<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
[X] ACT OF 1934
For the quarterly period ended March 31, 2000
-----------------------
[_] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-5474
NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-2571032
- --------------------------------- --------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
13150 Coit Road, Suite 125, Dallas, Texas 75240
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(Address of principal executive offices)
(972) 671 - 1133
--------- ----------------
(Issuer's telephone number)
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 xxx No
----- ____
Number of shares of common stock, par value $.01 per share, outstanding as of
March 31, 2000: 33,120,920
Transitional Small Business Disclosure Format (Check One): Yes No xx
____ ----
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
=========================================================================================
March 31, December 31,
2000 1999
(Unaudited)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 694,330 $ 248,491
Accounts receivable, net of allowance for doubtful
accounts of $32,206 (1999) 156,427 110,843
Investment in available-for-sale securities 716,775 1,460,000
Investments - restricted - 194,101
Prepaid expenses - 1,874
----------- -----------
Total Current Assets 1,567,532 2,015,309
----------- -----------
Furniture And Equipment, net of accumulated depreciation 18,429 21,309
----------- -----------
Other Assets:
Deferred tax asset 94,415 -
Deposits - 3,246
Investments - other 496,331 382,479
----------- -----------
Total Other Assets 590,746 385,725
----------- -----------
Total Assets $ 2,176,707 $ 2,422,343
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued liabilities and other $ 391,545 $ 471,557
Deferred tax liability - 97,137
Preferred stock dividends payable 447,018 447,018
----------- -----------
Total Current Liabilities 838,563 1,015,712
Notes Payable - long-term 780,417 781,369
----------- -----------
Total Liabilities 1,618,980 1,797,081
----------- -----------
Commitments And Contingencies
Stockholders' Equity:
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 Series "B", 8,000,000 shares designated,
no shares issued and outstanding - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 41,788,552 shares issued 417,886 417,886
Additional paid-in capital 466,959 466,959
Treasury stock, 8,667,632 shares, at cost (111,676) (111,676)
Accumulated other comprehensive income 230,552 548,562
Accumulated deficit (445,994) (696,469)
----------- -----------
557,727 625,262
----------- -----------
Total Liabilities and Stockholders' Equity $ 2,176,707 $ 2,422,343
=========== ===========
</TABLE>
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================
Quarter Ended March 31,
2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Video poker $ - $ 4,128,171
Truck stop and convenience store - 1,905,959
Cruise - 225,912
----------- -----------
- 6,260,042
----------- -----------
Costs And Expenses:
Video poker:
Cost of revenue - 2,330,479
Depreciation and amortization - 45,899
----------- -----------
- 2,376,378
----------- -----------
Truck Stop and Convenience Store:
Cost of revenue - 1,552,580
Depreciation and amortization - 14,798
----------- -----------
- 1,567,378
General and administrative 225,166 1,781,572
Depreciation and amortization 2,880 2,880
----------- -----------
Operating Income (228,046) 333,069
Interest expense (18,413) (97,709)
Income from equity investments 113,851 -
Gain on sale of available for sale securities 357,528 -
Other income (expense) 25,555 (186,627)
----------- -----------
Income Before Provision For Income Taxes 250,475 48,733
Provision For Income Taxes - (18,265)
----------- -----------
Net Income $ 250,475 $ 30,468
=========== ===========
Basic Income Per Share $ .01 $ *
=========== ===========
Basic weighted Average Shares Outstanding 33,120,920 41,788,552
=========== ===========
</TABLE>
* Less than $0.01 per share
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================
Quarter Ended March 31,
2000 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net Income $ 250,475 $ 30,468
--------- ---------
Other Comprehensive Income (Loss):
Unrealized gains on available-for-sale securities
net of deferred income tax expense of $137,585 (2000) 39,518 -
Reclassifications (357,528) -
--------- ---------
(318,010) -
--------- ---------
Total Comprehensive Income (Loss) $ (67,535) $ 30,468
========= =========
</TABLE>
================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
===========================================================================================
Quarter Ended March 31,
2000 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 250,475 $ 30,468
Adjustments to reconcile net cash:
Depreciation and amortization 2,880 146,884
Deferred tax expense - 18,000
Loss on disposal of assets - 44,090
Income from equity investments (113,851) -
Gain on sale of securities (357,528) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (45,584) (355,245)
Inventories - 19,803
Prepaid insurance/ expenses 1,874 (3,265)
Notes receivable - current - 23,516
Deposits 3,246 537
Increase (decrease) in:
Accounts payable and accrued liabilities 114,089 (36,473)
Income taxes payable - -
Net change in assets/liabilities trans. under
contractual agreement - 100,064
--------- ---------
Net Cash Provided By (Used In) Operating Activities (144,399) (11,621)
--------- ---------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment - (132,436)
Proceeds from Kings sale of fixed assets - 288,604
Proceeds from sale of securities 591,190 -
Purchase of intangibles - (11,320)
--------- ---------
Net Cash Provided By (Used In) Investing Activities 591,190 144,848
--------- ---------
Cash Flows From Financing Activities:
Proceeds from notes payable - 125,887
Payments on borrowings (952) (55,793)
--------- ---------
Net Cash Provided By (Used In) Financing Activities (952) 70,094
--------- ---------
Net Increase (Decrease) In Cash 445,839 203,321
Cash, beginning of year 248,491 281,109
--------- ---------
Cash, end of year $ 694,330 $ 484,430
========= =========
Non-Cash Investing and Financing Activities:
Payment of commission payable with securities $ 194,101 $ -
========= =========
Change in unrealized gain on available for sale
securities, net of deferred income taxes of
$191,551 (2000) $ 318,010 $ -
========= =========
==========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
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, 1999.
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
Effective April 15, 1998, the Company and Donald I. Williams ("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 through
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 entered
into further amendments to the Operating Agreement and various documents put
into place in conjunction with the Amendment, and agreed to transfer 50% of its
remaining Louisiana gaming interest (including 50% of its interest in Operator,
River Port Truck Stop, LLC ("River Port L.L.C.") 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
================================================================================
5
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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 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 $306,959.61 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 of 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, 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 146LLC, on behalf of the North Louisiana Group, a 24.5% interest in
Operator and a 25% interest in River Port LLC; and (c) agreed to assign to
146LLC, on behalf 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,
================================================================================
6
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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 March 31, 1999. The
Second Amendment operates to amend 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 interest 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 March 31, 1999 canceling the Note and the Company's
security interest in the ownership interests of Williams securing the Note.
================================================================================
7
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
The Company and Operator also entered into a Termination of Consulting and
Administrative Agreement (the "Termination") effective 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 casino, 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 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
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 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 Regents
Bank, Springhill Branch, formerly known as Springhill Bank & Trust Company,
which is secured by a mortgage on the Gold Rush Truck Stop. As of March 31,
2000, the outstanding principal balance of such indebtedness was approximately
$323,634.
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 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.
================================================================================
8
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
==============================================================================
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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
interest that are a part of King's Lucky Lady, Pelican Palace, Lucky Longhorn,
The Diamond Jubilee or the Video Poker Tavern Route are held or operated in the
name of the Company, effective March 31, 1999 they shall be deemed to be in the
name of and operated by Operator.
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 interest 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 become
effective March 31, 1999.
The Second Amendment and amendment to the River Port Operating Agreement, which
were effective midnight March 31, 1999, constitute a transfer of ownership
interest and control in all of the Company's gaming operations. As of April 1,
1999, ownership of OM, RPLLC and the Gold Rush Truck Stop are as follows:
<TABLE>
<CAPTION>
North Louisiana
Company Group Williams Total
------- --------------- -------- --------
<S> <C> <C> <C> <C>
OM 24.5% 24.5% 51.0% 100.0%
RPLLC 25.0% 25.0% 50.0% 100.0%
Ozdon 50.0% 50.0% - 100.0%
</TABLE>
Therefore, the Company has recorded its investment in OM, RPLLC and the Gold
Rush Truck Stop under the equity method from April 1, 1999.
Prior to the effective date of the Second Amendment and amendment to the River
Port Operating Agreement, the application of the existing agreements resulted in
the Company controlling the gaming operations and 100% of the net gaming income
being allocated to the Company and 0% to Williams. Therefore, the financial
statements of OM, RPLLC and the Gold Rush Truck Stop were consolidated with the
Company through March 31, 1999.
The following are condensed unaudited balance sheets for OM, RPLLC and the Gold
Rush Truck Stop as of March 31, 2000 and the condensed unaudited statements of
income for the three months then ended.
================================================================================
9
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets $1,634,000
Fixed assets, net 2,815,000
Other assets 253,000
----------
$4,702,000
==========
Liabilities and Equity
Current liabilities $3,115,000
Long-term liabilities 150,000
----------
3,265,000
Equity 1,437,000
----------
$4,702,000
==========
</TABLE>
COMBINED, CONDENSED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Revenues $4,199,000
Costs of revenue 2,695,000
General and administrative 1,076,000
----------
Operating income 428,000
Income taxes (10,000)
----------
Net income $ 418,000
==========
</TABLE>
================================================================================
10
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
3. INVESTMENT SECURITIES
Investment securities which are all considered available-for-sale are summarized
as follows:
March 31, December 31,
2000 1999
-------- -----------
Marketable equity securities, at cost $348,000 $ 580,000
Unrealized gains 369,000 880,000
-------- -----------
Marketable equity securities, fair market value $717,000 $ 1,460,000
======== ===========
In addition, the Company had marketable equity securities with an original cost
of $194,101 which were restricted to be distributed to an officer and consultant
in satisfaction of commissions on the sale of the cruise operations. The shares
were sold on behalf of or distributed to the officer and consultant during the
three months ended March 31, 2000.
Subsequent to March 31, 2000, the Company sold additional marketable equity
securities with an original cost of approximately $40,000 for a realized gain of
approximately $37,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The structure of Operator and River Port LLC and the various interests
(including revenue and profits interest) of the Company in Operator and River
Port LLC have been restructured in an attempt to satisfy certain concerns raised
by the Division. The Company believes the further restructuring of Operator and
River Port LLC 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 and River Port LLC for their review in
connection with Operator's license renewal request and the granting of a license
to River Port LLC. There can be no assurance that the Gaming Control Board will
agree with the Company's conclusion that Operator and River Port LLC, as
restructured, comply with the residency requirements of the Louisiana Act, but
the Company believes the Gaming Control Board will agree with the Company's cash
flow situation and possible result in the inability to satisfy its liability as
they come due. The Company does not believe the review will result in further
material adverse changes in Operator's or River Port's structure, but it cannot
predict the results of the review until the review is completed.
The Company will seek to meet its long-term liquidity needs primarily through
cash flow from operations, additional sales of Travelbyus.com securities,
restructuring its payment obligations on certain subordinated debt, 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 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.
================================================================================
11
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (CONTINUED)
General Condition: The Company ended the quarter with $694,330 in cash and
other current assets amounting to $873,202 including accounts receivable (net)
of $156,427 and investments in 299,900 shares of Travelbyus common stock with a
value of $716,775. Total liabilities were $1,618,980 at March 31, 2000,
including accounts payable and accrued liabilities of $391,545, long-term notes
payable of $780,417 and preferred stock dividends payable of $447,018. The
Company's liabilities decreased $178,101 from $1,797,018 at December 31, 1999 to
$1,618,980 at March 31, 2000. This decrease was comprised primarily at a
decrease in accounts payable and the deferred tax liability related to the
unrealized gain or Travelbyus.com common stock.
Intense competition for the business of gaming patrons in Louisiana and
Mississippi resulted in a decline in operating profit margins during 1999.
However, for the quarter operating profits were up from the quarter ended March
31, 1999 due to the fact the Company closed down its two lowest profit
facilities effective in April and August of 1999. It is expected that the
profit margins may continue to be adversely affected, and that various gaming
establishments may be forced to close because they cannot compete effectively at
such reduced margins. The Company believes Ozdon, the Operator and River Port
LLC will be able to maintain a competitive position if they are able to
carefully managing expenses and cash flow. However, there can be no assurance
in this regard and the Company has no control over such management.
RESULTS OF OPERATIONS
Operating Income (Loss)
- -----------------------
The Company recorded a loss from operations of $228,046 during the quarter ended
March 31, 2000 compared to income from operations of $333,069 for the quarter
ended March 31, 1999. The decline in operating profitability is due to the
Company's sale of a significant portion of its gaming operations effective
April 1, 1999 and the sale of its cruise operations effective October 1, 1999.
During the quarter ended March 31, 1999, the Company generated gross profit
from its gaming and truck stop operations of $2,090,374 on revenues of
$6,034,130. Upon the sale of a significant portion of the Company's interest in
the gaming operations, the Company now records income from gaming and truck stop
operations under the equity method as "Income for Equity Investments" in Other
Income (Expense). The gaming and truck stop operations, run by the Operator,
generated approximately $1,504,000 of gross profit on revenues of approximately
$4,199,000 during the quarter ended March 31, 2000. The decline in revenues is
due to the fact that the Company has closed down or sold two locations since
March 3, 1999. Gross profit percentage in 2000 is 35.5% compared to 34.6% for
1999.
================================================================================
12
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
RESULTS OF OPERATIONS (CONTINUED)
Operating Income (Loss) (Continued)
- -----------------------------------
During the quarter ended March 31, 1999, the Company recorded gross profit from
its cruise operations of $ $27,147 and $0 for the quarter ended March 31, 2000
as the Company sold its cruise operations in the fourth quarter of 1999.
During the quarter ended March 31, 1999, the Company recorded general and
administrative costs of $1,781,572 compared to $225,166 during the quarter ended
March 31, 2000. The primary reason for the decline is due to the sale of a
significant portion of the Company's interest in gaming operations and its
cruise operations during 1999.
Interest Expense
- ----------------
The Company recorded interest expense of $97,709 for the quarter ended March 31,
1999 compared to $18,413 for the quarter ended March 31, 2000. The decline in
interest expense is attributable to the debt on the construction of a new truck
stop and casino for which the Company sold a significant interest effective
April 1, 1999. In addition, due to the restructuring of the gaming operations,
subordinated debt of $ 400,860 was cancelled effective April 1, 1999.
Income from Equity Investments
- ------------------------------
As discussed above, the gaming and truck stop operations recorded gross profit
for the quarter ended March 31, 2000 of approximately $1,504,000. In addition,
the gaming and truck stops incurred approximately $1,076,000 of general and
administrative expenses and $10,000 of other expenses during the same quarter.
The result was net income from gaming and truck stop operations of approximately
$418,000 of which the Company's share was $113,851. During the quarter ended
March 31, 1999, the Company recorded 100% of the gaming and truck stop
operations (see above discussion).
Gain on Sale of Securities
- --------------------------
During the quarter ended March 31, 2000, the Company sold Travelbyus.com common
stock resulting in a gain of $357,528. No gain was recorded in the quarter
ended March 31, 1999.
================================================================================
13
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
RESULTS OF OPERATIONS (CONTINUED)
Year 2000 Issues
- ----------------
The Company made the transition through the change to the year 2000 without
apparent service interruption and with no apparent effects from the year 2000
change. We will continue to monitor our information technology and non-
information technology systems as well as those of our third-party vendors and
suppliers. We spent approximately $23,000 during 1999 on hardware and software
upgrades and approximately $15,000 for labor and testing in preparation of the
change to the year 2000. We do not anticipate that material expenditures will
be required in the year 2000 to further upgrade our systems, nor do we expect
our third-party vendors and suppliers to have significant year 2000 problems
based on our experience to date.
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 and River Port LLC maintaining or increasing fuel
sales, compliance with other gaming law requirements, maintaining a competitive
position in the Company's market, 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 he occurrence of anticipated or unanticipated events.
================================================================================
14
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
PART II OTHER INFORMATION
ITEMS 1, 2, 4 AND 5 ARE OMITTED FROM THIS REPORT AS INAPPLICABLE
ITEM 3 DEFAULTS UPON SENIOR SECURITIES.
As of April 6, 2000 the Company was in arrears a total of approximately $10,000
to International under a notes payable by the Company to International. As a
result, the Company continues to not be able to make payments under subordinated
debentures that are expressly made subordinate to the International note. At
March 31, 2000, the Company was in arrears on the subordinated debentures to the
extent of $267,302, in principal and approximately $12,000 in interest.
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.
================================================================================
15
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
QUARTER ENDED MARCH 31, 2000 AND 1999
================================================================================
ITEM 6 (CONTINUED)
Exhibit
Number Description of Exhibits
- ------ -----------------------
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.
None
In accordance with the requirement 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 19, 2000
================================================================================
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 2000 AND THE CONSOLIDATED STATEMENTS OF
OPERATIONS AND CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 694,330
<SECURITIES> 716,775
<RECEIVABLES> 156,427
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,567,523
<PP&E> 77,413
<DEPRECIATION> 58,984
<TOTAL-ASSETS> 2,176,707
<CURRENT-LIABILITIES> 838,563
<BONDS> 0
0
0
<COMMON> 417,886
<OTHER-SE> 139,841
<TOTAL-LIABILITY-AND-EQUITY> 2,176,707
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 228,606
<OTHER-EXPENSES> (496,934)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,413
<INCOME-PRETAX> 250,475
<INCOME-TAX> 0
<INCOME-CONTINUING> 250,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256,475
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
