<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ______________ to _______________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 75 - 2571032
------------ --------------
(State of incorporation or organization) (IRS Employer
Identification No.)
13150 Coit Road, Suite 125, Dallas, Texas 75240
- ----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (972) 671-1133
--------------
Check whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.
Yes xx No __
--
Number of shares of common stock, par value $.01 per share, outstanding as of
March 31, 1999:41,788,552
Transitional Small Business Disclosure Format (Check One): Yes __ No xx
--
1
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
31-Mar-99 31-Dec-98
------------ ------------
ASSETS UNAUDITED
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 382,530 $ 183,205
Restricted cash 101,900 97,904
Accounts receivable (net) 625,770 270,525
Inventories, at cost 103,287 123,090
Prepaid Expenses 51,074 47,809
Notes receivable - current 15,650 39,166
Current deferred tax asset 30,000 30,000
----------- -----------
TOTAL CURRENT ASSETS 1,310,211 791,699
----------- -----------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 2,289,010 945,127
----------- -----------
OTHER ASSETS:
Deposits 100,356 100,893
Long-term deferred tax asset 360,000 378,000
Revenue interest rights 83,885 90,176
Trade name, contract rights and organizational costs, net of
accumulated amortization 125,931 125,608
Goodwill and merger costs 574,283 643,098
Casino and truck stop under construction -0- 1,604,923
Assets of business transferred under contractual agreement 579,848 675,488
----------- -----------
1,824,303 3,618,186
----------- -----------
TOTAL ASSETS $ 5,423,524 $ 5,355,012
=========== ===========
LIABILITY AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,078,493 $ 1,114,966
Notes payable - current 2,443,491 2,357,498
Preferred stock dividends payable 780,000 780,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,301,984 4,252,464
Liabilities of business transferred under contractual agreement 774,639 770,215
NOTES PAYABLE-LONG-TERM 1,430,849 1,446,749
----------- -----------
TOTAL LIABILITIES $ 6,507,472 $ 6,469,428
STOCKHOLDERS' DEFICIT:
Class A preferred stock,$3.00 par value, 10% annual cumulative dividend - -
1,600,000 shares authorized, no shares issued and outstanding
Preferred stock, $.01 par value, 10,000,000 shares authorized
8,000,000 shares designated series "B" no shares issued and outstanding - -
Common stock, $.01 par value, 100,000,000 shares authorized, 41,788,552
shares issued and outstanding 417,886 417,886
Additional paid-in-capital 466,959 466,959
Retained earnings (deficit) (1,968,793) (1,999,261)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT $(1,083,948) $(1,114,416)
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 5,423,524 $ 5,355,012
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTERS ENDED March 31, 1999 and 1998
<TABLE>
<CAPTION>
QUARTER ENDED
31-Mar-99 31-Mar-98
----------- -----------
<S> <C> <C>
REVENUE:
Video Poker $ 4,128,171 $ 3,979,045
Truck Stop and Convenience Store 1,905,959 1,942,586
Cruise 225,912 228,559
----------- -----------
6,260,042 6,150,190
COST AND EXPENSES:
Video poker:
Cost of revenue 2,330,479 2,259,948
Depreciation and Amortization 45,899 55,075
----------- -----------
2,376,378 2,315,023
TRUCK STOP AND CONVENIENCE STORE
Cost of Revenue 1,552,580 1,579,163
Depreciation and amortization 14,798 14,292
----------- -----------
1,567,378 1,593,455
CRUISE:
Cost of Revenue 115,458 66,210
Depreciation and amortization 83,307 82,847
----------- -----------
198,765 149,057
General and administrative 1 ,781,572 1,756,735
Depreciation and amortization 2,880 2,880
----------- -----------
OPERATING INCOME 333,069 333,040
INTEREST EXPENSE (97,709) (75,628)
OTHER INCOME (EXPENSE) (186,627) (95,788)
----------- -----------
INCOME BEFORE PROV. FOR INCOME TAXES 48,733 161,624
PROVISION FOR INCOME TAXES (18,265) (12,500)
----------- -----------
NET INCOME $ 30,468 $ 149,124
=========== ===========
BASIC INCOME PER SHARE * *
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 41,788,552 20,095,698
=========== ===========
DILUTED INCOME PER SHARE * *
**
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 41,788,552 41,788,552
=========== ===========
</TABLE>
* Less than $.01 per share
** All potential common stock anti-diluted
The accompanying notes are an integral part of the financial statements
3
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE QUARTERS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
31-MAR-99 31-MAR-98
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 30,468 $ 149,124
Adjustments to reconcile net income to net cash:
Depreciation and amortization 146,884 155,094
Deferred tax expense 18,000 -
Loss on disposal of assets 44,090 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (355,245) 135,128
Inventories 19,803 10,364
Prepaid insurance/expenses (3,265) (27,834)
Notes receivable-current 23,516 -
Deposits 537 (138,851)
Increase (decrease) in:
Accounts payable and accrued liabilities (36,473) 173,766
Income taxes payable - 12,500
Net change in assets/liabilities trans. under contractual agreement 100,064 -
--------- ---------
Net cash provided (used) by operating activities (11,621) 469,291
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (132,436) (43,363)
Proceeds from Kings sale of fixed assets 288,604 -
Repayment by borrowers - 5,246
Purchase of intangibles (11,320) -
--------- ---------
Net cash provided (used) by investing activities 144,848 (38,117)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 125,887 -
Payments on borrowings (55,793) (146,015)
--------- ---------
Net cash provided (used) by financing activities 70,094 (146,015)
--------- ---------
NET INCREASE (DECREASE) IN CASH 203,321 285,159
CASH - beginning of period 281,109 615,712
--------- ---------
CASH - ending of period $ 484,430 $ 900,871
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the period ended March 31, 1999, the Company classified the following
assets and liabilities as transferred under contractual agreement (see Note 2):
<TABLE>
<S> <C>
Cash $195,738
Restricted cash 106,059
Accounts receivable 39,135
Inventories 10,562
Prepaid expenses 10,503
Property and equipment, net 114,182
Revenue interest rights 87,308
Deposits 16,361
--------
Assets of business transferred under contractual agreement $579,848
========
Accounts payable and accrued liabilities $455,531
Notes payable 319,108
--------
Liabilities of business transferred under contractual agreement $774,639
========
</TABLE>
THIS SPACE WAS INTENTIONALLY LEFT BLANK
5
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NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
MARCH 31, 1999 AND 1998
-----------------------
Note 1. OPINION OF MANAGEMENT
- -----------------------------
The preceding financial information has been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of the Company, includes all normal and recurring adjustments
necessary for a fair statement of the results of each period shown. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1998.
Note 2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RELATED MATTERS
- ---------------------------------------------------------------
Effective April 15, 1998, the Company and Donald I. Williams entered into
Amendment No. One (the "Amendment") to the Operating Agreement (the "Operating
Agreement") of OM Operating, L.L.C. ("Operator") to effect a restructuring of
Operator which the Company believed effectively addressed certain preliminary
questions and concerns raised by the Louisiana Gaming Control Board ("Gaming
Control Board") and the Video Gaming Division of the Gaming Enforcement Section
of the Office of State Police within the Department of Public Safety and
Corrections (the "Division") in their review of Operator's application for
renewal of its license to operate video poker casinos. The Company elected to
voluntarily effect the restructure of Operator even though the Gaming Control
Board had not made a final determination whether Operator's existing structure
satisfied the Louisiana residency requirements of the Louisiana Video Draw Poker
Devices Control Law and the Rules and Regulations promulgated thereunder (the
"Louisiana Act"). However, after the Company presented the Amendment and related
documents to the Division, the Company had a meeting on November 13, 1998 with
the Division, wherein the Division expressed serious concerns and doubts that
the Amendment would satisfy the Louisiana Act and indicated the Division would
recommend that Operator's license to operate video poker casinos in Louisiana
not be renewed, unless various changes were implemented to comply with the
Louisiana Act. Among the concerns expressed by the Division were the 20% gross
income allocation to the Company under the Operating Agreement and its
contribution, pursuant to the Amendment, by the Company to Operator for
additional interests in Operator which were then assigned to Williams in
exchange for a $4 million nonrecourse note (the "Note"), in addition to certain
other aspects of Amendment No. One and the related documents. Rather than risk
loss of the Operator's license, the Company has entered into further amendments
to the Operating Agreement and various documents put into place in conjunction
with the Amendment, and has agreed to transfer 50% of its remaining Louisiana
gaming interests (including 50% of its interest in Operator, River Port Truck
Stop, LLC and the Gold Rush Truck Stop) to certain former holders of Class A
Preferred Stock of the Company and certain related persons and entities in
exchange for mutual releases and settlements, dismissal of pending litigation
and cancellation of debentures, accrued dividends and Common Stock of the
Company ("Common Stock"). The Company believes the further restructuring of
Operator effectively addresses the concerns raised by the Division. The Company
has submitted to the Division and Gaming Control Board the documents effecting
the further restructure of Operator for their review in connection with
Operator's license renewal request. There can be no assurance that the Gaming
Control Board will agree with the Company's conclusion that Operator, as further
restructured, complies with the residency requirements of the Louisiana Act, but
the Company believes the Gaming Control Board will agree with such restructure
and with the Company's conclusion.
As part of the further restructure of Operator, the Company entered into a
Release and Settlement Agreement (the "Settlement Agreement") with, among
others, Williams and ten former holders of Class A Preferred Stock of the
Company (the "North Louisiana Group") on February 2, 1999, but to become
automatically effective as of midnight March 31, 1999. At February 2, 1999, the
North Louisiana Group owned 5,614,632 shares of Common Stock (representing
approximately 13.4% of the issued and outstanding shares of Common Stock) and
were owed $306,960 in original principal amount of subordinated debentures, and
were owed accrued dividends of $255,072 accrued on the Class A Preferred Stock
prior to its conversion to Common Stock. As part of the Settlement Agreement and
pursuant to related documents executed in connection therewith, the North
Louisiana Group agreed, among other things, to (I) dismiss with prejudice its
pending lawsuit against the Company for the payment of accrued dividends and
agreed to cancel all accrued dividends payable to the North Louisiana Group;
(ii) mark their subordinated debentures "canceled" and return them to the
Company and cancel all principal and accrued interest thereunder; (iii) return
to the Company for cancellation 5,614,632 shares of Common Stock owned by the
North Louisiana Group; (iv) be responsible on a 50/50 basis with the Company for
any funds expended in settlement with any other former holders of Class A
Preferred Stock which the Company may desire to pursue; (v) assume 50% of the
debt owed by the Company, to Regions Bank, Springhill Branch, formerly known as
Springhill Bank & Trust Company, relating to the Company's Gold Rush Truck Stop;
and (vi) release all claims, known or unknown, which the North Louisiana Group
might have against, among others,
6
<PAGE>
the Company, International Tours, Inc. ("International") and the officers and
directors of the Company as of the date of the Settlement Agreement. In return,
the Company (a) released all claims it might have, known or unknown, against,
among others, the North Louisiana Group as of the date of the Settlement
Agreement; (b) agreed to assign to one or more members of the North Louisiana
Group a 24.5% interest in Operator and a 25% interest in River Port Truck Stop
LLC ("River Port LLC"); and agreed to assign to one or more members of the North
Louisiana Group 50% of the Company's ownership of the Gold Rush Truck Stop.
Under the Settlement Agreement, Williams agreed to release all claims he
might have, known or unknown, against, among others, the Company, International,
the officers and directors of the Company and the North Louisiana Group as of
the date of the Settlement Agreement, and the Company agreed to release all
claims the Company might have, known or unknown, against, among others, Williams
as of the date of the Settlement Agreement. Williams also agreed, among other
things, to (I) mark his subordinated debenture in the original principal amount
of $93,900 "canceled" and return it to the Company and cancel all principal and
accrued interest thereunder; (ii) return to the Company for cancellation 824,000
shares of Common Stock owned by Williams, 1,279,000 shares of Common Stock owned
by P. & J. Williams, L.L.C. (an affiliated entity) and 450,000 shares of Common
Stock owned by New Orleans Video Poker Company, Inc. (an affiliated entity), an
aggregate of 2,553,000 shares (representing approximately 6.1% of the issued and
outstanding shares of Common Stock); (iii) cancel the $78,000 of accrued
dividends payable to Williams accrued on the Class A Preferred Stock prior to
its conversion to Common Stock; and (iv) pay to the Company certain amounts
which could aggregate between $150,000 and $300,000 over six years in
conjunction with the possible additional settlements by the Company with other
former holders of Class A Preferred Stock which the Company may desire to
pursue. The Company and Williams also entered into amendments to several other
existing agreements in connection with the Settlement Agreement as described in
the following paragraphs.
The Company and Williams entered into a Second Amendment (the "Second
Amendment") to Operator's Operating Agreement, effective midnight March 31,
1999. The Second Amendment amends the Operating Agreement, as amended by the
Amendment, to delete all references to the Note and to the contribution of the
20% special gross income allocation so that neither provision shall ever have
been deemed to have existed and neither provision shall have ever been of any
force or effect. As a result, the Note is deemed to never have existed and the
20% special gross income allocation was not deemed to have been contributed by
the Company for additional ownership interests in Operator. Under the Second
Amendment, the Operating Agreement was amended to terminate, and to delete all
references to, the 20% gross income allocation after March 31, 1999 and no
further allocation or distributions will be made to the Company pursuant to such
20% special gross income allocation. Thereafter, distributions will be made in
accordance with capital accounts and the Sharing Ratios of the Members, which
will be 51% to Williams, 24.5% to the Company and 24.5% to one or more members
of the North Louisiana Group; provided, however, Williams is entitled under the
Second Amendment to distribution of the initial $4,166 to be distributed per
month up to a maximum of $50,000 per year, which distributions are to be
credited against any other distributions to Williams during such year. Pursuant
to the Second Amendment, Operator will no longer be managed by a manager and,
instead, will be managed by the members, who shall take actions by the vote of
members owning at least 65% of the Sharing Ratios, except for certain enumerated
major decisions which require unanimous vote. Related agreements were also
entered into effective as of midnight March 31, 1999 canceling the Note and the
Company's security interest in the ownership interests of Williams securing the
Note.
The Company and Operator also entered into a Termination of Consulting and
Administrative Agreement (the "Termination") effective midnight March 31, 1999.
The Termination has the effect of terminating the Consulting and Administrative
Agreement entered into between the Company and Operator on April 15, 1998 (the
"Consulting Agreement") pursuant to which the Company agreed to provide
consulting and administrative services relating to the daily management of each
of Operator's video poker casinos, and pursuant to which the Company received a
fee of $400,000 per year for rendering such services, reduced by $50,000 for
each existing video poker casino Operator loses the right to operate, and
increased by $50,000 for each new video poker casino operated by Operator during
the term of the Consulting Agreement.
Williams and Operator also entered into a Second Amendment to Employment
Agreement (the "Employment Amendment") effective midnight March 31, 1999 which
amends the Employment Agreement dated April 15, 1998 pursuant to which Williams
received an annual salary of $250,000, was eligible to participate in any
employee benefit plans of Operator, was furnished the use of a company
automobile and was reimbursed for expenses incurred on behalf of Operator during
the course of his employment. Under the Employment Amendment, Williams will
receive an annual salary of $100,000 and will continue to be eligible to
participate in any employee benefit plans of Operator, but will no longer be
furnished the use of a company automobile or be reimbursed for expenses. Under
the Employment Agreement, as amended by the Employment Amendment, the Employment
Agreement terminates on March 31, 2004.
As part of the Settlement Agreement, the Company and Operator have modified
the terms of the lease of the Gold Rush Truck Stop by the Company to Operator.
The Company and Operator have entered into a Lease Agreement (the "Lease")
effective midnight March 31, 1999 for an initial term of six months and
thereafter to be a month-to-month lease until terminated by either party, with
or without cause, on 60 days' prior written notice. The Company will be
responsible for major repairs and Operator will be responsible for nonmajor
repairs and maintenance, and Operator will pay a rental of $33,333.33 per month
for the term of the Lease. The Company
7
<PAGE>
and Williams also mutually agreed to terminate the right of first refusal
previously granted to Williams to purchase the land and buildings constituting
the Gold Rush Truck Stop, or any portion thereof, if the Company proposed to
sell them to a third party. In conjunction with the Lease, the Company has
agreed to be solely responsible for the indebtedness to Regions Bank, Springhill
Branch, formerly known as Springhill Bank & Trust Company, which is secured by a
mortgage on the Gold Rush Truck Stop. As of December 31, 1998, the outstanding
principal balance of such indebtedness was approximately $613,000.
Pursuant to the Second Amendment, the parties agreed to delete the
requirement that all video poker gaming opportunities within Louisiana that
either party desires to pursue must first be presented to Operator for its
review and determination whether it desires to pursue such opportunity.
Effective midnight March 31, 1999, all parties will be free to pursue any video
poker gaming opportunities they may desire without first offering the
opportunity to Operator or any other member. Likewise, Williams is no longer
entitled to receive a finder's fee of $50,000 for each opportunity brought by
him to Operator which is consummated by Operator.
As part of the Settlement Agreement, Williams and the Company also agreed
that to the extent any of the truck stop, convenience store, restaurant or
gaming interests that are part of King's Lucky Lady (See Note 5), Pelican
Palace, Lucky Longhorn, The Diamond Jubilee or the Video Poker Tavern Route are
held or operated in the name of the Company, effective midnight March 31, 1999
they shall be deemed to be in the name of and operated by Operator, unless
prohibited by applicable laws or regulations.
Pursuant to the Settlement Agreement, the Operating Agreement of River Port
LLC (the "River Port Operating Agreement") was also amended to provide that it
shall be managed by the members in the same manner as described above for
Operator under its amended Operating Agreement, and to provide that Williams
will own 50% of the membership interests and Sharing Ratios, and the Company
will own 25% and one or more members of the North Louisiana Group will own the
remaining 25%. Other conforming changes were made to make the River Port
Operating Agreement consistent with the Operating Agreement of Operator, as
amended by the Second Amendment. The amendments to the River Port Operating
Agreement also became effective March 31, 1999.
Note 3. NEW CASINO OPERATIONS
- -----------------------------
Construction of the River Port Truck Stop convenience store was completed
in January 1999. The video poker casino is in the final design and permitting
phase and construction is expected to commence during the second quarter of
1999, with completion targeted for the end of the third quarter of 1999.
Effective July 17, 1998, River Port LLC borrowed $1,750,030 from Cottonport Bank
("Bank") for purposes of funding construction of the truck stop and video poker
casino to be owned and operated by River Port LLC. This note bears interest at
an annual rate of 10.25% until December 10, 1999, at which time all interest
must be paid and the Bank has agreed to renew the loan for a five year term,
with monthly payments of principal and interest at an interest rate equal to 2%
above the prime rate of Chase. The full amount of the loan is guaranteed by the
Company and Operator; $1,000,000 of the loan is guaranteed by Williams and his
spouse; and $750,000 is guaranteed by E.H. Hawes, II, the President and Chief
Executive Officer of the Company, and an unaffiliated individual (which guaranty
will be secured by a second lien on the Company's Gold Rush property). The lease
of the property upon which the truck stop and video poker casino is being
constructed has been pledged as collateral for the loan, and the improvements
being constructed thereon have been also pledged as collateral for the loan.
Note 4. PRESENT CASH SHORTFALL
- ------------------------------
As of March 31, 1999, the Company was twenty six principal payments in
arrears (for a total of $1,062,746 of principal and $56,600 in interest payable;
interest has not been paid since July 31, 1998). The note was issued to
International by the Company as partial consideration for a acquisition in 1996.
The note had an original principal balance of $1,400,000, requires monthly
payments of principal and interest of $50,000, had an unpaid principal balance
of $1,062,746 at March 31, 1999, and is secured by a pledge of the outstanding
capital stock of I.T. Cruise and GalaxSea owned by the Company. On March 22,
1999, International agreed to allow the $1,119,346 then accrued and owed to it
to continue to remain outstanding (with interest accruing thereon) until the
earlier of January 1, 2000 or the time that excess cash flow is available to pay
such amount (or any portion thereof) and, further, granted relief to the Company
to allow it to pay the lesser of $50,000 per month or excess available cash
flow, until January 1, 2000, at which time any accrued amounts will be due and
payable and the regular $50,000 scheduled monthly payments will recommence.
Until such time as the regular scheduled payments on the International note
recommence and the International note is current, all payments are suspended on
the subordinated debentures issued by the Company in connection with the
redemption of 313,000 shares of Class A Preferred Stock, which have aggregate
remaining principal balances of $514,067 and accrued interest of $92,376 at
March 31, 1999 (after cancellation of the remaining principal of $382,279 owing
on debentures in the original principal amount of $400,860 and $68,810 of
accrued interest as part of the Settlement Agreement See Note 2), and required
aggregate payments of principal and interest of $11,250 per month until July 1,
1997, $31,114 per month, from July 1, 1997 through December 31, 1997, and
$16,670 per month thereafter. As of March 31, 1999, 23 monthly payments, for a
total of $700,729 (after the redemption of debentures in accordance with the
Settlement Agreement See Note 2), have not been made pursuant to the
subordinated debentures. The subordinated debentures and the amounts unpaid are
expressly made subordinate to the International note as well as other senior
debt of the Company.
8
<PAGE>
Note 5. LEASE TERMINATION
- -------------------------
As of April 1, 1999, the Company and Operator will no longer operate
King's Lucky Lady Truck Stop and the video poker casino as a result of
settlement of litigation involving this truck stop. During the course of the
litigation, Operator was ordered by the court to escrow 50% of the monthly
operating profit generated by King's Lucky Lady, and effective from the date of
the judgment on March 3, 1998 Operator was required to escrow 100% of the
operating profit. As of March 1, 1999, Operator had placed in escrow $775,595
for the period from May 1997 through February 1999. Operator and the Company
also petitioned the court to grant a management fee for services from April 30,
1997 through the date the appeal was concluded and also asserted a claim for
damages for unjust enrichment against Guillory. On March 31, 1999, the parties
agreed to a full settlement regarding the remaining outstanding issues including
the ownership of the escrowed funds. As a result of the settlement, the Company
and Operator agreed to vacate the property effective 12:01 a.m., April 1, 1999.
Under the terms of the settlement, the Company and Operator received $325,000 as
proceeds for the sale of all video poker related equipment and inventory of the
escrow fund and will be entitled to 20% of the net profits of King's Lucky Lady
for the month of March 1999. All remaining claims were dismissed.
Note 6. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
- ------------------------------------------------------------------------
The unaudited pro forma condensed consolidated statements of income of
North American Gaming and Entertainment Corporation and Subsidiaries have been
derived from the historical consolidated statements of income for the three
month ended March 31, 1999 and 1998, adjusted to reflect the transfer of the
Company's gaming and truck stop operations. The unaudited pro forma condensed
consolidated statements of income have been prepared on the assumption that the
transfer took place January 1, 1999 for the March 31, 1999 statement and January
1, 1998, for the March 31, 1998 statement.
The unaudited pro forma condensed consolidated statements of income
should be read in conjunction with the Consolidated Financial Statements. The
unaudited pro forma condensed consolidated statements of income are not
necessarily indicative of the results of operations of the Company that would
actually have resulted had the transaction occurred on January 1, 1999 or 1998,
respectively.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
As Reported Adjustments Pro-Forma
----------- ------------ ----------
<S> <C> <C> <C>
Revenues $6,260,042 $(5,111,424) $1,148,618
Net Income 30,468 82,540 113,008
Basic Net Income Per Share * *
Diluted Net Income Per share ** **
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
As Reported Adjustments Pro-Forma
----------- ----------- ----------
<S> <C> <C> <C>
Revenues $6,150,190 $(4,905,028) $1,245,162
Net Income 149,124 16,449 165,573
Basic Net Income Per Share * .01
Diluted Net Income Per share * *
</TABLE>
* Less than .01 per share
** All potential common stock anti-diluted
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
9
<PAGE>
Liquidity and Capital Resources
Present Cash Shortfall. As of March 31, 1999, the Company was twenty six
months in arrears (a total of $1,062,746 of principal and $56,600 in interest
payable) in payments to International on the promissory note issued to
International by the Company as partial consideration for a 1996 acquisition.
The note had an original principal balance of $1,400,000, requires monthly
payments of principal and interest of $50,000, had an unpaid principal balance
of $1,062,746 at March 31, 1999, and is secured by a pledge of the outstanding
capital stock of I.T. Cruise and GalaxSea owned by the Company.
The cash flow currently being generated by the Company is presently not
sufficient to allow it to make the required payments on the International note
and to continue to remain current on its other indebtedness and payables.
Consequently, International has agreed to allow the $1,119,346 accrued and owed
at March 22, 1999 it to continue to remain outstanding (with interest accruing
thereon) until the earlier of January 1, 2000 or the time that excess cash flow
is available to pay such amount (or any portion thereof) and, further, has
granted relief to the Company to allow it to pay the lesser of $50,000 per month
or excess available cash flow, until January 1, 2000, at which time any accrued
amounts will be due and payable and the regular $50,000 scheduled monthly
payments will recommence. Until such time as the regular scheduled payments on
the International note recommence and the International note is current, all
payments are suspended on the subordinated debentures issued by the Company in
connection with the redemption of 313,000 shares of Class A Preferred Stock,
which have aggregate remaining principal balances of $514,067 and accrued
interest of $92,376 at March 31, 1999 (after cancellation of the remaining
principal of $382,279 owing on debentures in the original principal amount of
$400,860, and $68,810 of accrued interest as part of the Settlement Agreement;
See Note 2), and required aggregate payments of principal and interest of
$11,250 per month until July 1, 1997, $31,114 per month, from July 1, 1997
through December 31, 1997, and $16,670 per month thereafter. As of March 31,
1999, 23 monthly payments, for a total of $700,729 (after the redemption of
debentures in accordance with the Settlement Agreement See Note 2), have not
been made pursuant to the subordinated debentures. The subordinated debentures
and the amounts unpaid are expressly made subordinate to the International note
as well as other senior debt of the Company.
As noted previously, the structure of Operator and the various interests
(including revenue and profits interests) of the Company in Operator are being
reviewed by the Louisiana Gaming Control Board. Any adverse ruling by the
Louisiana Gaming Control Board could further compound the Company's cash flow
situation and possibly result in the inability to meet its scheduled debt
payments, even as revised. The Company does not believe the review will result
in material adverse changes in Operator's structure, but it cannot predict the
results of the review until the review is completed. Strict enforcement of the
Louisiana Act and the perceived anti-gaming sentiment in Louisiana within
certain segments of the population and with certain politicians may also impact
the review of Operator and any possible restructuring of Operator, or even a
possible loss of Operator's license to Operate the video poker casinos.
The Company will seek to meet its long-term liquidity needs primarily
through cash flow from operations, restructuring its payment obligations on
certain debt described above, additional borrowings from the Company's
traditional lending sources and possible sales of equity or debt securities.
While the Company believes it will be able to generate and obtain the necessary
capital to meet such needs if it is able to satisfactorily restructure its
payment obligations as described above, there can be no assurance that all of
such capital will be available on terms acceptable to the Company, which could
delay or cause the Company to postpone certain planned activities.
General Condition. The Company ended the first quarter of 1999 with
$484,430 in cash and other current assets amounting to $825,781, including
accounts receivable of $625,770, inventories and prepaid expenses of $154,361
and other of $375,075. The Company also reflected an asset of $579,848,
representing the contractually transferred 51% interest of Williams in Operator
as of March 31, 1999. The Company's total liabilities were $6,507,472 at March
31, 1999 including accounts payable and accrued liabilities of $1,078,493,
current notes payable of $2,443,491, long-term notes payable of $1,430,849 and
preferred stock dividends payable of $780,000. The Company also reflected a
liability of $774,639 representing the contractually transferred 51% interest of
Williams in Operator as of March 31, 1999. The Company's liabilities increased
$38,044 from $6,469,428 at December 31, 1998 to $6,507,472 at March 31, 1999.
This variance was primarily due to a decrease in current liabilities of $36,473,
payments on long and short-term debt to banks totaling $55,793, and an increase
in notes payable due to the construction of River Port Truck Stop amounting to
$125,887.
Accounts payable and accrued liabilities of $1,078,493 included $574,025 in
trade payables, state franchise taxes of $112,626, casino distributions of
$140,333, payroll and payroll taxes of $82,547, income tax payable of ($100,313)
and accrued interest of $269,275.
The current portion of other notes payable totaling $2,443,491 includes
debt with contractual maturities of less than one year and the current portion
of long term debt. See discussion of Present Cash Shortfall above.
At March 31, 1999, property and equipment (net) at truck stops, video poker
facilities, cruise marketing and corporate offices totaled $2,289,010,
(excluding $114,182, representing the contractually transferred 51% interest of
Williams in Operator as of March 31, 1999.
10
<PAGE>
Effective June 10, 1996, the Company acquired GalaxSea and I.T. Cruise,
companies engaged in the cruise travel industry. Cruise revenue as reported is
presented on an accrual basis, and is estimated based on the receipt of
quarterly cash payments of previous years actual revenue; adjusted for seasonal
variations. Cruise revenue is comprised of overrides and commissions on cruise
sales generated by I.T. Cruise from the International network and GalaxSea's
franchise system. The Cruise lines make payments of overrides and commissions
on a quarterly basis which are received 30-45 days following the end of each
quarter. Bonus overrides and commissions are paid by the cruise lines on an
annual basis, which are received 30-45 days into the next calendar year.
GalaxSea franchisees are billed monthly for license fees.
Despite intense competition for the business of gaming patrons in Louisiana
and Mississippi, the Company recorded gains in the gross margins for casino and
truck stop operations. The Company believes it will be able to maintain a
competitive position by carefully managing expenses and cash flow, but there can
be no assurances.
Results of Operations and Comparison of First Quarter ended March 31, 1999 to
March 31, 1998.
Company operations resulted in net income before income taxes of $48,733
for the three months ended March 31, 1999, a decrease of $112,891, or 70%, from
1998's $161,624. The Company's operating profit before depreciation,
amortization and interest expense amounted to $293,326 through March 31, 1999,
down 25% from 1998's $392,346.
Revenues totaled $6,260,042 through March 31, 1999 compared to $6,150,190 for
1998, up 2%.
Video Poker Revenues totaled $4,128,171 through March 31, 1999, up
$149,126, or 4% from 1998's $3,979,045. Gains were achieved at the Pelican
Palace - $140,546; the Lucky Longhorn $59,208; the Gold Rush - $16,027 A
reduction in revenues was experienced in Route Operations - $7,337; the Diamond
Jubilee - $47,122; and Kings Casino - $12,196 from 1998 to 1999. Video poker
revenue production by location for 1998 and 1999 was as follows:
Pelican Palace, Toomey, LA - $1,024,464, 1999 and $883,918 in 1998, up 16%;
resulting in average daily revenue per device (50 devices) of $228 through March
31, 1998 compared to 1998's $196.
Lucky Longhorn, Vinton, LA - $991,920 in 1999 and $932,712 in 1998, up 6%;
resulting in average daily revenue per device (50 devices) of $220 through March
31, 1999 compared to 1998's $207.
Gold Rush, Opelousas, LA - $810,404 in 1999 and $794,377 in 1998, up 2%;
resulting in average daily revenue per device (50 devices) of $180 through March
31, 1999 compared to $177 for 1998.
Route Operations - South LA - $42,178 in 1999 and $49,515 in 1998, down
15%; resulting in average daily revenue per device (9 devices) of $52 through
March 31, 1999 compared to average daily revenue per device (13 devices) of $42
in 1998.
King's Lucky Lady, Port Barre, LA - $669,268 in 1999 and $681,464 in 1998,
down 2%; resulting in average daily revenue per device (50 devices) of $149
through March 31, 1999 compared to 1998's $151 (See Note 5).
Diamond Jubilee, New Orleans, LA - $589,937 in 1999 and $637,059 in 1998,
down 7%; resulting in average daily revenue per device (35 devices) of $187
through March 31, 1999 compared to $177 for 1998(40 devices).
Retail Revenues from fuel and convenience store, food and beverage
operations amounted to $1,905,959 for the first quarter of 1999 compared to
1998's $1,942,587, a decrease of 2%.
Combined fuel and convenience store sales for the first quarter of 1999
totaled $1,370,038 compared to $1,507,408 in 1998, a decrease of 9%. Fuel sales
for 1999 amounted to $1,146,978 making up 60% of the Company's retail sales,
compared to 1998's fuel sales of $1,240,445, contributing 64% to the Company's
retail sales. River Port LLC operated the fuel facility and convenient store
until December 24, 1998. On January 10, 1999, River Port LLC entered into a
sublease with RVC Operations, LLC, who will operate the fuel facility and
convenient store in exchange for rent and override payments. Business commenced
in late February 1999. The fuel facility and convenient store contributed
$222,137 in fuel and convenient store sales for the first quarter of 1998.
First quarter 1999 food and beverage sales increased $100,742, or 23%, to
$535,921, compared to $435,179 in 1998 primarily due to the addition of
restaurant sales now being recorded for the Diamond Jubilee (Stan's Restaurant).
Cruise Revenues accrued for I.T. Cruise and GalaxSea totaled $225,912 for
the first quarter of 1999 compared to 1998's $228,559. I.T. Cruise revenue
resulting from its contracts with International Tours, Inc. amounted to accrued
overrides and commissions of $42,000 for 1999 compared to 1998's $60,000. The
accrual of GalaxSea's franchise system revenues was comprised of overrides and
commissions of $28,000 in 1999 versus $45,000 in 1998; monthly license fees of
$49,359 in 1999 compared to $53,218 in 1998;
11
<PAGE>
no franchise fees were recorded in the first quarter of 1999 compared to $1,250
in 1998; marketing fees totaling $103,931 in 1999 compared to 1998's $62,448 and
no convention and training fees were recorded in the first quarter of 1999
compared to $6,643 in 1998. Profits from the Group Cruise Department totaled
$2,622 for the first quarter in 1999.
Expenses totaled $6,211,309 through March 31, 1999 compared to $5,988,567 for
1998, up 4%.
Video Poker operations recorded a direct cost of revenue amounting to
$2,330,479 in 1999 and $2,259,948 in 1998, an increase of 5%. This includes
fees paid to the State of Louisiana of $1,399,255 (34% of video poker revenue)
in 1999 and $1,349,550 (34% of video poker revenue) in 1998, and profit sharing
payments as defined in operating and management contracts of $931,224 in 1999
and $910,399 (23% of video poker revenue) in 1998.
Retail operations (fuel, convenience store, food and beverage) recorded
cost of revenue of $1,552,580 for the three month ended March 1, 1999 vs.
$1,579,163 for 1998, a decrease of $26,583 or 2%. Fuel costs of $1,146,978
comprise 74% of the total cost of sales as compared to 1998's $1,208,324 (77%).
In order to comply with State regulations governing truck stops, the
Company continued to be very competitive in its marketing and pricing of fuel
during the first quarter of 1999, in order to maintain and/or increase fuel
sales. The regulations require a minimum sales level of 100,000 gallons per
month per location, in order to maintain a complement of 50 video poker
machines.
Convenience store retail cost of goods sold totaling $234,240 was up 3%
for 1999 versus 1998's $226,483.
Food and beverage cost of goods sold totaled $251,687, up 27% in 1999, with
a margin on sales of 47% compared to 1998's $197,791, with a margin on sales of
46%. The need to remain competitive at all locations requires the setting of
lower price points, which in turn results in a significant number of sales at a
low dollar value. The State regulations governing truck stops require operation
of 50 seat (minimum) restaurants on a 24-hour basis in order to operate 19 or
more video poker machines. The Company presently operates four low volume
restaurants.
Cruise operations recorded a direct cost of revenue amounting to $115,458
for the first quarter of 1999 compared to 1998's $66,210, an increase of 74%.
This was increase was attributed to the implementation of a more aggressive
marketing and training program.
Combined cruise operations recorded a gross profit totaling $109,418, while
1998's gross profit was of $$143,878, a decrease of $34,460 or 24%. The loss in
margin was for the most part due to a restructuring of contracts by certain
cruise lines. Marketing fees accrued are the result of a broad based program
coordinated by GalaxSea to produce cruise industry publications and promotions
subscribed to by the cruise lines. The GalaxSea franchise system included 70
franchisees at March 31, 1999 compared to 72 at the end of the first quarter of
1998.
General operating and administrative expenses of $1,781,572 in 1999 and
$1,767,161 in 1998 represented 28% and 29% of total revenue for 1999 and 1998,
respectively. The increase amounted to $14,411 or 1%. Major contributing
factors include an increase in casino marketing programs, in particular
complimentary food and drinks, to $285,301 in 1999 from $248,407 during 1998, an
increase of $36,894 or 15%, contract and professional services decreased 12% to
$248,447 in 1999 from $281,186 in 1998. Payroll related expenses decreased
$20,919 or 3% to $793,214 in 1999 from $814,131 in 1998.
Depreciation and amortization amounted to $146,884 for the first quarter of
1999 and $155,094 in 1998. Interest expense was $97,709 in 1999 and $75,628 in
1998. Net other revenue/(expense) was ($186,627) in 1999, compared to ($95,788)
in 1998.
Casino and Truck Stop Operations recorded gross profits of $2,151,071 for
first quarter of 1999, a increase of $68,551, or 3%, from 1998's $2,082,520.
12
<PAGE>
Year 2000 ISSUES
The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches. The "Year 2000"
problem is pervasive. As a result of certain programs being written using two
digits rather than four digits to define the applicable year, any of the
Company's computer programs that have data sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculation causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in normal business activities. The Company has
implemented a year 2000 program to review the functionality of the Company's
information technology and non-information technology systems and applications
beyond 1999 as well as year 2000 issues related to the Company's third-party
vendors. The Company operates its video poker devices under a license granted
by the Louisiana State Police Video Gaming Division. The Company currently
operates 244 video poker machines which are linked to an on-line tracking and
accounting system maintained by the Division's technical department. The
Division's technical department is currently in the testing stages for an
upgrade to its computer system to satisfy the year 2000 compliance issue. The
Division installed its new computer system in March of 1999 and will require
software upgrades for all video poker "Clerk Validation Terminals". There will
be a mandatory chip upgrade during the second quarter of 1999 to coincide with
Year 2000 compliance. The expected cost of the chip will be in the $75 to $100
range, which will require the Company to spend approximately $18,600 to $24,800
on hardware, and it is anticipated that to complete the conversion the Company
will also incur an estimated amount of $15,000 for labor and testing. The
second major system which controls the Company's payrolls is managed by a third
party (Automatic Data Processing). The conversion of this system was completed
during the third quarter of 1998. Another third party vendor who provides
accounting software support (Great Plains Software) has warranted that its
software will accurately reflect the change from the year 1999 to the year 2000
and beyond.
The Company integrates all of its execute office systems through a "Novell" Lan
software networking environment. The Company has plans to upgrade its current
server with software upgrades provided by Novell and intends to upgrade all
networked hardware to ensure compatibility and compliance with year 2000
requirements. It is estimated that this conversion will cost approximately
$15,000 and is scheduled for completion during the second quarter of 1999.
Computer terminals in use at Louisiana truck stop locations are not currently in
full compliance with the year 2000 roll-over requirements. Older personal
computers will not support an automatic roll-over to January 1,2000. It is
planned that a BIOS upgrade will be scheduled for all older personal computers
to ensure that the units will comply. The estimated cost of BIOS upgrades will
not exceed $300 per personal computer, a total of $3,600. The company has
identified 12 units which will require a BIOS upgrade. In addition, custom
application programs, written internally, will also require an upgrade at an
estimated cost of $10,000. It is also anticipated that to complete the
conversion and upgrade, certain hardware purchases might be necessary if old
equipment fails to meet the new standards. The Company estimates that this
could cost up to $20,000.
The Company's current plan contemplates expenditures totaling $90,000 to
implement all conversions to meet year 2000 compliance.
Forward Looking Statements
Statements that are not historical facts included in this Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, debt restructuring, the possible effects of anti-gaming sentiment, the
restructuring of Operator, maintaining or increasing fuel sales, compliance with
other gaming law requirements, maintaining a competitive position in the
Company's markets, pending legal proceedings, business strategies, expansion and
growth of the Company's operations, and cash flow. Factors that could cause
actual results to differ materially ("Cautionary Disclosures") are described
throughout this Form 10-QSB. Cautionary Disclosures include, among others:
general economic conditions, the Company's ability to find, acquire, market,
develop and produce new properties, the strength and financial resources of the
Company's competitors, anti-gaming sentiment, labor relations, availability and
cost of material and equipment, the results of debt restructuring efforts,
regulatory developments and compliance, and pending legal proceedings. All
written and oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.
13
<PAGE>
PART II. OTHER INFORMATION
Items 1, 2, 4 and 5 are omitted from this report as inapplicable.
Item 3.
See, the discussion of the Company's default under certain debt instruments
described in Item 2 - "Management's Discussion and Analysis or Plan of Operation
- - Liquidity and Capital Resources - Present Cash Shortfall."
Item 6. Exhibits and Reports on Form 8-K
(a) The following documents are filed as part of this Quarterly Report on
Form 10-QSB:
Exhibit
Number Description of Exhibits
- ------ -----------------------
(a) The following exhibits are filed as part of this Form 10QSB pursuant to
Item 601 of Regulation S-B:
3.1.1 Certificate of Incorporation of the Company, as amended, filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986 (the "1986 Form 10-K"), and incorporated
herein by reference.
3.1.2 Certificate of Amendment of Certificate of Incorporation of the Company
dated April 18, 1994, filed as Exhibit 3.1.8 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 (the
"1993 Form 10-K"), and incorporated herein by reference.
3.1.3 Certificate of Amendment of Certificate of Incorporation of the Company
effecting one-for-three reverse stock split filed as Exhibit 3.1 to the
Company's Current Report on Form 8-K dated October 17, 1994, and
incorporated herein by reference.
3.1.4 Certificate of Amendment of Certificate of Incorporation of the Company
effecting name change, increase of authorized shares, authorization of
Class A preferred stock and stock ownership limitations filed as Exhibit
3.2 to the Company's Current Report on Form 8-K dated October 17, 1994,
and incorporated herein by reference.
3.1.5 Form of "Certificate of Designation, Preferences and Rights of Series B
Convertible Preferred Stock" creating the Series B Preferred Stock filed
as Exhibit 10.1.4 to the Company's Current Report on Form 8-K dated June
10, 1996, and incorporated herein by reference.
3.1.6 Certificate of Amendment of Certificate of Incorporation of the Company
increasing the number of authorized shares of Common Stock to
100,000,000 shares filed as Exhibit 2.1.6 to the company's Quarterly
Report on Form 10-QSB for the second quarter of 1998, and incorporated
herein by reference.
3.2 Amended and Restated Bylaws of the Company filed as Exhibit 3.2 to the
Company's Quarterly Report on Form 10-QSB for the third quarter of 1998,
and incorporated herein by reference.
*27.1 Financial data schedule required by Item 601 of Regulation S-B.
______________________
* Filed herewith.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated February 1, 1999,
and Amendment No. One to such Form 8-K, reporting information under the
following items:
Item 2. Acquisition or Disposition of Assets
14
<PAGE>
Item 4. Changes in Registrant's Certifying Accountant
Item 5. Other Events
Item 6. Financial Statements and Exhibits
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH AMERICAN GAMING AND
-------------------------
ENTERTAINMENT CORPORATION
-------------------------
(Registrant)
By: /s/ E.H. Hawes II
-------------------------
Chairman of the Board and
Chief Executive Officer
Date: May 14, 1999
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALACE SHEET AT MARCH 31, 1999 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 484,430
<SECURITIES> 0
<RECEIVABLES> 625,770
<ALLOWANCES> 0
<INVENTORY> 103,287
<CURRENT-ASSETS> 1,310,211
<PP&E> 3,178,558
<DEPRECIATION> 146,884
<TOTAL-ASSETS> 5,423,524
<CURRENT-LIABILITIES> 4,301,984
<BONDS> 0
0
0
<COMMON> 417,886
<OTHER-SE> (1,501,834)
<TOTAL-LIABILITY-AND-EQUITY> 5,423,524
<SALES> 6,260,042
<TOTAL-REVENUES> 6,260,042
<CGS> 3,998,517
<TOTAL-COSTS> 1,781,572
<OTHER-EXPENSES> 186,627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,709
<INCOME-PRETAX> 48,733
<INCOME-TAX> 18,265
<INCOME-CONTINUING> 48,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,468
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
