<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-19049
American Gaming & Entertainment, Ltd.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Delaware 74-2504501
________________________________ _________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Woodland Avenue, Paramus, New Jersey 07652
_______________________________________________
(Address of principal executive offices)
(609) 822-8505
_____________
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
_ __
umber of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at June 30, 1998
_______________________________ _____________________________
Common Stock, $.01 par value 12,532,102 shares
<PAGE> 2
<TABLE> AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
1998 1997
__________ ____________
<C> <C>
ASSETS
Current Assets
Cash $ 235,000 $ 381,000
Restricted cash 1,092,000 630,000
Prepaid expenses 175,000 232,000
Other current assets 297,000 313,000
___________ ___________
Total current assets 1,799,000 1,556,000
Assets held for sale 431,000 431,000
Casino barge and improvements, subject to lease,
net of accumulated depreciation of $4,575,000
- 1998 and $3,907,000 - 1997 8,018,000 8,686,000
Furniture, fixtures and equipment, net of
accumulated depreciation of $76,000 - 1998
and $71,000 - 1997 9,000 14,000
Other non-current assets 331,000 465,000
___________ ___________
$10,588,000 $11,152,000
=========== ===========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 3
<TABLE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 December 31,
1998 1997
_____________ ______________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Amounts due to related parties:
Accrued interest $ 19,572,000 $ 16,788,000
Dividends payable 2,253,000 1,953,000
Accrual for lease costs 2,701,000 2,701,000
Current portion of long term debt 40,510,000 40,510,000
____________ ___________
65,036,000 61,952,000
Accounts payable 99,000 68,000
Accrued payroll and related expenses 13,000 12,000
Accrued expenses and other current liabilities 1,863,000 1,389,000
Current portion of estimated net liabilities for
subsidiaries in bankruptcy 1,485,000 1,162,000
___________ ___________
Total current liabilities 68,496,000 64,583,000
Long term portion of estimated net liabilities for
subsidiaries in bankruptcy 3,006,000 3,329,000
_____________ ___________
Long term portion of mortgage note payable 71,502,000 67,912,000
_____________ ___________
Commitments and Contingencies
Stockholders' Deficiency
Preferred stock, 1,000,000 shares authorized:
Series A preferred stock, par value $.01 per share,
55,983 shares issued 1,000 1,000
Series C and D cumulative preferred stock, and
Series E preferred stock, par value $.01 per share,
4,000 shares authorized and issued for each series 15,236,000 14,602,000
Common stock, par value $.01 per share;
50,000,000 shares authorized, 12,556,137
shares issued (including 24,035
shares held in treasury) 126,000 126,000
Additional paid-in capital 42,354,000 43,288,000
Cost of shares held in treasury (25,000) (25,000)
Accumulated deficit (118,606,000) (114,752,000)
_______________ ______________
(60,914,000) (56,760,000)
_______________ ______________
$ 10,588,000 $ 11,152,000
=============== ==============
See Notes to Consolidated Financial Statements
</TABLE>
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<TABLE>
AMERICAN GAMING & ENTERTAINMENT LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six Months ended June 30,
___________________________________ __________________________________
1998 1997 1998 1997
_________________ _________________ __________________ _____________
<S> <C> <C> <C> <C>
Revenues $ 256,000 $ 379,000 $ 445,000 $ 380,000
________________ ______________ _________________ ________________
Costs and expenses
Selling, general and administrative 485,000 407,000 886,000 744,000
Depreciation and amortization 337,000 295,000 673,000 592,000
______________ ______________ __________________ _________________
Total costs and expense 822,000 702,000 1,559,000 1,336,000
______________ _______________ __________________ ________________
Operating income (loss) (566,000) (323,000) (1,114,000) (956,000)
_____________ ______________ _________________ _________________
Other income (expense)
Interest income 23,000 19,000 44,000 38,000
Interest expense (1,400,000) (1,383,000) (2,784,000) (2,746,000)
Net gain on sale of investments - - - 2,000
______________ ______________ ________________ _______________
Total other income (expense) (1,377,000) (1,364,000) (2,706,000) (2,706,000)
______________ ______________ ________________ _______________
Net loss (1,943,000) (1,687,000) (3,854,000) (3,662,000)
Dividends and accretion on preferred stock 467,000 467,000 933,000 933,000
______________ ______________ ______________ _______________
Net loss for common stockholders $(2,410,000) $(2,154,000) $ (4,787,000) $(4,595,000)
============== ============== ============== ===============
Net loss per common share $ (0.19) $ (0.17) (0.38) (0.37)
============== =============== ============== ===============
Weighted average number of common
shares outstanding 12,532,102 12,532,102 12,532,102 12,532,102
============== ============== ============== ==============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 5
<TABLE>
AMERICAN GAMING & ENTERTAINMENT LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
____________________________________
1998 1997
________________ _______________
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,854,000) $ (3,662,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Restricted proceeds from Investment (445,000) (377,000)
Depreciation and amortization 673,000 592,000
Accrued interest 2,784,000 2,742,000
Interest income from restricted cash (17,000) -
Changes in operating assets and liabilities
Other current assets 57,000 45,000
Other non-current assets - (1,000)
Accounts payable, accrued expenses and
other current liabilities 506,000 (40,000)
_______________ ______________
Net cash used in operating activities (296,000) (701,000)
_______________ _______________
Investing activities
Proceeds from asset dispositions - 110,000
_______________ ______________
Net cash provided by investing activities - 110,000
_______________ ______________
Financing Activities
Proceeds from notes receivable and other long-term 150,000 117,000
assets Utilization of proceeds from charter of casino - 822,000
barge
Principal payments on notes payable and other
long-term obligations - (110,000)
_________________ ______________
Net cash provided by financing
activities 150,000 829,000
__________________ ______________
Decrease in cash (146,000) 238,000
Cash at beginning of year 381,000 265,000
__________________ _______________
Cash at end of period $ 235,000 $ 503,000
================== ===============
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE> 6
AMERICAN GAMING & ENTERTAINMENT, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited Consolidated Interim Financial Statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. The unaudited Consolidated Interim Financial
Statements include the accounts of American Gaming & Entertainment, Ltd. and
its subsidiaries (collectively, the "Company"). The unaudited Consolidated
Interim Financial Statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments
(including normal recurring accruals) and disclosures (including events
occurring subsequent to June 30, 1998) considered necessary for a fair
presentation have been included. Operating results for the three and six
month periods ended June 30, 1998 may not be indicative of the results that
may be expected for the year ending December 31, 1998. For further
information, reference is also made to the Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
The accompanying unaudited Consolidated Interim Financial Statements have been
prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the
ordinary course of business. As further described in Note 2, the Company has
sustained recurring operating losses since its inception. The Company has also
had a history of insufficient liquidity and has been dependent upon its
largest stockholder, Shamrock Holdings Group, Inc. ("Shamrock"), and certain
related entities (The Bennett Funding Group, Inc. ("Bennett Funding") and
Bennett Management and Development Corp. ("Bennett Management"), collectively
with Shamrock, the "Bennett Entities") for both working capital and project
related financing. As a result, the Company's recurring losses, negative
working capital, stockholders' deficiency, defaults under its debt agreements,
uncertainties relating to the ability to consummate the liquidation of certain
of its subsidiaries (see Notes 2 and 3) and uncertainties relating to the
bankruptcy filings of the Bennett Entities and securities fraud charges by the
federal government against Bennett Funding and Bennett Management raise
substantial doubt about the ability of the Company to continue as a going
concern. Management's plans concerning these matters are discussed in Note 2.
The accompanying unaudited Consolidated Interim Financial Statements do not
include any additional adjustments that might result from the outcome of these
uncertainties.
NOTE 2: LIQUIDITY AND CONTINUATION OF BUSINESS
Given the Company's present financial and liquidity position, the legal
problems described above relating to the Bennett Entities (see Note 1) and the
Company's other litigation described below (see Note 8), the business of the
Company is unlikely to continue to be the ownership of equity interests in
casino gaming ventures. Additionally, the Company's ability to continue in
business
<PAGE> 7
is dependent upon its ability to (i) obtain sufficient funds for its
operations through the charter of the Gold Coast Barge, sales of assets, or
otherwise,(ii) obtain Shamrock's and, if necessary, Bennett Management's
agreement to modify, terminate or restructure on terms acceptable to the
Company all obligations due from the Company to Shamrock and, if applicable,
Bennett Management, (iii) consummate the liquidations under Chapter 11 of the
Code of AMGAM Associates ("AMGAM") and American Gaming and Resorts of
Mississippi, Inc.("AGRM"), each a wholly-owned subsidiary of the Company,
under plans acceptable to the Company, resulting in a liquidation of the
various trade and debt obligations of those entities, and (iv) satisfactorily
resolve the litigation filed against the Company (see Note 8). However, there
can be no assurance the Company will be successful in obtaining Shamrock's
and, if necessary, Bennett Management's agreement to modify, terminate or
restructure on terms acceptable to the Company all obligations due from the
Company to Shamrock and possibly Bennett Management, consummating the
liquidations of AMGAM and AGRM under Chapter 11 of the Code under plans
acceptable to the Company or satisfactorily resolving the litigation filed
against the Company. If the Company is unsuccessful in these efforts, the
Company would then need to pursue a formal plan of reorganization or
liquidation of the Company. Either such action would generally result in the
sale of the Company's assets to satisfy outstanding obligations. If either
reorganization or liquidation is necessary, all of the Company's obligations
would probably not be completely satisfied and the stockholders of the Company
would probably not recover any of their investment in the Company.
For a discussion of specific factors affecting the Company's liquidity and
continuation of business, see the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
The Company had available cash of approximately $235,000 as of June 30, 1998
and its only current significant source of cash receipts is payments of
$25,000 per month under a note issued to the Company in connection with the
sale of its keno operations. The Company believes that such cash and
anticipated cash receipts, collectively, are sufficient to fund the Company's
operations, excluding the Company's obligations to Shamrock and, if
applicable, Bennett Management, through the end of 1998, based on the
Company's current level of operations and projected expenditures. If the
Company is unable to generate additional cash through the charter of the Gold
Coast Barge, sales of assets, or otherwise, the Company expects that it will
not have sufficient cash to operate beyond such date. The Company would then
need to pursue a formal plan of reorganization or liquidation which would
generally result in the sale of the Company's assets to be applied to
outstanding obligations. If either reorganization or liquidation is necessary,
all of the Company's obligations would probably not be completely satisfied
and stockholders of the Company would probably not recover any of their
investment in the Company. If an amendment to an agreement (the "Charter
Agreement"), with President Mississippi Charter Corporation ("PMCC") whereby
PMCC is leasing from the Company the Gold Coast Casino barge and related
leasehold improvements (collectively, the "Gold Coast Barge") which
incorporates the terms of a term sheet (the "Charter Term Sheet") entered into
between the Company, PMCC, Shamrock and the committees for unsecured creditors
in the bankruptcy proceedings of AMGAM and AGRM (collectively, the
"Committees") is approved by the United States Bankruptcy Court, Southern
District of Mississippi (the "Bankruptcy Court") and a
<PAGE> 8
revision to a previously executed term sheet between the Company, Shamrock,
AMGAM, AGRM and the Committees is executed, and pursuant thereto and to an
agreement with Shamrock (the "Escrow Allocation Agreement") the Company
receives (a) approximately $188,000 in a lump sum payment and (b)
approximately $32,000 per month retroactive to December 1, 1997, the Company
believes that such cash and anticipated cash receipts, collectively with the
cash and anticipated cash referred to above, are sufficient to fund the
Company's operations, excluding the Company's obligations to Shamrock and, if
applicable, Bennett Management, through the end of 1999, based on the
Company's current level of operations and projected expenditures.
If the Bankruptcy Court does not approve an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet and the Company does not, by
some means, (i) receive its portion of the payments due from PMCC under the
Charter Agreement or (ii) agree with PMCC, with the concurrence of the
Committees and Shamrock, on a mutually acceptable amended charter agreement,
the Company would not be able to meet its obligations as they come due. In
either such case, the Company would then need to pursue a formal plan of
reorganization or liquidation which would generally result in the sale of the
Company's assets to be applied to outstanding obligations. If either
reorganization or liquidation is necessary, all of the Company's obligations
would probably not be completely satisfied and stockholders of the Company
would probably not recover any of their investment in the Company.
As of June 30, 1998, the Company had recorded as "Restricted Cash" in the
accompanying unaudited Consolidated Interim Financial Statements approximately
$1,092,000 attributable to profit distributions and interest thereon received
by the Company relating to the Company's 24.5% beneficial equity interest (the
"RSR Interest") in RSR, LLC ("RSR"), a limited liability company formed by the
Company and a group of non-affiliated individuals, representing the equivalent
of a 4.9% equity interest in a riverboat gaming and entertainment complex in
the City of Rising Sun, Indiana on the Ohio River. Legal title to the RSR
Interest has been transferred by the Company to NBD Bank, N.A., as trustee
("NBD"). NBD is holding the distributions received in respect of the RSR
Interest in trust until such time as NBD sells or otherwise disposes of the
RSR Interest in accordance with the provisions of a trust agreement entered
into between the Company and NBD. Any portion of the RSR Interest which is not
transferred prior to August 23, 1998 shall be purchased by either RSR or the
other members of RSR.
NOTE 3: SIGNIFICANT DEVELOPMENTS WITH RESPECT TO INVESTMENTS
Harolds Club Casino
Prior to 1996, Shamrock assumed responsibility for all carrying costs of the
Harolds Club property in Reno, Nevada including, but not limited to, lease
payments under certain land leases held by the Company related to the Harolds
Club, taxes, insurance and utilities. However, such land leases have not been
transferred to Shamrock and therefore the Company is obligated to make all
lease payments. Even if the Company transfers to Shamrock all of the Company's
rights, title and interest in such leases, the Company could still be
ultimately obligated under such
<PAGE> 9
leases, pursuant to certain guaranties of lease executed by the Company. The
Company has been informed by Shamrock and the lessors under such leases that
Shamrock has not made any lease payments from April 1996 through June 1998 due
under such leases or quarterly property taxes due under such leases,
collectively totaling approximately $1,786,000. The lessors have, among other
rights, the right to terminate the respective leases and hold the Company
responsible for all obligations under such leases through the end of the
respective lease terms. The Company has recorded the unpaid lease payments and
property taxes from April 1996 through June 1998 (the "Unpaid Harolds
Obligations") as current liabilities as of June 30, 1998. The Company has also
recorded the amounts of the Unpaid Harolds Obligations as a receivable due
from Shamrock, but, as a result of the Company's determination that there is a
substantial likelihood that such amounts will be uncollectible, the Company
has fully reserved for such amounts at the same time such amounts have been
recorded as a receivable.
NOTE 4: AMOUNTS DUE TO RELATED PARTIES AND LONG-TERM DEBT
The Company is delinquent in the payment of (i) interest due under the
Company's various loan agreements with Shamrock and (ii) rent which was due
under an operating lease between the Company and Bennett Management (the "SCS
Lease") with respect to a riverboat vessel and supporting barge, which SCS
Lease Shamrock orally represented to the Company that Bennett Management,
prior to its bankruptcy filing, assigned to Shamrock. The Company has
therefore classified all indebtedness due to Shamrock as current liabilities
in the accompanying unaudited Consolidated Interim Financial Statements. At
June 30, 1998 and December 31, 1997, the Company had accrued for financial
statement purposes outstanding amounts due Shamrock of approximately
$65,036,000 and $61,952,000, respectively, including accrued interest of
approximately $19,572,000 and $16,788,000, respectively. Such amounts due
Shamrock also include approximately $2,701,000 due under the SCS Lease and
accrued dividends of approximately $2,253,000 and $1,953,000 at June 30, 1998
and December 31, 1997, respectively, on the Company's Series C Cumulative
Preferred Stock ("Series C Preferred Stock") and Series D Cumulative Preferred
Stock ("Series D Preferred Stock"). The accrued outstanding amount due
Shamrock at June 30, 1998 represents approximately 91% of the Company's
liabilities in the accompanying unaudited Consolidated Interim Financial
Statements as of such date and is substantially in excess of the Company's
estimates of the fair value of the Company's assets.
The balance of accrued long-term debt due Shamrock at June 30, 1998 and
December 31, 1997 is comprised of approximately (i) $1,066,000, at the end of
each period, related to a working capital line of credit, (ii) $2,041,000, at
the end of each period, related to a term loan to assist the Company in
financing pertaining to a casino in Biloxi, Mississippi which the Company
owned, managed and operated in prior years (the "Gold Shore Casino"), (iii)
$5,917,000, at the end of each period, of PMCC/Bennett Debt, (iv) $384,000, at
the end of each period, related to the Company's utilization of slot machine
sales proceeds, which slot machines were beneficially owned by Bennett
Management and which slot machine proceeds Shamrock orally represented to the
Company that Bennett Management, prior to its bankruptcy filing, assigned to
Shamrock and (v) $31,101,000, at the end of each period, related to project
financing for the Gold Shore Casino.
<PAGE> 10
The Company has entered into an agreement with Shamrock pursuant to which
Shamrock will receive 60% of any charter payments for the Gold Coast Barge and
67.5% of any net proceeds received from the sale of the Gold Coast Barge,
which amounts will reduce the Company's indebtedness to Shamrock (see Note 2)
The Company has also agreed to repay indebtedness to Shamrock of $125,000 from
the sale in 1997 of certain securities, which amount has not yet been paid to
Shamrock.
NOTE 5: OTHER RELATED PARTY ISSUES
On June 3, 1998, Shamrock filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
Shamrock, of which Richard C. Breeden, the bankruptcy trustee (the "Trustee")
is the sole stockholder, owns (i) 4,423,454 shares of Common Stock, and (ii)
all of the Company's outstanding Series A Preferred Stock, convertible into,
and voting as, 1,399,565 shares of Common Stock. Additionally, the Trustee
owns (i) an additional 1,500,000 shares of Common Stock and (ii) all of the
Company's outstanding Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, convertible as of June 30, 1998 into 1,300,107,947
shares of Common Stock. The Company does not have a sufficient number of
authorized shares of Common Stock to enable the conversion of all of the
Series C Preferred Stock, the Series D Preferred Stock and the Series E
Preferred Stock. On April 1, 1996 the Board of Directors voted to request the
stockholders of the Company to approve an amendment to the Company's Restated
Certificate of Incorporation increasing the number of authorized shares of
Common Stock to 500,000,000 shares no later than the next annual meeting of
the Company's stockholders. The Board of Directors has not set a date for such
annual meeting. Assuming the Trustee converted as of June 30, 1998 that number
of shares of the Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock convertible into the total number of the Company's presently
authorized but unissued shares of Common Stock (i.e. 37,467,898 shares), the
Trustee, on behalf of the estates of certain Bennett Entities and Shamrock,
would own approximately 86.8% of the total outstanding shares of Common Stock
and approximately 87.1% of the total voting power represented by the total
outstanding voting securities of the Company. Assuming the Company's
stockholders approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common Stock to
500,000,000 shares and the Trustee converted as of June 30, 1998 that number
of shares of the Series C Preferred Stock, the Series D Preferred Stock and
the Series E Preferred Stock convertible into the total number of the
Company's authorized but unissued shares of Common Stock immediately after
giving effect to such amendment (i.e. resulting in a total of 487,467,898
shares of Common Stock being issued to the Trustee as of such date), the
Trustee, on behalf of the estates of certain Bennett Entities and Shamrock,
would own approximately 98.7% of both the total outstanding shares of Common
Stock and the total voting power represented by the total outstanding voting
securities of the Company.
<PAGE> 11
NOTE 6: DECONSOLIDATION OF AMGAM AND AGRM
As a result of the bankruptcy proceedings under Chapter 11 of the Code with
respect to AMGAM and AGRM, and the expected liquidation of these subsidiaries
in the near future, the Company's control of these entities is likely to be
temporary. In accordance with generally accepted accounting principles, the
Company has elected to deconsolidate AMGAM and AGRM and present the results of
operations for AMGAM and AGRM on the equity basis of accounting as a single
line item in the accompanying unaudited Consolidated Interim Statements of
Operations for financial reporting purposes. A combined unaudited condensed
balance sheet of these entities as of June 30, 1998 and December 31, 1997 is
as follows:
June 30, December 31,
1998 1997
Assets
_______
Current Assets and Other $3,799,000 $3,767,000
Property and Equipment, Net 41,000 41,000
__________ __________
Total Assets $3,840,000 $3,808,000
========== ==========
Liabilities and Stockholders' Deficiency
________________________________________
Current Liabilities $29,221,000 $27,862,000
Amounts Due to Parent 12,147,000 12,147,000
Stockholders' Deficiency (37,528,000) (36,201,000)
____________ _____________
Total Liabilities and Stockholders'
Deficiency $3,840,000 $ 3,808,000
NOTE 7: RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and disclosure of
comprehensive income. Reclassification of financial information for earlier
periods presented for comparative periods is required under SFAS No. 130. The
Company adopted SFAS No. 130 effective January 1, 1998. This statement only
requires additional disclosures in the Company's consolidated financial
statements and its adoption did not have any impact on the Company's
consolidated financial position or results of operations. Currently the
Company has no components of other comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the reporting of information about operating segments and requires the
reporting of selected information about operating segments in interim
financial statements. Reclassification of segment information for earlier
periods presented for comparative periods is required under SFAS No. 131. The
Company adopted SFAS No. 131 effective January 1, 1998 although presentation
for interim periods in the initial year of adoption is not required. Adoption
of this statement is not expected to result in any changes to the Company's
presentation of financial information for the year ending December 31, 1998.
<PAGE> 12
NOTE 8: CONTINGENCIES
As previously disclosed in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996, IGT - North America ("IGT") is not receiving any
payments from AMGAM on AMGAM's debt to IGT for certain slot machines under an
installment sales contract. Such indebtedness by AMGAM to IGT has been
guaranteed by the Company pursuant to a guaranty agreement (the "IGT
Guaranty") by the Company to IGT. On November 2, 1995 IGT filed a complaint
against the Company in the Circuit Court of Harrison County, Mississippi,
Second Judicial District seeking a judgment against the Company under the IGT
Guaranty of (i) the principal amount of approximately $3,306,000 plus accrued
interest and (ii) reasonable attorneys fees. The Company responded to such
complaint by arguing, among other defenses, that the IGT Guaranty should be
found to be unenforceable if IGT has failed to properly perfect a security
interest in such slot machines. As previously disclosed in the Company's
Quarterly Report on Form 10-QSB for the period ended September 30, 1997, on
October 13, 1997 the Company paid IGT $375,000, which amount had been
previously accrued, to settle such lawsuit.
IGT has alleged that such settlement was contingent on the Company and
Shamrock and related entities waiving any claim to payments made by PMCC to
AMGAM relating to the purchase of IGT slot machines from AMGAM. At the time
the Company filed its Quarterly Report on Form 10-QSB for the period ended
September 30, 1997, the Company believed that Shamrock would waive such claim.
However, as of May 26, 1998, to the best of the Company's knowledge, Shamrock
has refused to execute the waiver of such claim requested by IGT. On May 26,
1998, IGT filed a motion for summary judgment in the Circuit Court of Harrison
County, Mississippi, Second Judicial District (the "IGT Complaint") seeking a
judgment against the Company under the IGT Guaranty of (i) the principal
amount of approximately $3,306,000 plus accrued interest of approximately
$864,000 and (ii) attorneys fees of approximately $108,000. To the extent (i)
funds are not paid to IGT pursuant to a plan of liquidation in the bankruptcy
proceeding of AMGAM and (ii) the IGT Guaranty is enforceable against the
Company, the Company's business and financial condition would be materially
adversely affected. Management is unable, with any degree of certainty, to
predict the outcome, or to estimate the amount of liability, if any, that may
result from this action. However, should the plaintiff prevail, this
litigation would have a material adverse effect on the Company's business and
financial condition. The Company would then need to pursue a formal plan of
reorganization or liquidation which would generally result in the sale of the
Company's assets to satisfy outstanding obligations. There can be no assurance
that if either action is required to be pursued that all such obligations
would be completely satisfied. Further, in the event of either action, it is
unlikely that stockholders of the Company will recover any of their investment
in the Company.
On June 5, 1998, International Game Technology, Inc. filed a motion for pre-
judgment garnishment in the Marion Superior Court, State of Indiana, against
the Company and NBD Bank, N.A. as Trustee (Cause No. 49D07-9806-CP-0800).
International Game Technology, Inc. was seeking an order by such court to the
sheriff of Marion County, Indiana to seize and hold any proceeds from the sale
of the RSR Interest, pending the trial and judgment on the IGT Complaint. On
August 11, 1998, such court granted the Company's motion to dismiss this
lawsuit.
<PAGE> 13
On May 29, 1998, Richard C. Breeden, Trustee for The Bennett Funding Group,
Inc., et. al., filed suit against the Company in the United States Bankruptcy
Court, Northern District of New York (Bankruptcy Case No. 96-61376, Adversary
Proceeding No. 98-70465A). The plaintiff alleges that payments made by The
Bennett Funding Group, Inc. and related entities (collectively, "Bennett") to
the Company between March 29, 1990 and March 29, 1996, collectively totaling
approximately $70,155,000 (the "Transfers"), were actual or constructive
fraudulent transfers by Bennett. In the alternative, the plaintiff alleges
that all or some of the Transfers were loans by Bennett to the Company and are
currently due and payable on demand. The plaintiff is seeking payment by the
Company of the amount of the Transfers, accrued and unpaid interest, attorneys
fees and costs. As discovery and depositions have not yet commenced, outside
counsel to the Company is unable to predict the outcome of this lawsuit.
However, should the plaintiff prevail, this litigation would have a material
adverse effect on the Company's business and financial condition. The Company
would then need to pursue a formal plan of reorganization or liquidation which
would generally result in the sale of the Company's assets to satisfy
outstanding obligations. There can be no assurance that if either action is
required to be pursued that all such obligations would be completely
satisfied. Further, in the event of either action, it is unlikely that
stockholders of the Company will recover any of their investment in the
Company.
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations: Comparison of the three month periods ended June 30,
1998 and June 30, 1997
Revenues
For the three months ended June 30, 1998, the Company recorded revenues of
approximately $256,000 attributable to the RSR Interest. Although the Rising
Sun Project opened for business in 1996, no financial statement information
was available nor were any cash distributions made until the second quarter of
1997. Consequently, for the three months ended June 30, 1997, the Company
recorded revenues of approximately $377,000 attributable to the RSR Interest.
Revenues from other sources for the three months ended June 30, 1997 amounted
to approximately $2,000. Cash received from the Rising Sun Project is recorded
as "Restricted Cash" in the accompanying unaudited Consolidated Balance Sheets
(see Note 2).
Costs and Expenses
Selling, general and administrative expenses were approximately $485,000 for
the three months ended June 30, 1998, representing an increase of
approximately $78,000 or approximately 19% when compared to the three months
ended June 30, 1997. However, selling, general and administrative expenses for
the three months ended June 30, 1997 included a reversal of previously
recorded state taxes in the amount of approximately $188,000 due to a tax
refund. Exclusive of such reversal, selling, general and administrative
expenses decreased approximately $110,000 for the three months ended June 30,
1998 as compared to the three months ended June 30, 1997. Such decrease was
primarily due to decreases in compensation, insurance and expenses related to
the GM&O Building in Alabama and the Harolds Club in Nevada.
Depreciation and amortization costs were approximately $337,000 for the three
months ended June 30, 1998, representing an increase of approximately $42,000
or approximately 14% when compared to the three months ended June 30, 1997.
The furniture, fixtures and equipment on the Gold Coast Barge were being
depreciated over a useful life of 15 years for the three months ended June 30,
1997; the Company reevaluated the useful life of such assets in the fourth
quarter of 1997 and determined that such assets have a useful life of 10
years. Accordingly, for the three months ended June 30, 1998, the Company
depreciated such assets based on a remaining useful life of six and one
quarter years.
Net interest expense for the three months ended June 30, 1998 was
approximately $1,377,000, an increase of approximately $13,000 or
approximately 1% compared to the three months ended June 30, 1997. Interest
expense increased approximately $17,000 while interest income increased
approximately $4,000 during the three months ended June 30, 1998 compared to
the three months ended June 30, 1997.
<PAGE> 15
Results of Operations: Comparison of the six month periods ended June 30,
1998 and June 30, 1997
Revenues
For the six months ended June 30, 1998, the Company recorded revenues of
approximately $445,000 attributable to the RSR Interest, representing an
increase of approximately $68,000 or approximately 18% when compared to the
six months ended June 30, 1997. Revenues from other sources for the six months
ended June 30, 1997 amounted to approximately $3,000. Cash received from the
Rising Sun Project is recorded as "Restricted Cash" in the accompanying
unaudited Consolidated Balance Sheets (see Note 2).
Costs and Expenses
Selling, general and administrative expenses were approximately $886,000 for
the six months ended June 30, 1998, representing an increase of approximately
$142,000 or approximately 19% when compared to the six months ended June 30,
1997. However, selling, general and administrative expenses for the six months
ended June 30, 1997 included the reversal of a previously recorded consulting
expense in the amount of approximately $195,000 due to a consulting firm
advising the Company that such firm was not seeking payment of such unpaid
amount and a reversal of previously recorded state taxes in the amount of
approximately $188,000 due to a tax refund. Exclusive of such reversals,
selling, general and administrative expenses decreased approximately $241,000
for the six months ended June 30, 1998 as compared to the six months ended
June 30, 1997. Such decrease was primarily due to decreases in compensation,
insurance and expenses related to real property in Alabama and the Harolds
Club in Nevada.
Depreciation and amortization costs were approximately $673,000 for the six
months ended June 30, 1998, representing an increase of approximately $81,000
or approximately 14% when compared to the six months ended June 30, 1997. The
furniture, fixtures and equipment on the Gold Coast Barge were being
depreciated over a useful life of 15 years for the six months ended June 30,
1997; the Company reevaluated the useful life of such assets in the fourth
quarter of 1997 and determined that such assets have a useful life of 10
years. Accordingly, for the six months ended June 30, 1998, the Company
depreciated such assets based on a remaining useful life of six and a half
years.
Net interest expense for the six months ended June 30, 1998 was approximately
$2,740,000, an increase of approximately $32,000 or approximately 1% compared
to the six months ended June 30, 1997. Interest expense increased
approximately $38,000 while interest income increased approximately $6,000
during the six months ended June 30, 1998 compared to the six months ended
June 30, 1997.
The Company recorded a net gain of approximately $2,000 for the six months
ended June 30, 1997 related to the sale of certain furniture, fixtures and
equipment. No such gain was recorded for the six months ended June 30, 1998.
<PAGE> 16
Changes in Financial Condition, Liquidity and Capital Resources
As of June 30, 1998, the Company had no committed financing arrangements and a
working capital deficiency of approximately $66,697,000. For a discussion of
liquidity and capital resources, see Note 2 to the unaudited Consolidated
Interim Financial Statements.
Risk Factors; Forward Looking Statements
Management's Discussion and Analysis contains forward-looking statements
regarding the Company's future plans, objectives and expected performance.
These statements are based on assumptions that the Company believes are
reasonable, but are subject to a wide range of risks and uncertainties, and a
number of factors could cause the Company's actual results to differ
materially from those expressed in the forward-looking statements. These
factors include, among others, the uncertainties related to (i) the Company's
ability to obtain sufficient funds for its operations, through the charter of
the Gold Coast Barge, sales of assets, or otherwise, (ii) obtaining Shamrock's
and, if necessary, Bennett Management's agreement to modify, terminate or
restructure on terms acceptable to the Company all obligations due from the
Company to Shamrock and, if applicable, Bennett Management, (iii) consummating
the liquidations under Chapter 11 of the Code of AMGAM and AGRM under plans
acceptable to the Company, resulting in a liquidation of the various trade and
debt obligations of those entities, (iv) satisfactorily resolving the legal
proceedings filed against the Company (see Note 8 to the unaudited
Consolidated Interim Financial Statements), and (v) the legal problems
described above relating to certain Bennett Entities (see Notes 1 and 2 to the
unaudited Consolidated Interim Financial Statements).
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 8 to the unaudited
Consolidated Interim Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
For a discussion of defaults with respect to the Company's indebtedness due to
Shamrock, see Notes 2 and 4 to the unaudited Consolidated Interim Financial
Statements.The Company has accrued and declared, but has not paid as of June
30, 1998, dividends totaling approximately $152,000 which were due and payable
on the outstanding shares of its Series C Preferred Stock as of December 31,
1994. The Company has accrued and declared, but has not paid as of June 30,
1998, dividends totaling approximately $152,000 which were due and payable on
the outstanding shares of its Series D Preferred Stock as of December 31,
1994.Additionally, the Company has accrued, but has not declared or paid as of
June 30, 1998, dividends totaling approximately $1,025,000 which were due and
payable on the outstanding shares of its Series C Preferred Stock from January
1, 1995 through June 30, 1998. The Company has accrued, but has not declared
or paid as of June 30, 1998, dividends totaling approximately $925,000 which
were due and payable on the outstanding shares of its Series D Preferred Stock
from January 1, 1995 through June 30, 1998. Although such dividends do not
constitute actual liabilities of the Company until declared, the Company has
accrued for such dividends because, under the terms of the Series C Preferred
Stock and the Series D Preferred Stock, dividends are cumulative whether or
not declared and the Company is prohibited from paying dividends on,
purchasing or redeeming any of its Series A Preferred Stock or Common Stock so
long as any such cumulated dividends are unpaid. The Company is prohibited
under the General Corporation Law of Delaware from declaring such dividends
unless the Company has (i) capital surplus or (ii) net profits in the fiscal
year in which such dividends are declared and/or the preceding fiscal year.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description
______________ ___________
11 Computation of Earnings Per Share.
27 Financial Data Schedule
<PAGE> 18
(b) Reports on Form 8-K. The following reports were filed by the Company
during the second quarter of 1995:
(1) Form 8-K dated May 12, 1998 with respect to the extension through
September 12, 2000 of the Employment Agreement with the Company's President
and Chief Executive Officer.
(2) Form 8-K dated May 26, 1998 with respect to the IGT Complaint(see
Note 8 to the unaudited Consolidated Interim Financial Statements).
(3) Form 8-K dated May 29, 1998 with respect to the lawsuit filed by
Richard C. Breeden, Trustee for The Bennett Funding Group, Inc., et. al. (see
Note 8 to the unaudited Consolidated Interim Financial Statements).
(4) Form 8-K dated June 5, 1998 with respect to the lawsuit filed by
International Game Technology, Inc. (see Note 8 to the unaudited Consolidated
Interim Financial Statements).
<PAGE> 19
SIGNATURES
Pursuant to 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 hereunto duly authorized.
American Gaming & Entertainment, Ltd.
Date:
8/14/98 By: /s/ J. Douglas Wellington
_______________________________
J. Douglas Wellington
President and Chief Executive
Officer, and Principal Accounting
Officer
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO.
NO.
_______ ___________ ________
11 Computation of Earnings Per Share. 21
27 Financial Data Schedule 22
EXHIBIT 11
AMERICAN GAMING & ENTERTAINMENT, LTD.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
____ ____ ____ ____
Weighted average number
of shares for computation 12,532,102 12,532,102 12,532,102 12,532,102
========== ========== ========== ==========
Net loss $(1,943,000) $(1,687,000) $(3,854,000) ($3,662,000)
Dividends and accretion
on preferred stock 467,000 467,000 933,000 933,000
_______ _______ _______ _______
Net loss for common
stockholders $(2,410,000) $(2,154,000) $(4,787,000) ($4,595,000)
============ ============ ============ ============
Loss for common
stockholders per common
share $(0.19) $(0.17) $(0.38) $(0.37)
=========== =========== =========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
CONSOLIDATED INTERIM FINANCIAL STATEMENTS OF AMERICAN GAMING & ENTERTAINMENT,
LTD. FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 235,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,799,000
<PP&E> 12,678,000
<DEPRECIATION> 4,651,000
<TOTAL-ASSETS> 10,588,000
<CURRENT-LIABILITIES> 68,496,000
<BONDS> 0
0
15,237,000
<COMMON> 126,000
<OTHER-SE> (76,277,000)
<TOTAL-LIABILITY-AND-EQUITY> 10,588,000
<SALES> 0
<TOTAL-REVENUES> 445,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,559,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,784,000
<INCOME-PRETAX> (3,854,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,854,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,787,000)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>
