<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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
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(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-2571032
--------------------------------- ------------------------
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
</TABLE>
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
June 30, 2000: 31,162,091
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>
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June 30, December 31,
2000 1999
(Unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 279,021 $ 248,491
Accounts receivable, net of allowance for doubtful
accounts of $32,206 (1999) 67,666 110,843
Investment in available-for-sale securities 331,109 1,460,000
Investments - restricted - 194,101
Prepaid expenses - 1,874
---------- ----------
Total Current Assets 677,796 2,015,309
---------- ----------
Furniture And Equipment, net of accumulated depreciation 15,499 21,309
---------- ----------
Other Assets:
Deferred tax asset 37,000 -
Deposits and other 116,037 3,246
Investments - other 592,729 382,479
---------- ----------
Total Other Assets 745,766 385,725
---------- ----------
Total Assets $1,439,061 $2,422,343
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued liabilities and other $ 153,654 $ 471,557
Current portion of long-term debt 60,000 -
Deferred tax liability - 97,137
Preferred stock dividends payable 295,503 447,018
---------- ----------
Total Current Liabilities 509,157 1,015,712
Notes Payable - long-term 455,006 781,369
---------- ----------
Total Liabilities 964,163 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, 10,626,461 shares (2000)
and 8,667,632 shares (1999), at cost (131,264) (111,676)
Accumulated other comprehensive income 51,062 548,562
Accumulated deficit (329,745) (696,469)
---------- ----------
474,898 625,262
---------- ----------
Total Liabilities and Stockholders' Equity $1,439,061 $2,422,343
========== ==========
</TABLE>
1
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED QUARTER ENDED
30-Jun-00 30-Jun-99 30-Jun-00 30-Jun-99
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<S> <C> <C> <C> <C>
Revenue:
Video poker $ - $ 4,128,171 $ - $ -
Truck stop and convenience store - 1,905,959 - -
Cruise - 504,390 - 278,478
---------------------------------------------------------------
- 6,538,520 - 278,478
---------------------------------------------------------------
Costs and expenses - 4,128,364 - 129,847
General and administrative 411,199 2,025,734 186,033 244,162
Depreciation and amortization 5,810 233,072 2,930 86,188
---------------------------------------------------------------
Operating income (loss) (417,009) 151,350 (188,963) (181,719)
Interest expense (18,857) (133,807) (444) (36,098)
Income from equity investments 210,250 70,085 96,399 70,085
Gain on sale of investments 420,797 662,065 63,269 705,065
Other income (expense) 59,990 (6,319) 34,435 137,308
---------------------------------------------------------------
Income Before Provision for Income
Taxes and Extraordinary Gain 255,171 743,374 4,696 694,641
Provision For Income Taxes (71,044) (193,265) (71,044) (175,000)
---------------------------------------------------------------
Income (loss) before extraordinary gain 184,127 550,109 (66,348) 519,641
Extraordinary gain, net of
Deferred Tax Expense of $94,065 182,597 - 182,597 -
---------------------------------------------------------------
Net income $ 366,724 $ 550,109 $ 116,249 $ 519,641
===============================================================
Basic income Per Share
Before Extraordinary Gain $ * $ .01 $ (.01) $ .02
===============================================================
Extraordinary Gain Per Share $ .01 $ * $ .01 $ *
===============================================================
Basic Net Income Per Share $ .01 $ .01 $ * $ .02
===============================================================
Basic Weighted Average Shares
Outstanding 33,120,920 41,788,552 33,120,920 33,620,920
===============================================================
</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)
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<CAPTION>
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Six Months Ended June 30,
2000 1999
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<S> <C> <C>
Net Income $ 366,724 $ 550,109
--------- ---------
Other Comprehensive Income (Loss):
Unrealized gains (losses) on available-for-sale securities
net of deferred income tax benefit of $113,216 (2000) (219,773) -
Reclassifications, net of deferred tax expense of $143,070 (277,727) -
--------- ---------
(497,500) -
--------- ---------
Total Comprehensive Income (Loss) $(130,776) $ 550,109
========= =========
</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)
--------------------------------------------------------------------------------
Six Months Ended June 30,
2000 1999
--------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 366,724 $ 550,109
Adjustments to reconcile net cash:
Depreciation and amortization 5,810 233,072
Deferred tax expense benefit 165,109 111,500
Income from equity investments (210,250) (70,085)
Gain on sale of securities and assets (420,797) (662,065)
Extraordinary gain (276,662) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 43,177 (68,465)
Inventories - (12,177)
Prepaid insurance/ expenses 1,874 16,544
Deposits and other - 13,559
Increase (decrease) in:
Accounts payable and accrued liabilities (109,555) (14,799)
--------- ---------
Net Cash Provided By (Used In) Operating Activities (434,570) 97,193
--------- ---------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment - (353,021)
Proceeds from Kings sale of fixed assets - 325,000
Proceeds from sale of securities 752,942 -
Purchase of intangibles - (11,320)
--------- ---------
Net Cash Provided By (Used In) Investing Activities 752,942 (39,341)
--------- ---------
Cash Flows From Financing Activities:
Repurchase of stock (19,588) -
Proceeds from notes payable - 125,887
Payments on borrowings and dividends (268,254) (263,700)
--------- ---------
Net Cash Provided By (Used In) Financing Activities (287,842) (137,813)
--------- ---------
Net Increase (Decrease) In Cash 30,530 (79,961)
Cash, beginning of six months 248,491 281,109
--------- ---------
Cash, end of six months $ 279,021 $ 201,148
========= =========
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
$299,246 (2000) $ 497,500 $ -
========= =========
Repurchase of treasury stock and settlement of
debentures, dividends payable and accrued interest
for a note payable $ 175,000 $ -
========= =========
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)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
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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 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 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, RPLLC 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
5
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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 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 RPLLC; 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, 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.
6
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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.
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.
7
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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 Ozdon Investments, Inc.
("Ozdon") to Operator. Ozdon 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. Ozdon 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, Ozdon 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
Ozdon 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 June 30, 2000,
the outstanding principal balance of such indebtedness was approximately
$323,634. Ozdon has given Operator notice that the Lease will be terminated by
Ozdon effective August 13, 2000. Ozdon plans to enter into a new lease with a
nonaffiliated party.
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.
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 RPLLC (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
8
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
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:
North Louisiana
Company Group Williams Total
------- --------------- -------- -----
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%
Therefore, the Company has recorded its investment in OM, RPLLC and Ozdon 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 Ozdon were consolidated with the Company through
March 31, 1999.
On March 27, 2000, the other two members of Operator and RPLLC purportedly voted
to merge another limited liability company into each of Operator and RPLLC and
buyout the Company's interest in each for $375,000 and $50,000, respectively.
The Articles of Organziation of each of Operator and RPLLC require that a
member's interest may not be changed and the Articles of Organization may not be
amended without unanimous consent of all members. The Company voted against the
purported mergers and buyout and subsequently filed a lawsuit to nullify the
mergers and buyout. If the purported mergers and buyouts are upheld by the
court, the Company will receive $425,000 of cash and will recognize a gain on
the sale of its interests in the Operator and RPLLC of approximately $98,000 and
reverse its share of income (loss) booked related to Operator and RPLLC from
April 1, 2000 to the current date. As of June 30, 2000, the Company's share of
income from Operator and RPLLC (excluding Ozdon) for the quarter was $65,360.
9
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
2. RESTRUCTURE OF OM OPERATING, L.L.C. AND RIVER PORT TRUCK STOP, LLC
(CONTINUED)
The following is a combined condensed unaudited balance sheet for the Operator,
RPLLC and Ozdon as of June 30, 2000 and the condensed unaudited statement of
income for the six months then ended.
CONDENSED BALANCE SHEET
(UNAUDITED)
June 30, 2000
Assets
Current assets $ 1,247,000
Fixed assets, net 2,924,000
Other assets 201,000
-----------
$ 4,372,000
===========
Liabilities and Equity
Current liabilities $ 2,984,000
Long-term liabilities 13,000
-----------
2,997,000
Equity 1,375,000
-----------
$ 4,372,000
===========
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
Six Months Ended June 30, 2000
Revenues $ 8,139,000
Cost of revenues 5,143,000
-----------
Gross profit 2,996,000
General and administrative 2,234,000
-----------
Operating profit $ 762,000
Other (20,000)
-----------
Net Income $ 742,000
===========
10
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
3. INVESTMENT SECURITIES
Investment securities which are all considered available-for-sale are summarized
as follows:
June 30, December 31,
2000 1999
-------- ------------
Marketable equity securities, at cost $249,000 $ 580,000
Unrealized gains 82,000 880,000
-------- ------------
Marketable equity securities, fair market value $331,000 $ 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
six months ended June 30, 2000.
Subsequent to June 30, 2000, the Company sold additional marketable equity
securities with an original cost of approximately $17,400 for a realized gain of
approximately $600.
4. EXTRAORDINARY GAIN
Effective April 1, 2000, the Company acquired 1,958,829 shares of common stock
from individuals for $19,588. In addition, the Company settled the following
liabilities for $30,412 in cash and a $175,000 note payable:
Subordinated debentures $ 173,500
Preferred stock dividends payable 151,000
Accrued interest 157,500
---------
$ 482,000
=========
The transaction resulted in an extraordinary gain before taxes on the settlement
of debt of approximately $276,500. The note bears interest at 8.5%, is due in
quarterly installments of $15,000 plus interest and is collateralized by a
portion of the Company's investment in available-for-sale securities.
11
<PAGE>
NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
General: As noted in Note 2 of the Notes to Consolidated Financial Statements
(Unaudited), the other two members of Operator and RPLLC have purportedly voted
in favor of a merger resulting in the termination of the Company's interests in
Operator and RPLLC for a buyout of $375,000 and $50,000, respectively, and the
Company has filed a lawsuit seeking to nullify the purported mergers and
buyouts, among other relief. Until the court renders final judgment in the
lawsuit, no final determination can be made whether the purported mergers and
buyouts are effective. If they are upheld, the Company will receive $425,000 of
cash and will recognize a gain on the sale of its interests in Operator and
RPLLC of approximately $98,000. If the court sets them aside, as requested by
the Company, the Company will continue to report its share of income or loss
from Operator and RPLLC. The discussion of Operator and RPLLC, and the Company's
ownership interests in them, contained in this Management's Discussion and
Analysis or Plan of Operation assumes that the purported mergers and buyouts
will be set aside and the Company's ownership interests will be reinstated.
The structure of Operator and RPLLC and the various interests (including revenue
and profits interest) of the Company in Operator and RPLLC have been
restructured in an attempt to satisfy certain concerns raised by the Division.
The Company believes the further restructuring of Operator and RPLLC 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 RPLLC for their review in connection with Operator's license
renewal request and the granting of a license to RPLLC. There can be no
assurance that the Gaming Control Board will agree with the Company's conclusion
that Operator and RPLLC, as restructured, comply with the residency requirements
of the Louisiana Act, but the Company believes the Gaming Control Board will
agree with the current structure. The Company does not believe the review will
result in further material adverse changes in Operator's or RPLLC`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.
General Condition: The Company ended the quarter with $279,021 in cash and other
current assets amounting to $398,775 including accounts receivable (net) of
$67,666 and investments in 215,000 shares of Travelbyus common stock with a
value of $331,109. Total liabilities were $964,163 at June 30, 2000, including
accounts payable and accrued liabilities of $153,654, long-term notes payable of
$515,006 and preferred stock dividends payable of $295,503. The Company's
liabilities decreased $832,918 from $1,797,081 at December 31, 1999 to $964,163
at June 30, 2000. This decrease was comprised primarily of a decrease in
accounts payable, the deferred tax liability related to the unrealized gain on
Travelbyus.com common stock, and the payoff of long-term debt, along with the
settlement of debt of approximately $482,000.
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NORTH AMERICAN GAMING AND ENTERTAINMENT
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Competition is intense for the business of gaming patrons in Louisiana and
Mississippi. It is expected that profit margins may continue to be adversely
affected as a result of such competition and that various gaming establishments
may be forced to close because they cannot compete effectively at such reduced
margins. The Company believes Ozdon, Operator and RPLLC will be able to maintain
a competitive position if they are able to carefully manage expenses and cash
flow. However, there can be no assurance in this regard and the Company has no
control over such management by Operator or RPLLC. Ozdon and Operator have been
parties to a month-to-month lease pursuant to which Ozdon leased the Gold Rush
Truck Stop to Operator. The lease is terminable by either party, with or without
cause, on sixty days' prior written notice. Ozdon has given Operator notice that
the lease will be terminated by Ozdon effective August 13, 2000. Ozdon plans to
enter into a new lease with a nonaffiliated party.
RESULTS OF OPERATIONS
Comparison of Six Months Ended June 30, 2000 to Six Months Ended June 30, 1999
------------------------------------------------------------------------------
Operating Income (Loss)
-----------------------
The Company recorded a loss from operations of $417,009 during the six months
ended June 30, 2000 compared to income from operations of $151,350 for the six
months ended June 30, 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 three months 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, April 1, 1999, the Company now records income from gaming
and truck stop operations under the equity method as "Income for Equity
Investments" in Other Income (Expense). For the three months, ended June 30,
1999, the Company recorded income from its equity investment of $70,085. During
the six months ended June 30, 1999, the gaming and truck stop operations, run by
the Operator, generated approximately $3,700,000 of gross profits on revenues of
approximately $10,736,000. The gaming and truck stop operations, run by the
Operator, generated approximately $2,996,000 of gross profit on revenues of
approximately $8,139,000 during the six months ended June 30, 2000. The decline
in revenues is due to the fact that the Operator has closed down or sold two
locations since March 31, 1999. Gross profit percentage in 2000 is 36.8%
compared to 34.5% for 1999.
During the six months ended June 30, 1999, the Company recorded gross profit
from its cruise operations of $259,085 and $0 for the six months ended June 30,
2000 as the Company sold its cruise operations in the fourth quarter of 1999.
During the six months ended June 30, 1999, the Company recorded general and
administrative costs of $2,025,734 compared to $441,199 during the six months
ended June 30, 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.
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NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
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RESULTS OF OPERATIONS (CONTINUED)
Interest Expense
----------------
The Company recorded interest expense of $133,807 for the six months ended June
30, 1999 compared to $18,857 for the six months ended June 30, 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 were cancelled effective April 1,
1999 and the Company paid off or settled approximately $750,000 of debt during
the six months ended June 30, 2000.
Income from Equity Investments
------------------------------
As discussed above, the gaming and truck stop operations recorded gross profit
for the six months ended June 30, 2000 of approximately $2,996,000. In addition,
the gaming and truck stops incurred approximately $2,234,000 of general and
administrative expenses and $20,000 of other expenses during the same six
months. The result was net income from gaming and truck stop operations of
approximately $742,000 of which the Company's share was $210,250 (including
Ozdon). The Company's share of income for the three months ended June 30, 1999
was $70,085 while, during the quarter ended March 31, 1999, the Company recorded
100% of the gaming and truck stop operations (see above discussion.)
As noted in Note 2 of the Notes to Consolidated Financial Statements
(Unaudited), the other two members of Operator and RPLLC have purportedly voted
in favor of a merger resulting in the termination of the Company's interests in
Operator and RPLLC for a buyout of $375,000 and $50,000, respectively, and the
Company has filed a lawsuit seeking to nullify the purported mergers and
buyouts, among other relief. Until the court renders final judgment in the
lawsuit, no final determination can be made whether the purported mergers and
buyouts are effective. If they are upheld, the Company will receive $425,000 of
cash and will recognize a gain on the sale of its interests in Operator and
RPLLC of approximately $98,000. If the court sets them aside, as requested by
the Company, the Company will continue to report its share of income or loss
from Operator and RPLLC.
Gain on Sale of Investments
---------------------------
During the six months ended June 30, 2000, the Company sold Travelbyus.com
common stock resulting in a gain of $420,797. During the six months ended June
30, 1999, the Company sold a portion of its investments in Opeorator, RPLLC and
the Gold Rush Truck Stop resulting in a gain of approximately $662,000.
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NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
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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 RPLLC maintaining or increasing fuel sales,
compliance with other gaming law requirements, maintaining a competitive
position in the Company's market, pending legal proceedings, new lease and other
contractual arrangements, 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, pending legal proceedings and possible new lease
and other contractual arrangements. 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.
PART II OTHER INFORMATION
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.
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CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
Exhibit
Number Description of Exhibits
------ -----------------------
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.
None.
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NORTH AMERICAN GAMING AND ENTERTAINMENT
CORPORATION AND SUBSIDIARIES
--------------------------------------------------------------------------------
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: September 7, 2000
17
