CAGU The Castle Group Inc (CE)

Item 2. Management’s Discussion and Analysis or Plan of Operation.

Forward Looking Statements

Statements made in this Quarterly Report which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) Castle’s ability to raise capital, and (ii) statements preceded by, followed by or that include the words “may”, “would”, “could”, “should”, “expects”, “projects”, “anticipates”, “believes”, “estimates”, “plans”, “intends”, “targets” or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company’s control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, the Company’s ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting Castle’s operations, products, services and prices.

Factors that may affect forward- looking statements include a wide range of factors that could materially affect future developments and performance, including the following: Changes in company-wide strategies, which may result in changes in the types or mix of businesses in which Castle is involved or chooses to invest; changes in U.S., global or regional economic conditions, changes in U.S. and global financial and equity markets, including significant interest rate fluctuations, which may impede Castle’s access to, or increase the cost of, external financing for its operations and investments; increased competitive pressures, both domestically and internationally, legal and regulatory developments, such as regulatory actions affecting environmental activities, the imposition by foreign countries of trade restrictions and changes in international tax laws or currency controls; adverse weather conditions or natural disasters, such as hurricanes and earthquakes, labor disputes, which may lead to increased costs or disruption of operations.  This list of factors that may affect future performance and the accuracy of forward-looking statements are illustrative, but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

Plan of Operation     

Principal products or services and their markets

Castle has contracts to provide management and/or marketing or other services to resort condominium and hotel properties around the Pacific Rim. Castle manages luxury and mid-range condominium resort hotels on all of the major islands within the state of Hawaii, a luxury condominium resort located in Saipan, a full service luxury condominium resort in New Zealand and full service hotels in Honolulu, Hilo and Guam.  Castle has a wide range of products available to the leisure traveler, from luxury condominium resorts with room rates exceeding $1,500 per night, to small budget inns with rates under $100 per night.  Castle has adopted a strategic plan to expand not only in Hawaii, but also in Micronesia, New Zealand, other Pacific Basin markets, Thailand, and other select Asian markets and Central American locales.  

Castle’s resort and property management services are built around providing “ Flexibility and Focus” to resort and property owners based on proven business practices, backed by in-depth understanding of the markets which it serves. When combined with carefully crafted strategic planning and timely innovative problem solving, Castle provides a comprehensive package of services for the operation of hotel and condominium properties.  Each management contract is customized with a combination of the following services that best meets the owner’s specific needs and goals:

1.        Pre-Opening Technical Services

Castle’s services often begin well before a property opens with a full market assessment and pre-opening review of the project to identify factors that will influence profitability and operating efficiencies. These services include determining and evaluating operating criteria and efficiencies, determining requirements for furniture, fixtures and equipment,

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providing input on architectural/interior design and layout, maintenance, engineering and information technology.     

2.        Hotel & Resort Operations

Castle provides a full range of hotel and resort management services to operate both limited and full service properties. The scope of management services includes:

Front office operations

Housekeeping  

Maintenance

Security

Service quality assurance

Food and beverage services

Employee hiring

Training and supervision

Guest services

Guest experience enhancement programs

Information technology

Purchasing

3.        Sales and Marketing

Castle provides comprehensive sales and marketing services to properties on an individualized basis that specifically target the guest demographics and audience most appropriate for each property. After the initial research phase, Castle develops a strategic marketing program for its managed resort properties, targeting specific markets that are closely monitored and measured against established goals and objectives.  Castle-generated marketing and sales activities are based on solid, comprehensive research and focus studies.  Ongoing studies for each property define marketplace position; competitive and pricing analysis; growth potential; inbound visitor trends; emerging visitor segments; customer attitudes and perceptions; satisfaction levels; resort brand awareness; and industry positioning.

Each property Castle manages is individually branded in order to extract maximum value from its strengths. The Castle brand stays in the background while Castle focuses on marketing the uniqueness of each property and satisfying the needs and expectations of the owners. Each hotel and resort under management maintains its own brand identity and personality, while utilizing Castle’s marketing resources, channel distribution, resort management expertise, industry partnerships and networks.  Each Castle property is marketed individually, emphasizing the uniqueness, personality, location and the market niche of each location. Castle’s non-Flag approach to marketing its properties under management is also based upon the belief that its marketing funds are better served by promoting the individual properties’ attributes and focusing on filling the rooms, versus building the Castle brand. Castle believes that this positions the Company to be more competitive.

4.        Reservations

Castle offers direct to consumer online booking reservations of guest rooms at resort and condominium properties under contract and also offers vacation packages with attractions and activities related to its hotels and condominiums through its interactive web site at www.CastleResorts.com.

Castle supports its online presence with its own proprietary full service, 7 day a week reservation call center that provides a wide range of services, from tour reservation processing and rooms control, to handling group bookings. The reservation center electronically connects resort property inventory and rates to the four major Global Distribution Systems (“GDS”). This connectivity allows the GDS to display rates and inventory of Castle’s properties to over 500,000 travel agents worldwide as well as Internet connectivity to over 1,200 travel websites worldwide.

5.        Property Management

Castle provides comprehensive property management services for resort condominiums, including management of the

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Association of Apartment Owners or Body Corporate (“AOAO”), which owns the common areas of condominium projects.  The scope of services include, but are not limited to, physical management; bulk purchasing; staffing; training; preparation and distribution of requests for proposals; maintenance; engineering; collection of delinquent fees; enforcement of by-laws and house rules; and conducting AOAO annual and board meetings.  

On behalf of AOAO’s and property owners, Castle also implements specific programs, including upgrade and renovation packages; repairs and maintenance; rental program acquisition and development programs; ongoing inspections; regular owner communication; extensive owner relations programs; monthly owner distribution returns; and comprehensive guest relations programs.  Castle’s focus is to ensure the protection of owner’s assets and ensure a quality product, which ultimately should result in higher returns to the owner and Castle.  

6.        Castle Design Group

In 2006, Castle formed an in-house renovation and interior design service dedicated to property owners under the trade name “Castle Design Group.”  This group offers professional cost-effective design, consulting and project management services, which provides a variety of efficiencies and savings on renovation and capital improvement projects. In addition, the Castle Design Group provides owners with enhanced purchasing power through its bulk furniture-purchasing program.

Overview of Operations

General

Castle is a hospitality and hotel management company that prides itself on its ability to be both “Flexible and Focused,” which is the Company’s operations motto.  Flexible, to meet the specific needs of property owners and condo owners at the properties that it manages. Focused, in its efforts to achieve enhanced rental income and profitability for those owners. Castle earns its revenues by providing several types of services to property owners including, hotel and resort management and operations; reservations staffing and operations; sales and marketing; and accounting. In addition, Castle provides design services to properties that are furnishing, refurnishing or remodeling, as well as, pre-opening technical services for new hotel and resort properties being planned or under construction. Castle’s revenues are derived primarily from two sources: (1) the rental of hotel rooms and condominium accommodations; and food and beverage sales at the properties it manages and; (2) fees paid for services it provides to property owners. Castle also derives revenues from commissions and incentive payments, based on sales and performance criteria at each property.

Castle’s marketing efforts are focused toward potential guests for those properties that Castle manages. Castle does not own any hotels or resorts of its own; however, it has made an investment in the property that it manages in New Zealand. Marketing is done through a variety of distribution channels including direct Internet sales, wholesalers, online and traditional travel agencies and group tour operators.  Recently, Castle has expanded its sales and marketing staff and implemented a redesign of its interactive web site (www.Castleresorts.com).  Unlike many other hotel and resort operators, Castle does not market the properties it manages under the Castle brand. Instead of emphasizing the “Flag” or chain name, the Company’s strategy is to promote the name and reputation of the individual properties under management. Castle believes that this allows the consumer to better choose the specific type of vacation experience desired based upon the specific attributes of the property selected.

Currently Castle provides services to the following properties:

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Historically, Castle has contracted its full management services to property owners and condominium owners associations (“AOAO”) on either a Gross Contract or a Net Contract basis. Under the Gross Contract basis, the gross revenues for guest stays and other sources of revenue are paid to Castle after a portion of the gross revenues are retained by the property or condominium owners. Castle then pays for the expenses of operating the property from its portion of the revenue. Castle recognizes this revenue as “Revenues Attributed from Properties” in its consolidated financial statements. Under the Net Contract basis, Castle receives a fixed percentage of the gross revenue collected by the property as a fee, and the property owners are responsible for paying the operating expenses from their portion. This revenue is included as “Revenues from Management and Services.” In either case, the Company may be required to meet certain minimum service or operating performance levels, such as occupancy or daily rate, in order to achieve levels of compensation over and above base levels. In most full management contracts, Castle is responsible for setting prices, rates and for maintaining favorable occupancy levels in the units that it manages.

In addition to full management service contracts, the Company has contracted with some property owners or owner’s associations for selected services, such as sales and marketing only or reservations only.  In these cases, the Company receives its revenue on a fixed or variable fee basis.  Hotel and resort properties in general undergo remodeling or redesign every few years, in order to provide a fresh and new experience for the guest. Frequently, the Company has entered into one time or restricted period contracts with property owners or associations, to provide technical operating or design advice, when a new property is being planned or built, or an existing property is in the process of a planned remodel or repositioning.

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Due to the nature of the hotel management business, Castle’s revenues and profits from properties under management, tend to correlate with occupancy levels associated with the number of visitors selecting the destination location where the property is located, the room rates charged by the managed property, as well as  the occupancy levels achieved by Castle’s competitors in those markets.  Accordingly, Castle’s ability to acquire management contracts for additional properties on acceptable terms will be a dominant factor in Castle’s future revenues and profits.

As a result of the substantial investment the Company has made over the last 12 months in its marketing and sales departments, and the additional management staff it has allocated to its operations and training; the Company believes that it is well positioned to manage, sell and market additional properties both in its current geographic markets, as well as new markets in the Pacific, Asia and the Americas.

Growth Strategy

Castle is focused on growing the number of management contracts within its existing portfolio by further expanding its geographic markets. The Company has recently implemented a strategic growth plan which addresses expansion within the regional Pacific markets of Hawaii; Micronesia and New Zealand; and select Asian markets, Thailand and Central American locales.  An experienced acquisition team has been formed and strategic alliances are being pursued with various hospitality development companies and prominent investment banks, that wish to team up in pursuing growth opportunities within these key targeted geographic areas.

Existing Contracts .  In the past few years, Castle has been very successful in improving the performance of the properties it manages.  Further improvements in revenues and/or decreases in expenses for Castle’s current properties should result in higher management fees for Castle through increased incentive fees and/or fees based on a percentage of revenue.

Expansion in Hawaii .  Castle is one of the leading hotel and resort management companies in the state of Hawaii.  In the hotel and resort industry, management companies often acquire and lose management contracts for properties over time. Fortunately for Castle, its track record in maintaining contracts with its portfolio properties has remained consistently high. Significant opportunities for Castle to obtain additional contracts are available due to a myriad of factors that include sales of properties, foreclosures, underperformance and dissatisfaction with the current management of Castle’s competitors.  The real estate boom experienced throughout the United States has also affected the hotel and resort condominium markets of Hawaii, as many properties have been sold or are now on the market.  Castle’s history and experience of managing properties in Hawaii has positioned the Company as a market leader in new property acquisition. Most members of Castle’s executive management team are career hospitality industry executives with big brand experience and strong ties to Hawaii and the Pacific Rim. Through decades of experience within its local markets, Castle’s management possesses market intelligence that is not easily available to others. The Company is closely involved with current efforts to support Hawaii’s visitor industry through its involvement and tenures with the Hawaii Visitors & Convention Bureau (HVCB), as well as the American Society of Travel Agents (ASTA), Hawaii Hotel & Lodging Association (HHLA) and other professional and trade organizations.  

Castle strives to be more flexible and creative than its larger competitors both in structuring agreements that meet the needs and goals of property owners and/or owner associations, and its approach to marketing its properties.  The Company has ramped up for expansion in the number and scope of properties it manages in Hawaii and its targeted new markets, and it intends to compete very aggressively for this new business.

Expansion Outside of Hawaii .   The majority of the properties presently managed by Castle are located within the state of Hawaii.  In addition, Castle manages properties in New Zealand, Guam, Micronesia, and most recently in Thailand. The Company’s management believes that there are significant opportunities to expand Castle’s operations both in the markets it currently serves, as well as in other Pacific Basin and Asian vacation destinations and Central American locales. Castle recently announced several new key management appointments and promotions as part of its strategic plan to position the Company for significant growth within its current markets and to capitalize on the emerging growth opportunities particularly within the Asian markets. In 2007, the Company formed its Thailand division to support its new business initiatives in Thailand.

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The Company has engaged in strategic alliances with partners such as the Anthology Marketing Group and others who have core competencies to support its global growth plans. The Company is actively in discussions and/or negotiations with numerous companies and plans to expand its acquisition of property management contracts in these targeted areas.

Technology Improvements.   The Company recently launched a redesigned website with a customized proprietary booking engine and intuitive functionality that sets it apart from its competitors. Castle Resorts’ website (CastleResorts.com) offers state-of-the-art functionalities, user-friendly navigation, interactive features and rich content, while offering great rates, and a travel booking engine that can handle rate conversions for over 100 foreign currencies. The Company’s proprietary system is customizable and supports a dynamic pricing model to maximize revenues for all of the properties under its management.  The Company intends to continue to invest in optimizing its on-line presence directed towards its own website, since revenue derived through the Company’s branded website yields a higher margin.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Plan of Operation” including statements regarding the anticipated development and expansion of Castle’s business, the intent, belief or current expectations of the performance of Castle and the products and/or services it expects to offer and other statements contained herein regarding matters that are not historical facts, are “forward-looking” statements.  Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, the factors set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Plan of Operations.”

Sources of Revenue

Castle recognizes revenue from the management of resort properties according to terms of its various management contracts.  Castle has two basic types of agreements.  Under a “Gross Contract,” Castle records income as “Revenue Attributed from Properties,” which is based on a percentage of the gross rental proceeds ranging from 25% to 100% of the total amount received from the rental of hotel or condominium units.  Under the Gross Contract, Castle is responsible for all of the operating expenses for the hotel or condominium unit.  Under a “Net Contract,” Castle receives a management fee that is based on a percentage of the gross rental proceeds received from the rental of hotel or condominium units.  Under the Net Contract, the owner of the hotel or condominium unit is responsible for all of the operating expenses of the rental program covering the owner’s unit.  Under the Net Contract, Castle also typically receives an incentive management fee, which is based on the net operating profit of the covered property, and these incentive management fees are recorded when earned based upon the terms and conditions of the management contracts.  Revenues received under the Gross Contract are recorded as Revenue Attributed from Properties, while revenues received under the Net Contract are recorded as Management and Service Income.  Under both types of agreements, revenues are recognized after services have been rendered.  A liability is recognized for any deposits received for which services have not yet been rendered.

Revenues

Total Revenues for the three months ended June 30, 2007, increased to $5.2 million, compared to $5.0 million for the three months ended June 30, 2006. Total Revenues were also up during the first six months ended June 30, 2007, to $10.7 million, compared to $10.3 million in the same period the prior year.  The increase reflects increases in revenue from both domestic operations in both the first and second quarters of 2007, primarily as a result of the addition of two properties in 2006, one in June 2006, the other in October 2006, and modest increases in rates and occupancy at the properties under Castle’s management.  Revenues Attributed from Properties under Castle’s New Zealand operations increased by approximately $148,000 for the second quarter of 2007 and $357,000 for the first six months of 2007, as compared to the comparable periods of 2006, due to a strengthening of the New Zealand dollar.  Castle’s revenues in the second quarter of 2007 were impacted by the exchange rate of the US dollar, as compared to the New Zealand dollar.  Without the exchange effect, Castle’s Revenues Attributed from Properties for the second quarter and first half would have decreased by approximately $156,000 and $37,000 as compared to the comparative year earlier periods. Management and Service Revenues during the second quarter increased from $822,381 in 2006 to $845,372 in 2007,

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but remained relatively flat at $1.7 million for the six months ended June 30 of both 2006 and 2007.  Other income also remained flat for the second quarter ended June 30, at $86,844 for 2007 and $79,979 for 2006, while the six month totals reflect a slight decrease to $162,184 for 2007 as compared to $188,032 for the year earlier period. This decrease is a result of a special project undertaken for one of the properties managed by Castle during 2006, which contributed to additional Other Income.

Property Expenses are those expenses related to the management of the resort and condominium properties which are operated on a Gross Revenue contract basis.  Property Expenses increased to $4.2 million for the three months ended June 30, 2007, from $4.0 million in the three months ended June 30, 2006.  Similarly, Property Expenses increased to $8.4 million in the six months ended June 30, 2007, from $7.9 million in the same period last year. These expense increases are in line with revenue increases and reflect cost increases relating to general inflationary increases in operating costs including wages and other costs of management of the properties under contract. Due to its dependence on shipping, costs in Hawaii are particularly sensitive to overall energy price increases.   In addition, the recorded Property Expenses for Castle’s operations in New Zealand are subject to the effects of the exchange rate of the U.S. dollar as compared to the New Zealand dollar.  Without the effects of the exchange rate, the Property Expenses for the second quarter would have decreased by approximately $86,000 for the second quarter and increased approximately $66,000 for the 2007 six month period as compared to 2006. Gross profit from Gross Revenue Contract properties decreased from $161,080 to $78,760 during the second quarter ended June 30, 2007, as compared to the year earlier period.  Similarly, Gross profit from Gross Revenue Contract properties decreased to $485,210 for the six months ended June 30, 2007, from $526,498 in the year earlier period. These decreases reflect the general inflationary increases in operating costs including wages and other costs of management of the properties under contract which were not recovered through increased revenues.

Other Operating Expenses, not including Property Expenses, increased to $1.2 million for the three months ended June 30, 2007, from $1.0 million in the same quarter in 2006.  Similarly, these expenses increased to $2.4 million for the six months ended June 30, 2007, from $1.8 million during the same period in 2006. Payroll and Office expenses increased during the second quarter of 2007 to $931,837 from $787,222 in the second quarter of 2006 and to $1.8 million from $1.5 million for the six month periods ending June 30, 2007, and June 30, 2006, respectively.  These increases were primarily related to increased staffing and personnel costs to support the properties under management, as well as additional staffing to enhance Castle’s online booking engine and reservations center and costs related to establishing the Castle Design Group. Administrative and General Expenses totaled $225,505 for the three months ended June 30, 2007, as compared to $132,143 for the same period last year and totaled $456,869 for the first six months of 2007 as compared to $234,605 for the similar period last year. This increase is a result of legal and professional fees related to the settlement of legal matters, as well as travel and other costs related to the execution of the Castle’s stated strategy to expand into other Pacific Basin and Asian vacation destinations .

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EBITDA (Earnings before Interest, Depreciation, Taxes and Amortization) reflects the Company’s earnings without the effect of depreciation, interest income or expense or taxes. Castle’s management believes that in many ways it is a good alternative indicator of the Company’s financial performance as it removes the effects of non cash depreciation and amortization of assets as well as the fluctuations of interest costs based on the Company’s borrowing history and increases and decreases in tax expense brought about by changes in the provision for future tax effects rather than current income. A comparison of EBITDA and Net Income is shown below.  For the six months ended June 30, 2007, EBITDA was $40,791 compared to $624,224 for the same period in 2006.  For the three months ended June 30, 2007, EBITDA was negative $146,367 compared to $144,076 for the same period in 2006. The decrease in EBIDTA in both the three months and six months ended June 30, 2007, as compared to 2006, is due to investments which the Company made in increased staffing and systems to support the growth in the number of properties and the expansion into new geographic regions.

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Depreciation and Amortization

Castle’s business does not require a great deal of capital expenditure for equipment or fixed assets. As a result, depreciation and amortization expense of $59,676 for the three months ended June 30, 2007, as compared to $46,767 for the same period last year and $115,861 for the six months ended June 30, 2007, and as compared to $96,410 in the prior year, reflect little additional investment in capital equipment or fixed assets during the past year.

Interest Income and Expense

Interest income of $37,392 for the three months ended June 30, 2007, as compared to $42,981 in the same period last year and six month totals of $74,308 for the period ended June 30, 2007, as compared to $85,416 in the prior year, reflect the amortization of a discount on the note receivable.  

Interest Expense of $136,297 for the three months ended June 30, 2007, and as compared to $122,720 for the same period last year and $269,387 for the six month period ended June 30, 2007, as compared to $248,397 for the same period last year, reflect an increase in Castle’s long term debt borrowings for the refinancing of a note which was paid off in December of 2006.  Interest expense also increased due to interest on a second note relating to the purchase of Castle’s assets in New Zealand.  Castle incurred an operating loss before Income taxes or Foreign Currency Translation Adjustments of $304,948, for the three months ended June 30, 2007, as compared to a net income of $17,570 in the year earlier period. Castle incurred an Operating Loss before Income Taxes or foreign currency adjustments of $270,149 for the six months ended June 30, 2007, as compared to a net income of $364,833 for the year earlier period. This is primarily a result of the strengthening of the New Zealand dollar against the US dollar, and modest increases in Total Attributed Property Revenues, which were offset by similar increases in Property Expense when combined with slight increases in Management and Service revenues.  Operating Expense increases were primarily related to increased staffing and personnel costs to support the properties under management, as well as additional staffing and other expenses to enhance Castle’s online booking engine and costs related to establishing the Castle Design Group.  In addition, Castle has secured additional management contracts during the year, and most recently, for a 600 room property that will commence in the fourth quarter of the year.  Castle added staffing in order to provide pre-opening services such as sales, marketing, purchasing and human resource support to service these additional contracts to ensure that these properties would operate without interruption and maximize revenues to their owners during the transition from the former management companies. Administrative and General Expenses increased as result of legal and professional fees and travel and other costs of Castle expanding into other Pacific Basin and Asian vacation destinations.

Income Tax

A decrease in the Provision for income tax relating to increased operating losses and reversal of the valuation allowances relating to the use of Operating Loss Carry forwards for the three month period ended June 30, 2007, caused a reversal of Income Tax Expense for the three month and six month periods ended June 30, 2007, of $134,740 and $120,471, respectively, as compared to Income Tax Expense of $5,467 and $155,212 in the respective periods of 2006.  

Net Income (Loss)

Net loss for the three months ended June 30, 2007, totaled $170,208 as compared to a net income of $12,103 in the year earlier period. Net loss for the for the six months ended June 30, 2007, was $149,678 as compared to a net income of $209,621 for the year earlier period. This is primarily a result of Castle investing in the resources necessary to service the additional contracts that Castle secured which will operate in the third quarter, and the additional contract that will commence during the fourth quarter.

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Foreign Currency Translation Adjustment

For consolidated entities whose functional currency is not the U.S. dollar, Castle translates their financial statements into U.S. dollars. Assets and liabilities are translated at the exchange rate in effect as of the financial statement date, and results of operations are translated using the weighted average exchange rate for that period. Translation adjustments from foreign exchange are included as a separate component of Stockholders’ Equity. Changes in carrying value of the assets and liabilities of the consolidated entities outside of the United States due to foreign exchange rates are reflected as Foreign Currency Adjustments. Downward Foreign Currency Translation adjustments totaled $64,602 for the three months and $33,522 for the six months ended June 30, 2007, which reflects a decrease in the US dollar to New Zealand dollar exchange rate during 2007. This is in marked contrast to 2006 when an increase in the US dollar to New Zealand dollar exchange rate during the first half of 2006 caused Foreign Currency Translation adjustments of a positive $38,921 and $107,801 for the three and six months periods ended June 30, 2006, respectively.

Total Comprehensive Income

Total Comprehensive Income (Loss) for the  three months ending June 30, 2007, totaled $234,810 as compared to $51,024 in the year earlier period. Total Comprehensive Loss for the for the six months ended June 30, 2007, was $183,200, as compared to a Total Comprehensive Income of $317,422 for the year earlier period. This is primarily a result of the changes in Revenue and Property and Operating Expenses noted above and the changes in Income Tax expense and Foreign Currency Translation adjustments also noted above.

Off-balance sheet arrangements

None; not applicable.