the casino barge
and the lessor has allowed the casino to remain in its current location.
Management and the lessor have reached an agreement in principle to allow the
barge to remain in its current location. Pursuant to such agreement the lessor
agreed to allow the barge to remain at its current location in consideration of
the Company's agreement to extend the lease an additional 10 year period. In
addition, the preliminary agreement would require the Company to pay liquidated
damages of $1.2 million in the event it terminates the lease during the 10 year
extension period. Should an amendment to the lease reflecting the preliminary
agreement discussed above not be executed, the cost of relocating the barge is
currently estimated not to exceed $1.0 million.
Pursuant to a Partnership Interest Redemption Agreement, on November 3,
1997, the Company received $15,250,000 cash for its investment in the Bally's
Joint Venture. In accordance with the Indenture, the Company has 180 days after
receiving the $15,250,000 to invest the money and any earnings thereon in a
Related Business (as defined in the Indenture). If the Company does not invest
the funds in a Related Business before such time, under certain circumstances,
the Company must make an offer to repurchase a portion of the 2001 Notes at a
price of 101% of par for the amount of the funds that was not invested in a
Related Business.
During the three month period ended March 31, 1998, the Company received a
release from restriction for $5.7 million of the proceeds from the sale of its
interest in the Bally's Joint Venture to be invested in a Related Business.
Accordingly, the remainder of the proceeds from the sale and earnings thereon
have been classified as Restricted Cash as of March 31, 1998. On April 16, 1998,
the Company offered to repurchase up to $9.6 million principal amount of the
2001 Notes at a price of 101% of par plus accrued and unpaid interest thereon.
The offer is not conditioned on any minimum principal amount of the 2001 Notes
being tendered. The offer expires on May 14, 1998 unless extended by the
Company. Any remaining funds not used to repurchase the 2001 Notes tendered, if
any, will become unrestricted and available for general purposes. In addition,
the Company reserves the right to repurchase more than $9.6 million of 2001
Notes if tendered but has no obligation nor present intention to do so.
The Company may also repurchase a portion of the 2001 Notes from time to
time in early satisfaction of any required repurchase expected pursuant to the
Indenture or otherwise, the amount of which and the timing of repurchase cannot
currently be estimated and is dependent on adequate cash availability and market
conditions.
The Company has begun to explore various options to refinance the 2001
Notes. However, there can be no assurance the Company will continue these
pursuits and, if pursued, that terms acceptable to the Company can be
negotiated.
25
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company is involved in several lawsuits which if adversely decided
could have a material adverse effect upon the Company's financial position and
results of operations (see note 7 to the condensed consolidated financial
statements included in Item 1, Part 1).
The Company is subject to certain federal, state and local environmental
protection, health and safety laws, regulations and ordinances that apply to
businesses generally, such as the Clean Air Act, the Clean Water Act, the
Resource Conservation and Recovery Act, CERCLA, the Occupational Safety and
Health Act, and similar state statutes.
Although the Company knows of no pre-existing conditions at the intended
sites for the Development Stage Projects that will result in any material
environmental liability or delay, there can be no assurance that pre-existing
conditions will not be discovered and result in material liability or delay to
the Company.
Other than those described, the Company has not made, and does not
anticipate making, material expenditures with respect to such environmental
protection, and health and safety laws and regulations. However, the compliance
or cleanup costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations.
A significant portion of the Company's consolidated revenues and operating
income are generated by the Company's Rhythm & Blues and Country Casino gaming
operations in Coahoma County, Mississippi. These casinos are highly dependent on
patronage by residents of Arkansas. A change in general economic conditions,
closure of the Helena Bridge or a change in the extent and nature of regulations
enabling casino gaming in Arkansas could adversely affect these casinos' future
operating results. In addition, casino and hotel capacity has been added to the
nearby Tunica, Mississippi market, which competition the Company believes has
adversely affected revenues and operating results at MLI which trend is expected
to continue although the extent, materiality and permanence of which cannot be
definitively measured.
The Company is highly leveraged. As of March 31, 1998, the Company's total
indebtedness was approximately $177.8 million and its stockholders' deficit was
approximately $30.1 million. This level of indebtedness could have important
consequences to stockholders. While management believes the Company will have
sufficient cash flow to meet its debt service and other cash outflow
requirements and maintain compliance with the covenants of the Indenture as
supplemented, to the extent that a substantial portion of the Company's cash
flow from operations remains dedicated to the payment of principal and interest
on its indebtedness, such cash flow is not available for other purposes such as
general operations, maintenance and improvement of casino and hotel facilities
or expansion of existing sites or into other gaming markets. Furthermore, the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures or acquisitions may be limited and the Company's
level of indebtedness could limit its flexibility in planning for, or reacting
to, changes in its industry.
Year 2000
The Company's computers may not be year 2000 compliant. The year 2000 issue
is the result of computer programs being written using two digits rather than
four to define the applicable year, which may result in systems failures and
disruptions to operations at January 1, 2000. The Company has not yet completed
its assessment of the systems which will be affected, but is developing a plan
to evaluate and remediate the year 2000 issue. This remediation plan will
include assessing the Company's inventory of year 2000 issues, contacting the
suppliers of certain of their systems to determine the timing of applicable
upgrades, and implementing the year 2000 upgrades which are currently available.
The Company will continue to evaluate its vulnerability in the case of
suppliers' failure to remediate their respective year 2000 issues. The Company
has not yet determined whether the effect of the remediation could have a
material effect on future financial results.
26
<PAGE>
LADY LUCK GAMING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Impact of Inflation
Absent changes in competitive and economic conditions or in specific prices
affecting the industry, management does not expect that inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
materially affect the hotel-casino industry. There has been no material impact
from inflation during the periods covered by the accompanying financial
statements.
Seasonality and Weather
A flood or other severe weather condition could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a dockside facility during any period could materially adversely affect
the Company's financial results. Seasonal revenue fluctuations may occur at the
Company's existing and proposed casinos in Mississippi, Iowa, Missouri and
British Columbia.
27
<PAGE>
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not Applicable.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
(a) None.
(b) None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
28
<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: May 14, 1998 Lady Luck Gaming Corporation
Registrant
/s/ James D. Bowen
Its: Vice President Finance and
Principal Accounting
Officer and duly
authorized officer
DATE: May 14, 1998 /s/ James D. Bowen
James D. Bowen
Vice President Finance and
Principal Accounting Officer
and duly authorized officer
29
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Financial Condition at March 31, 1998
(Unaudited) and the Condensed Consolidated Statement of Income for the Three
Months Ended March 31, 1998 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000906527
<NAME> Lady Luck Gaming Corporation
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,670
<SECURITIES> 0
<RECEIVABLES> 1,199
<ALLOWANCES> 230
<INVENTORY> 982
<CURRENT-ASSETS> 40,367
<PP&E> 153,249
<DEPRECIATION> 26,118
<TOTAL-ASSETS> 183,541
<CURRENT-LIABILITIES> 18,231
<BONDS> 176,519
18,931
0
<COMMON> 29
<OTHER-SE> (30,169)
<TOTAL-LIABILITY-AND-EQUITY> 183,541
<SALES> 40,673
<TOTAL-REVENUES> 44,631
<CGS> 17,237
<TOTAL-COSTS> 17,237
<OTHER-EXPENSES> 15,543
<LOSS-PROVISION> 42
<INTEREST-EXPENSE> 5,584
<INCOME-PRETAX> 2,572
<INCOME-TAX> 15
<INCOME-CONTINUING> 2,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,557
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
