U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
American Gaming & Entertainment, Ltd.
(Name of small business issuer in its charter)
0-19049
Commission file number
Delaware 74-2504501
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Paramus, New Jersey 07652
(Address of principal executive office (Zip Code)
(609) 822-8505
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock ($0.01 par value per share) ("Common Stock")
(Title of Class)
Check whether the issuer (1) has 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 [ ]
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]<PAGE>
<PAGE> 2
Issuer's revenues for the fiscal year ended December 31, 1997
were approximately $633,000. On February 28, 1998, the aggregate
market value of the voting stock of the registrant held by non-
affiliates of the registrant was approximately $103,000.
On February 28, 1998 there were 12,532,102 shares of the
registrant's Common Stock outstanding.
_____________________________________________________
Additional Information
For the purpose of calculating the aggregate market value of the
registrant's Common Stock held by non-affiliates, it has been
assumed that only the outstanding Common Stock legally or
beneficially held by the directors and executive officers of the
registrant and the two stockholders indicated in "Security
Ownership" with the largest holdings of the registrant's Common
Stock are held by affiliates of the registrant. However, this
should not be deemed to constitute an admission that all of such
persons are, in fact, affiliates or that there are no other
persons who may be deemed to be affiliates of the registrant.<PAGE>
<PAGE> 3
AMERICAN GAMING & ENTERTAINMENT, LTD.
1997 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
PART 1
Item 1. Description of Business ............................ 4
Item 2. Description of Property ............................24
Item 3. Legal Proceedings ..................................24
Item 4. Submission of Matters to a Vote of
Security Holders ...................................28
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters.............................................29
Item 6. Management's Discussion and Analysis or Plan of
Operation...........................................31
Item 7. Financial Statements ...............................33
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............33
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Section 16(a) Beneficial
Ownership Report Compliance ........................34
Item 10. Executive Compensation .............................36
Item 11. Security Ownership of Certain Beneficial
Owners and Management...............................38
Item 12. Certain Relationships and Related Transactions .....42
Item 13. Exhibits and Reports on Form 8-K....................44
SIGNATURES...................................................87
<PAGE>
<PAGE> 4
PART I
Item 1. Description of Business
GENERAL
The Company owns equity interests in various properties which, at
the respective times of purchase, were anticipated to be utilized
in casino gaming projects. The Company has a 4.9% beneficial
equity interest in a riverboat gaming and entertainment complex
in Rising Sun, Indiana, which interest the Company has agreed to
sell by August 23, 1998 (See "- Investments - Indiana"). The
Company has entered into 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 the Company owns and on which the Company had
previously operated the Gold Shore Casino (See "- Investments -
Mississippi"). The Company owns a site in Alabama and a 15%
equity interest in the Marine Star (formerly known as the S.S.
Aquarama), which the Company believes are suitable for use as
casino gaming facilities if gaming legislation is enacted by
appropriate jurisdictions (See "- Investments - Mobile, Alabama
and - Empire/Marine Star"). Since December 1995, the Company is
no longer actively seeking to develop gaming projects and is
currently managing its equity interests. Given the Company's
present financial and liquidity position, the legal problems
described below relating to The Bennett Funding Group, Inc.
("Bennett Funding") and Bennett Management and Development Corp.
("Bennett Management") and the Company's other litigation
described below (see "- Liquidity and Continuation of Business"
and "Legal Proceedings"), the business of the Company is unlikely
to continue to be the ownership of equity interests in casino
gaming ventures.
Prior to December 1995, the Company's business was the provision
of development and management services for, and the acquisition
of equity ownership interests in, casino gaming ventures,
particularly in connection with the design, development,
financing and management of riverboat, dockside and land-based
casinos. During 1995, the Company owned, managed and operated the
Gold Shore Casino in Biloxi, Mississippi and managed the video
lottery and certain other gaming activities at Mountaineer Park
Racetrack and Resort in Chester, West Virginia (the "Mountaineer
Facility"). See "-Investments - Mississippi", and "- Discontinued
Ventures - West Virginia".
The Company conducts its business directly and through wholly-
owned subsidiaries. The term "Company" as used herein refers to
American Gaming & Entertainment, Ltd. and such subsidiaries
unless the context otherwise requires. The Company's principal
executive offices are located at One Woodland Avenue, Paramus,
New Jersey 07652; telephone: (609) 822-8505. The Company was
incorporated in 1988 under the laws of the State of Delaware.
<PAGE>
<PAGE> 5
LIQUIDITY AND CONTINUATION OF BUSINESS
The Company has sustained recurring operating losses since its
inception, including significant losses related to the Gold Shore
Casino, as more fully set forth below. The Company also has had
a history of insufficient liquidity and has been dependent upon
Shamrock Holdings Group, Inc., formerly known as Bennett
Holdings, Inc. ("Shamrock"), Bennett Funding and Bennett
Management (collectively, the ("Bennett Entities") for both
working capital and project related financing. However, as a
result of the bankruptcy filings of Bennett Funding and Bennett
Management on March 29, 1996 and the filing by the U.S.
Securities and Exchange Commission (the "Commission") of
securities fraud charges against Bennett Funding and Bennett
Management on March 28, 1996, the Company does not anticipate
receiving any additional funds from the Bennett Entities. As of
February 28, 1998, the Company owes approximately $62,920,000 to
Shamrock, which amount includes (i) approximately $2,701,000
under an operating lease between the Company and Bennett
Management (the "SCS Lease") with respect to the "Sioux City Sue"
riverboat vessel and its supporting barge (the "SCS Barge",
collectively with the "Sioux City Sue" riverboat vessel, the
"Vessels") which SCS Lease, as discussed below, Shamrock has
orally represented to the Company that Bennett Management, prior
to its bankruptcy filing, assigned to Shamrock and (ii) accrued
and declared dividends collectively totaling approximately
$303,000 which are due and payable on the Series C Cumulative
Preferred Stock ("Series C Preferred Stock") and Series D
Preferred Stock ("Series D Preferred Stock") (excluding accrued
but undeclared dividends collectively totaling approximately
$1,750,000 on the Series C Preferred Stock and Series D Preferred
Stock).
The Company had available cash of approximately $371,000 as of
February 28, 1998 and its only current significant sources of
cash receipts are payments of $25,000 per month under a note
issued to the Company in connection with the sale of its keno
operations (See "- Discontinued Ventures Keno"). 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 middle 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 will probably 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 the Charter
Agreement incorporating the terms of the Charter Term Sheet, as
defined below, is approved by the United States Bankruptcy Court,
Southern District of Mississippi (the "Bankruptcy Court") and the
Term Sheet, as defined below, is executed, and pursuant thereto
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,<PAGE>
<PAGE> 6
Bennett Management, through the end of 1998, based on the
Company's current level of operations and projected expenditures.
As of February 28, 1998, the Company had recorded as "Restricted
Cash" approximately $634,000 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 (the "Rising Sun Project"). 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 (see "- Investments - Indiana").
Pursuant to the Charter Agreement, PMCC made payments through
December 31, 1997 (the "Original Charter Payments") totaling
$5,918,000 into an escrow account (the "Escrow Account") for the
benefit of the creditors of AMGAM Associates ("AMGAM"), a wholly-
owned subsidiary of the Company and American Gaming and Resorts
of Mississippi, Inc. ("AGRM"), a wholly-owned subsidiary of the
Company. On October 22, 1997, the Company, Shamrock, the
committee for unsecured creditors in the bankruptcy proceeding of
AMGAM (the "AMGAM Committee"), the committee for unsecured
creditors in the bankruptcy proceeding of AGRM (collectively with
the AMGAM Committee, the "Committees") (collectively, the "AMGAM
Group") and PMCC entered into a term sheet (the "Charter Term
Sheet"). Pursuant to the Charter Term Sheet, among other things,
(i) within ten business days after an order of the Bankruptcy
Court approving an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet (the "Closing
Date"), PMCC shall pay $1,525,000 (the "Settlement Payment") into
the Escrow Account for the benefit of the creditors of AMGAM and
AGRM, (ii) PMCC shall pay into the Escrow Account a monthly
charter payment of $215,000 (the "PMCC Payments", previously a
monthly charter payment of approximately $329,000 pursuant to the
Charter Agreement) for 28 1/2 months, commencing December 1, 1997
and ending on April 15, 2000 (the "Remaining Charter Term"),
(iii) PMCC shall pay into the Escrow Account a late fee of
$21,500 for each monthly charter payment which is paid later than
the tenth of such month, (iv) PMCC and the AMGAM Group will fund
equally an escrow account not to exceed $1,000,000 to remove the
Gold Coast Barge from PMCC's Biloxi, Mississippi site at the end
of the Remaining Charter Term, (v) at any time during the
Remaining Charter Term, PMCC has the right to make a written
offer to purchase the Gold Coast Barge, which offer shall be
deemed accepted unless rejected by the AMGAM Group within thirty
days of receipt of such offer, (vi) the Charter Agreement or the
Gold Coast Barge may be assigned or sold, subject to PMCC's
written consent, which may not be unreasonably withheld, (vii)
during the Remaining Charter Term, PMCC has a right of first
refusal to purchase the Gold Coast Barge on the same terms and
conditions set forth in any offer acceptable to the AMGAM Group
and (viii) on the Closing Date, PMCC and the AMGAM Group shall
execute mutual releases and file appropriate pleadings seeking
dismissal, with prejudice, of all lawsuits and counterclaims,
including suits brought by the Company against<PAGE>
<PAGE> 7
PMCC and President Riverboat Casino - Mississippi, Inc. and
counterclaims filed by PMCC against the Company alleging various
respective breaches of the Charter Agreement. If the Bankruptcy
Court does not approve an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet and Company
does not, by some means, (i) receive its portion of the PMCC
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.
The Company, Shamrock, AMGAM, AGRM and the Committees are
presently negotiating revisions to a previously executed term
sheet (the "Original Term Sheet"; as proposed to be revised, the
"Term Sheet") for a proposed joint plan of liquidation (the
"Plan"), more fully described below, pursuant to which the PMCC
Payments and payments (the "FF&E Payments") with respect to
substantially all of the furniture, fixtures and equipment,
including certain slot machines, acquired by PMCC from AMGAM
formerly used in the operation of the Gold Shore Casino (the
"Acquired Equipment") would be deemed assets of the bankruptcy
estates of AMGAM and AGRM and the Company would receive a portion
of such aggregate payments, if any. As more fully described
below, upon confirmation of the Plan, all litigation brought
against the Company by the Committees would be dismissed,
including an adversary complaint (the "Complaint") filed by the
AMGAM Committee in the Bankruptcy Court challenging the 1995
transfers of the ownership interests in the Gold Coast Barge by
AGRM and AMGAM to the Company and the 1995 transfer of the
leasehold interest in the Gold Coast Barge by AMGAM to the
Company as fraudulent transfers or voidable preferences under the
U.S. Bankruptcy Code (the "Code"). In January 1998, the AMGAM
Committee voluntarily dismissed a motion filed in the Bankruptcy
Court seeking the substantive consolidation of the AMGAM and AGRM
bankruptcy proceedings. There can be no assurance that the Plan
will be implemented or that the Company will receive any payments
from the AMGAM or AGRM bankruptcy cases pursuant to the Plan or
otherwise.
The Company has also entered into an agreement with Shamrock (the
"Escrow Allocation Agreement") pursuant to which Shamrock will
receive (i) approximately $874,000 from the Settlement Payment,
(ii) approximately $129,000 per month from the PMCC Payments paid
into the Escrow Account during the Remaining Charter Term, (iii)
60% of any charter payments after the Remaining Charter Term, and
(iv) 67.5% of any net proceeds from the sale of the Gold Coast
Barge, which amounts, collectively, will reduce the Company's
indebtedness to Shamrock.
Pursuant to the Term Sheet, notwithstanding the Preliminary
Injunction (as defined below, see "- Investments Mississippi"),
the Company received approximately $5,563,000 from the Original
Charter Payments. Pursuant to the Charter Term Sheet, Term Sheet
and the Escrow Allocation Agreement, notwithstanding the
Preliminary Injunction, the Company will receive (i) <PAGE>
<PAGE> 8
approximately $188,000 in a lump sum payment from the Settlement
Payment, (ii) approximately $32,000 per month from the PMCC
Payments paid into the Escrow Account during the Remaining
Charter Term (collectively, with the lump sum payment, the
"AGEL/PMCC Payments"), (iii) 15% of any charter payments after
the Remaining Charter Term, and (iv) 7.5% of any net proceeds
from the sale of the Gold Coast Barge. There can be no assurance,
however, that the Bankruptcy Court will approve an amendment to
the Charter Agreement incorporating the terms of the Charter Term
Sheet or that the Bankruptcy Court will approve payments to the
Company from the Escrow Account prior to confirmation of a plan
of liquidation for AMGAM and AGRM.
If (i) the Company, AMGAM, AGRM and the Committees can not agree
on a joint consensual plan of liquidation for AMGAM and AGRM
incorporating the terms of the Term Sheet or any other acceptable
terms or any such plan is agreed upon but not approved by the
creditors in the AMGAM and AGRM bankruptcy proceedings in
accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) the AMGAM Committee
prevails on the Complaint, the Company would not be able to meet
its obligations as they come due. Additionally, if the Company
and the Committees can not agree on a joint consensual plan of
liquidation for AMGAM and AGRM incorporating the terms of the
Term Sheet or any other acceptable terms, and, as a result, the
Bankruptcy Court (i) terminates the Preliminary Injunction and
(ii) disallows any payments to the Company for its monthly
operating expenses from the PMCC Payments, 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. 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. Even if the Plan is confirmed in
the AMGAM and AGRM bankruptcies, and the Company receives its
portion of the PMCC Payments, such payments would not be
sufficient to satisfy the Company's currently anticipated
operating needs and its obligations to Shamrock and Bennett
Management.
As discussed below, the Company is seeking the modification or
termination of certain agreements (excluding Shamrock's
assumption of the obligation related to a first preferred ship
mortgage (the "Ship Mortgage") on the Gold Coast Barge of
approximately $2,278,000, which assumption has been consummated)
executed between the Company, Shamrock and Bennett Management in
April 1995 and July 1995, whereby the Company agreed to assign
all its rights and interests in the Charter Agreement, including
the rights to all PMCC Payments, and the Gold Coast Barge to
Shamrock and Bennett Management, respectively, for cancellation
of approximately $22,722,000 in debt due Shamrock with respect to
the Gold Shore Casino (the "Barge Debt") and Shamrock's
assumption of the Ship Mortgage (collectively, the "Bennett Debt
Exchange") and a restructuring of all other obligations due from
the Company to Shamrock because (i) the Company would not be able
to meet all of its obligations as they come due if all of the
PMCC Payments were required to be paid to Shamrock and (ii) the
Company is otherwise <PAGE>
<PAGE> 9
unable to service the debt or repay the principal due to Shamrock
under all other such obligations.
Shamrock has orally represented to the Company that Bennett
Management, prior to its bankruptcy filing, assigned to Shamrock
all of Bennett Management's rights and obligations under all
agreements previously executed by and between the Company and
Bennett Management including, without limitation, (i) agreements
constituting the Bennett Debt Exchange, (ii) a security agreement
whereby the Company granted to Bennett Management a security
interest in all of the Company's accounts receivable and all bank
accounts in the State of New Jersey to secure all obligations
owing by the Company to Bennett Management and its affiliates and
to obtain the agreement of Shamrock to enter into the Bennett
Debt Exchange (the "Security Agreement") and (iii) the SCS Lease.
However, the Company has not been provided with written evidence
of such assignment and, as the result of the bankruptcy filing of
Bennett Management, any such assignment might be challenged as a
fraudulent transfer or voidable preference under the Code. There
can be no assurance that such assignment was entered into between
Shamrock and Bennett Management or, if entered into, that it will
not be voided as a fraudulent transfer or voidable preference in
the bankruptcy proceeding of Bennett Management or otherwise
voided on other grounds if any such assignment became effective
within one year prior to the bankruptcy filing of Bennett
Management.
The Bennett Debt Exchange was to become effective on July 21,
1995 (the "BDE Date"), the day on which Shamrock was licensed to
own the Gold Coast Barge as a gaming facility by the Mississippi
Gaming Commission. However, the Company continued to utilize the
PMCC Payments for its operating needs after the BDE Date because
the Company's management determined on the BDE Date that, because
of the Company's liquidity problems, consummating the Bennett
Debt Exchange and transferring the Charter Agreement and PMCC
Payments would prevent the Company from meeting its obligations
to its creditors. In the opinion of management, consummating the
Bennett Debt Exchange at that time would have required the
Company to file for protection under the Code.
In October 1995, Shamrock notified the Company that the Company
had not fulfilled its obligations under the Bennett Debt Exchange
to assign the Charter Agreement and the Gold Coast Barge from the
Company to Shamrock and Bennett Management, respectively, and
that Shamrock is entitled to all PMCC Payments. Additionally, in
June 1996, the Trustee (the "Trustee") for Bennett Funding and
Bennett Management under Chapter 11 of the Code, who, pursuant to
information from the Trustee, is the sole owner of Shamrock,
orally notified the Company that Shamrock was entitled to all
PMCC Payments to be received by the Company as a result of
Shamrock being the holder of the Ship Mortgage and a second
preferred ship mortgage on the Gold Coast Barge in the amount of
$33,000,000 (the "Second Mortgage"), which secures the Barge
Debt. Accordingly, the Company has recorded the PMCC Payments
received by the Company from the BDE Date through November 30,
1997 (totaling approximately $5,917,000) as indebtedness due to
Shamrock ("PMCC/Bennett Debt"). In addition, the Company has (a)
recorded interest expense on such PMCC/Bennett Debt and (b) for
the reasons set forth below, has continued to record (i) interest
expense on the Barge Debt that was to have been canceled by <PAGE>
<PAGE> 10
Shamrock, or, if necessary, Bennett Management pursuant to the
Bennett Debt Exchange and (ii) depreciation and amortization
expense on the Gold Shore Barge that was to have been transferred
to Shamrock pursuant to the Bennett Debt Exchange (although, as
discussed below, the Company is not recognizing any rental
revenue associated with such expenses). Except for the Escrow
Settlement Agreement, Shamrock has not rescinded such letter nor
executed documents agreeing to a termination or postponement of
the Bennett Debt Exchange. The Company has not yet transferred
the Gold Shore Barge, the Charter Agreement and PMCC Payments
received by the Company from the BDE Date through November 30,
1997. Additionally, Shamrock or, to the extent an assignment to
Shamrock of Bennett Management's interest in the agreements
constituting the Bennett Debt Exchange never took place or are
voided as a fraudulent transfer or voidable preference in the
bankruptcy proceeding of Bennett Management, Bennett Management
has not yet canceled the Barge Debt as required by the Bennett
Debt Exchange. If Shamrock, and, to the extent an assignment to
Shamrock of Bennett Management's interest in the agreements
constituting the Bennett Debt Exchange never took place or is
voided as a fraudulent transfer, voidable preference or otherwise
in the bankruptcy proceeding of Bennett Management, Bennett
Management agree to a termination of the Bennett Debt Exchange as
of the respective dates of the agreements comprising the Bennett
Debt Exchange (excluding Shamrock's assumption of the Ship
Mortgage) and agree to continue to let the Company utilize the
PMCC Payments (subject in all cases to the Preliminary Injunction
and the Term Sheet) (i) the Company would recognize as revenue
amounts previously recorded as PMCC/Bennett Debt from the BDE
Date through November 30, 1997 as of the date of such termination
and (ii) the Company would reverse interest expense recognized on
such PMCC/Bennett Debt.
Based upon the Escrow Settlement Agreement, the Company is
entitled to utilize and retain the AGEL/PMCC Payments from
December 1, 1997. However, the Company did not recognize as
revenues any AGEL/PMCC Payments in 1997 because the there can be
no assurance that the Bankruptcy Court will approve an amendment
to the Charter Agreement incorporating the terms of the Charter
Term Sheet.
The Gold Coast Barge (with a value on the Company's books
totaling approximately $8,686,000 net of accumulated depreciation
and amortization, as of December 31, 1997) that was to have been
transferred to Bennett Management pursuant to the Bennett Debt
Exchange and the Barge Debt (totaling approximately $22,722,000
as of December 31, 1997, and accrued interest on such debt of
approximately $7,566,000 from the BDE Date through December 31,
1997) that was to have been canceled by Shamrock or, if
necessary, Bennett Management pursuant to the Bennett Debt
Exchange are shown as assets and liabilities, respectively, of
the Company as of December 31, 1997. Such amounts are shown on
the accompanying Consolidated Balance Sheet as of December 31,
1997 because documents have not been executed to formally
transfer the Gold Coast Barge from the Company to Bennett
Management and to forgive such indebtedness by Shamrock or, if
necessary, Bennett Management all in accordance with the terms of
the Bennett Debt Exchange. The related revenues for the year
ended December 31, 1997, however, were not recognized as such and
instead are recorded as PMCC/Bennett Debt because (i) in June
1996 the Trustee notified the Company that Shamrock is entitled
to all PMCC Payments to be received by the Company and (ii)
except for the Escrow Settlement Agreement, as of December 31,
1997 <PAGE>
<PAGE> 11
Shamrock had not executed documents agreeing to a termination or
postponement of the Bennett Debt Exchange and therefore the
Company may not have had a right to keep such revenues prior to
December 1, 1997.
There can be no assurance that Shamrock or, if necessary, Bennett
Management will agree to modify or terminate the Bennett Debt
Exchange or restructure all other obligations due from the
Company to Shamrock and, if applicable, Bennett Management.
Failure to obtain such modification, termination or restructuring
would have a material adverse effect on the Company and the
Company would need to pursue a formal plan of reorganization or
liquidation. Any action to be taken by Bennett Management in
connection with modifying or terminating the Bennett Debt
Exchange would probably require the approval of the bankruptcy
court before which the Bennett Management bankruptcy proceeding
is being heard.
In addition to the foregoing, the Company is delinquent in the
payment of interest due on its various obligations to Shamrock
totaling approximately $16,965,000 as of February 28, 1998 and is
therefore in default with respect to such payments under the
Company's various loan agreements with Shamrock. If Shamrock
takes any action with respect to its rights and remedies in
connection with such defaults, it would have a material adverse
effect on the Company's business and financial condition and the
Company would need to pursue a formal plan of reorganization or
liquidation. The Company is also delinquent in the payment of
rent totaling approximately $2,701,000 as of February 28, 1998
under the SCS Lease. Shamrock or Bennett Management, to the
extent an assignment to Shamrock of Bennett Management's interest
in the Security Agreement never took place or is voided as a
fraudulent transfer, voidable preference or otherwise in the
bankruptcy proceeding of Bennett Management, has a security
interest in certain assets of the Company including (i) the Gold
Coast Barge pursuant to the Ship Mortgage, the Second Mortgage
and other agreements and (ii) all of the Company's accounts
receivable and bank accounts located in the State of New Jersey
and therefore because of such defaults could foreclose on such
assets in the amount of such defaults. There can be no assurance
that Shamrock and, if necessary, Bennett Management will agree on
and execute an agreement restructuring the Company's obligations
to Shamrock and, if applicable, Bennett Management. Additionally,
any action required to be taken by Bennett Management would
probably require the approval of the bankruptcy court before
which the Bennett Management bankruptcy proceeding is being
heard. Since the announcement of securities fraud charges
against, and the commencement of bankruptcy proceedings by,
Bennett Funding and Bennett Management, and certain related
parties, and the transfer of all of the outstanding stock of
Shamrock by Mr. Michael Bennett to the Trustee, the Company has
had preliminary negotiations with the Trustee on a restructuring
of the Company's obligations to Shamrock and, if applicable,
Bennett Management. Even if the Plan is confirmed, and such a
restructuring is consummated, there can be no assurance that the
Company would receive payments pursuant to the Plan sufficient to
satisfy the Company's currently anticipated operating needs and
its obligations to Shamrock and, if applicable, Bennett
Management, as restructured.
The Company has not experienced any success in raising debt or
equity financing from sources independent of the Bennett Entities
and has no present commitments or other alternatives for <PAGE>
<PAGE> 12
such financing. Given the Company's historical operating losses
and present liquidity position and the legal problems described
above relating to certain Bennett Entities it is unlikely that
the Company will achieve any success raising additional equity,
working capital or long-term project related financing.
Given the Company's present financial and liquidity position, the
legal problems described above relating to certain Bennett
Entities and the Company's other litigation described below (see
"Legal Proceedings"), 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 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 on terms
acceptable to the Company or terminate the Bennett Debt Exchange
(excluding Shamrock's assumption of the Ship Mortgage) and
restructure all other obligations due from the Company to
Shamrock and, if applicable, Bennett Management, (iii) consummate
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, and
(iv) satisfactorily resolve the litigation filed against the
Company (see "Legal Proceedings"). However, there can be no
assurance the Company will be successful in obtaining Shamrock's
and, if necessary, Bennett Management's agreement to modify on
terms acceptable to the Company or terminate the Bennett Debt
Exchange (excluding Shamrock's assumption of the Ship Mortgage)
and restructure all other 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. 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 the
stockholders of the Company will recover any of their investment
in the Company.
INVESTMENTS
Indiana. The Company owns the RSR Interest, representing the
equivalent of a 4.9% equity interest in the Rising Sun Project.
Effective August 23, 1996, the Company transferred legal title to
the RSR Interest to NBD, as trustee. Additionally, at such time,
the Company granted an irrevocable proxy to the other members of
RSR (collectively, the "Remaining Members") to vote the RSR
Interest in the same manner and proportion as the Remaining
Members vote on any matter, provided, however, that such proxy
may not be exercised to vote in favor of any action that could
reasonably be viewed as decreasing or otherwise adversely
affecting the value of the RSR Interest or the ability to sell or
otherwise transfer the RSR Interest. Prior to August 23, 1998,
the Company may instruct NBD to sell any portion of the RSR
Interest, for the benefit of the Company, to a third party
approved by the Indiana Gaming Commission ("IGC"), subject to
rights of first refusal held by RSR, the Remaining Members and
Indiana RBG, L.P. ("RBG"), the <PAGE>
<PAGE> 13
partner of RSR in the Rising Sun Project. Any portion of the RSR
Interest which is not transferred prior to August 23, 1998 shall
be purchased from NBD, for the benefit of the Company, by either
the Remaining Members or RSR at an average appraised fair market
value. As a result of the Company, RSR, the Remaining Members and
RBG advising the staff of the IGC of their intention to enter
into the foregoing arrangements, no determination on the
Company's suitability for licensure has been made by the IGC and
the Company does not believe that the IGC has any present
intention of making a determination on the Company's suitability
for licensure.
Mississippi. Prior to 1995, AMGAM operated the Gold Shore Casino
in Biloxi, Mississippi. As a result of AMGAM's continuing
operating losses and liquidity problems, as well as an inability
on the part of the Company to raise the financing required to
address the operating and liquidity problems of the Gold Shore
Casino, the Company, on February 17, 1995, entered into the
Charter Agreement with PMCC for use at PMCC's existing site in
Biloxi, Mississippi. The Gold Coast Barge had been transferred to
the Company from AGRM in exchange for the cancellation of AGRM's
guaranty to the Company of certain unpaid lease obligations of
AMGAM to the Company. The AMGAM Committee has filed the Complaint
in the Bankruptcy Court challenging such transfer seeking, among
other things, that all PMCC Payments be deposited into an escrow
account for the benefit of the creditors of AMGAM and AGRM (See
"- Liquidity and Continuation of Business" and "Legal
Proceedings"). Pursuant to terms of the Charter Agreement, PMCC
is responsible for operating, insurance and maintenance costs of
the Gold Coast Barge. The Gold Shore Casino ceased operations on
May 14, 1995 and the Charter Agreement became effective on June
18, 1995.
In April 1995 and July 1995, the Company, Shamrock and Bennett
Management executed the Bennett Debt Exchange (See "-Liquidity
and Continuation of Business").
On May 5, 1995 AMGAM was served by certain creditors with a
petition filed in the Bankruptcy Court seeking liquidation of
AMGAM under Chapter 7 of the Code. On May 25, 1995 AMGAM
responded to such petition by requesting the Bankruptcy Court to
convert the case into a reorganization under Chapter 11 of the
Code, which request was granted by the Bankruptcy Court. On
February 1, 1996 the Bankruptcy Court approved the sale of the
leases comprising the Gold Shore Casino site to a third party for
the sum of $750,000 plus the assumption and payment of all
outstanding liabilities relating to and arising from such leases.
On March 12 and 13, 1996, the personal property of AMGAM was sold
at auction for the net sum of approximately $337,000.
On June 1, 1995, AGRM filed a voluntary petition for
reorganization under Chapter 11 of the Code with the Bankruptcy
Court. On December 20, 1995 the Bankruptcy Court lifted the
automatic stay to allow an action of foreclosure on one of two
parcels of real property in Vicksburg, Mississippi owned by AGRM
which served as collateral for certain borrowing agreements. In
the first quarter of 1996, the creditors under such borrowing
agreements foreclosed on such property. On April 8, 1996, the
Bankruptcy Court lifted the automatic stay to allow an action of
foreclosure on the second parcel of the real property owned by
AGRM which <PAGE>
<PAGE> 14
served as collateral for certain borrowing agreements and the
creditors under such borrowing agreements subsequently foreclosed
on such parcel. Additionally, on March 14, 1996 the Bankruptcy
Court approved the rejection by AGRM of its lease with the lessor
of a parcel of real property in Vicksburg, Mississippi
constituting the remainder of the property in which AGRM had an
interest.
Pursuant to an order (the "PMCC Order") of the Bankruptcy Court,
on September 21, 1995 PMCC acquired from AMGAM the Acquired
Equipment in exchange for the promise to make to AMGAM the FF&E
Payments, consisting of an initial payment of approximately
$48,000 and twenty-six equal monthly payments of approximately
$121,000 through October 1, 1997 totaling approximately
$3,188,000. Pursuant to the PMCC Order (a) commencing October 1,
1995 any such payments made by PMCC to AMGAM are escrowed in the
AMGAM bankruptcy proceeding pending a determination by the
Bankruptcy Court as to the disposition of such proceeds and (b)
approximately $22,000 was disbursed from such account in
satisfaction of the secured claim of one creditor in the AMGAM
bankruptcy proceeding. PMCC made FF&E Payments through July 1996
totaling approximately $1,618,000 (of which amount the Company
received approximately $411,000). On January 31, 1997 AMGAM and
the AMGAM Committee filed suit in the Bankruptcy Court against
PMCC and an affiliate seeking payment of all FF&E Payments
currently due under the PMCC Order, among other relief. As
currently agreed under the Charter Term Sheet, such suit will be
dismissed, with prejudice, on the Closing Date (see "- Liquidity
and Continuation of Business").
On April 29, 1996, a preliminary injunction (the "Preliminary
Injunction"), which was agreed upon by the Committees and the
Company, was entered by the Bankruptcy Court, (i) to require the
PMCC Payments from May 1996 through July 1996 be deposited into
the Escrow Account pending confirmation of a proposed joint plan
of liquidation and (ii) to allow a monthly payment from the to
the Company in the amount of $304,000 for the Company's monthly
operating expenses.
The Preliminary Injunction was revised and extended by the
Bankruptcy Court effective August 1, 1996 (i) to require the PMCC
Payments from August 1996 until the agreement by the Company and
the Committees on a joint plan of liquidation of the AMGAM and
AGRM estates or upon further order of the Bankruptcy Court be
deposited into the Escrow Account pending confirmation of a
proposed joint plan of liquidation and (ii) to allow a monthly
payment from the Escrow Account to the Company in the amount of
approximately $282,000 for the Company's monthly operating
expenses (subject, however, to the Term Sheet).
The Company, Shamrock, AMGAM, AGRM and the Committees are
presently negotiating the Term Sheet, which terms are to be
incorporated into the Plan. Pursuant to the Plan as currently
being negotiated by such parties, (i) the Company would transfer
to a creditors trust for the holders of allowed claims in the
bankruptcy proceedings of AMGAM and AGRM (excluding the Company
and Shamrock) an undivided 25% (22.7% in the Original Term Sheet)
ownership interest in the Gold Coast Barge and the Charter
Agreement, which assets will be held by a trustee (the
"Mississippi Trustee"), (ii) the Mississippi Trustee would
receive and disburse in <PAGE>
<PAGE> 15
accordance with the terms of the Plan all PMCC Payments and all
FF&E Payments, (iii) each administrative and priority claim, as
defined in the Code, incurred in connection with the bankruptcy
proceedings of AMGAM and AGRM would be paid in full from the
respective estates of AMGAM and AGRM in accordance with statutory
priorities pursuant to the Code, (iv) each secured claim
(excluding the Ship Mortgage) would be paid in full from the sale
of the related collateral, (v) each unsecured claim, excluding
any claims of the Company and Shamrock, would be paid on a pro
rata basis (a) from the assets of the respective estates of AMGAM
and AGRM, including all FF&E Payments made from October 1, 1995
through October 1, 1997 and the funds remaining in the Escrow
Account, (b) from a monthly payment in the aggregate amount of
approximately $54,000 (approximately $68,000 in the Original Term
Sheet) out of the PMCC Payments (which total approximately
$215,000 (approximately $329,000 in the Original Term Sheet) per
month) from the date the Plan is confirmed (the "Confirmation
Date") through the end of the Remaining Charter Term and (c) from
25% ( 22.7% in the Original Term Sheet) of the net proceeds of a
sale of the Gold Coast Barge, if any, and (vi) the Company's and
Shamrock's unsecured claims and the Ship Mortgage (in the
collective claimed amount of $33,000,000) would be paid from the
balance of (a) the monthly PMCC Payments (approximately $161,000
(approximately $259,000 in the Original Term Sheet)) from the
Confirmation Date and (b) the net proceeds of a sale of the Gold
Coast Barge, if any. As stated above, pursuant to the Escrow
Allocation Agreement, Shamrock (i) will receive approximately
$874,000 in a lump sum payment from the Settlement Payment and
(ii) will receive approximately $129,000 per month from the PMCC
Payments paid into the Escrow Account during the Remaining
Charter Term, which amounts, collectively, will reduce the
Company's indebtedness to Shamrock.
The amounts to be paid to creditors would be subject to the claim
allowance process in the AMGAM and AGRM bankruptcies, pursuant to
which all allowed claim amounts, in the order set forth above,
would be fixed for purposes of distributions under the Plan.
Prior to the final approval of any settlement agreement
incorporating the terms of the Plan, the Company and Shamrock
shall advise AMGAM, AGRM and the Committees of the allocation
between the Company and Shamrock of the distributions to be made
pursuant to clause (vi) in the immediately preceding paragraph.
The Bankruptcy Court set May 17, 1996 as the final date for
filing proofs of claim or interest in both the AMGAM and AGRM
bankruptcy cases, except with respect to the Bennett Entities,
for which the Bankruptcy Court has extended such date until the
Confirmation Date. Additionally, pursuant to the Plan, the
Committees would agree to stay all litigation, including the
Complaint, until the Confirmation Date, at which time the
Committees would dismiss the Complaint and all other litigation
brought against the Company with prejudice, that is, the
Committees would be precluded from filing any action against the
Company based on the alleged causes of action set forth in the
Complaint or any such other litigation.
There can be no assurance that the Company, AMGAM, AGRM and the
Committees will agree on a joint plan of liquidation for AMGAM
and AGRM with terms and conditions substantially equivalent to
the Plan, that the Company will receive any distributions under
the Plan, that the creditors in the AMGAM and AGRM bankruptcy
proceedings will approve any such plan in <PAGE>
<PAGE> 16
accordance with the provisions of the Code or that any such plan
will thereafter be confirmed by the Bankruptcy Court.
In the third quarter of 1996, the Company recognized a write down
of $2,146,000 in the value of its investment in the Gold Coast
Barge and the related leasehold improvements to reflect their
appraised market value.
Nevada. On May 31, 1995 the Company consummated an agreement with
Fitzgerald's Reno, Inc. to purchase the Harolds Club casino in
Reno, Nevada (which is not presently operating as a casino and
which would require substantial renovations and equipment
purchases to enable it to operate as a casino) for a purchase
price of $8,900,000, consisting of $1,150,000 previously paid
into escrow by the Company and $7,750,000 provided by Shamrock.
The Company did not have sufficient funds to complete the
purchase. To prevent the Company from forfeiting the escrowed
funds because of a failure to consummate the purchase by the date
required in the agreement, Shamrock agreed to provide the
additional financing in exchange for the transfer to it by the
Company of the property constituting the Harolds Club casino, all
as more fully described below.
Pursuant to an agreement between Shamrock and the Company (the
"HC Purchase Agreement") under which Shamrock provided the
necessary funds to the Company to close the purchase of the
Harolds Club casino in Reno, Nevada, the Company transferred to
Shamrock title to the land and the building related to the
Harolds Club, Shamrock canceled $650,000 of the Company's then
outstanding indebtedness to Shamrock and caused Bennett Funding
to cancel $500,000 of the Company's then outstanding indebtedness
to Bennett Funding, and the Company agreed to transfer to
Shamrock all of the Company's rights, title and interest in
certain land leases related to the Harolds Club by July 30, 1995.
The Company is in breach of the latter provision because such
transfer has not been completed pending the negotiation by the
Company with Shamrock relating to possible future sale or
development of the Harolds Club. The HC Purchase Agreement does
not give Shamrock any particular rights with respect to such
breach by the Company. Although the Company is obligated until
such transfer to make all lease payments under such leases and
notwithstanding that such leases have not yet been assigned to
Shamrock, since July 30, 1995 Shamrock has assumed responsibility
for all carrying costs of the Harolds Club property including,
but not limited to, such lease payments, taxes, insurance and
utilities. However, 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 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 lease payments from April
1996 through February 1998 due under such leases or quarterly
property taxes due under such leases, collectively totaling
approximately $1,460,000. 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. Four such leases require aggregate
annual lease payments of approximately $548,000 for each of the
years 1998, 1999 and 2000, subject to increase based upon
increases in the Consumer Price Index, and have terms ending
between April 2001 and October 2022. A fifth land lease relating
to the Harolds Club, with an annual lease payment of
approximately $72,000, subject to increase based upon increases
in the <PAGE>
<PAGE> 17
Consumer Price Index, expired in June 1997. On March 25, 1997,
the Company exercised its option to renew such land lease.
However, the lessor has advised the Company that such option may
not be exercised until all defaults currently existing under such
land lease, including defaults in the payment of rent and real
property taxes, are cured in full. If such land lease is not
renewed, sale or development of the Harolds Club could be
adversely affected.
The Company has recorded the unpaid lease payments and property
taxes from April 1996 through December 1997 totaling
approximately $1,356,000 (the "Unpaid Harolds Club Obligations")
as current liabilities as of December 31, 1997. The Company has
also recorded the amount of the Unpaid Harolds Club Obligations
as a receivable due from Shamrock as of December 31, 1997, but,
as a result of the Company's determination as of December 31,
1997 that there is a substantial likelihood that such amount will
be uncollectible, wrote-off such amount as of December 31, 1997.
In September 1996, Shamrock and the Company entered into an
agreement (the "HC Reimbursement Agreement") pursuant to which
Shamrock has agreed, upon the sale of the Harolds Club, to
reimburse the Company for (i) all costs and expenses, in an
amount not to exceed $15,000, incurred by the Company in
connection with such sale, (ii) all reasonable attorneys' fees
incurred by the Company in connection with litigation commenced
against, among others, the Company by the five lessors of the
Harolds Club property seeking, among other relief, payment of all
unpaid lease payments and property taxes (see "Legal
Proceedings"), and (iii) all reasonable costs and expenses
incurred by the Company in connection with the operation and
maintenance of the Harolds Club.
Pursuant to agreements between Shamrock and the Company dated as
of August 15, 1995 (the "Harolds Agreements"), the Company has
the right to lease Harolds Club from Shamrock or, under certain
circumstances, manage the Harolds Club. The Company does not
have, nor does it anticipate having, the financial ability or
personnel to exercise such lease option. Additionally, the
Company has no current intention of exercising such lease option
or managing the Harolds Club.
The Company is precluded from conducting casino operations in the
Harolds Club prior to receipt of a gaming license from the Nevada
State Gaming Control Board. In January 1996, the Company
withdrew, without prejudice to reapply, a previously filed
licensing application.
Mobile, Alabama. Prior to 1995, the Company acquired, for
$1,006,000 in cash, a former railroad station in Mobile, Alabama
(the "GM&O Building"), which the Company believes is suitable for
use as a casino gaming facility if the State of Alabama enacts
gaming legislation. In the second quarter of 1995, as a result of
the Company's determination that there is a substantial
likelihood that the GM&O Building will not be able to be utilized
as a gaming facility in the next few years, the Company
recognized a write down of $280,000 in the value of its
investment in the GM&O Building to reflect its estimated sale
value if it is unable to be developed as a gaming facility. In
the third quarter of 1996, the Company recognized an additional
writedown of $351,000 in the value of its investment in the GM&O
Building to reflect an appraisal of its fair market value. The
Company does not have, nor does it anticipate having, the
financial ability or personnel to develop the GM&O Building as a
gaming or other facility.<PAGE>
<PAGE> 18
On July 2, 1997, the Company agreed to sell the GM&O Building in
Mobile, Alabama to the City of Mobile for approximately $423,000,
subject to approval of the City Council of the City of Mobile.
The Company intends to use the net sales proceeds for working
capital purposes. The sale was scheduled to close on or before
September 30, 1997, but such closing has been postponed until
such time as the sale has been approved by the State Department
of Transportation of Alabama ("ALDOT"). There can be no
assurance, however, that ALDOT will approve the purchase of the
GM&O Building by the City of Mobile. If the sale of the GM&O
Building to the City of Mobile does not close, the Company will
assess other opportunities to sell the GM&O Building.
Empire/Marine Star. Prior to 1995, the Company invested
$3,000,000 in cash to acquire a 15% initial equity interest (with
the right to increase its percentage ownership to 30%) in Empire
Cruise Lines, Ltd., a Delaware corporation ("Empire"), which
acquired ownership of the Marine Star, a U.S. flag cruise ship
suitable for refurbishment as a gaming vessel. Empire had no
prior operating history or business operations and was formed
solely for the purpose of acquiring and refurbishing the Marine
Star. The Marine Star has been docked in protected fresh waters
since 1963 when it left service as a ferry on the Great Lakes.
The vessel was constructed in 1945 and originally served as a
troop carrier for the United States Navy for three years. Under
an agreement with Empire, the Company has the right, under
certain circumstances, to manage the Marine Star. The Company
does not have, nor does it anticipate having, the financial
ability or personnel to manage such property as a gaming or other
facility. The Company is currently assessing opportunities to
sell its equity ownership in Empire. Additionally, the Company,
on behalf of Empire, is currently seeking opportunities to sell
the Marine Star. As a result of the Company's determination in
the second quarter of 1995 that there was a substantial
likelihood that the Marine Star will not be able to be utilized
as a gaming project in the next few years, the Company recognized
a write down of $2,250,000 in the value of its investment in
Empire to reflect the estimated net scrap metal proceeds which
would be received by the Company if the Marine Star was unable to
be developed as a gaming project and instead sold for its scrap
metal value. As a result of the Company's determination in the
fourth quarter of 1996 that there (i) is a substantial likelihood
that the Marine Star will not be able to be utilized as a gaming
project and (ii) the outstanding carrying costs of the Marine
Star exceed its estimated net scrap metal value, the Company
wrote off its investment of $750,000 in Empire.
DISCONTINUED VENTURES
Prichard, Alabama. The Company purchased seven adjoining parcels
of real estate in Prichard, Alabama for a total of approximately
$676,000 for possible development in connection with a casino
gaming facility. The Company completed those purchases in 1995.
On March 27, 1997, the Company sold such parcels to the City of
Prichard for $110,000. The net sales proceeds of approximately
$98,000 were used to repay a portion of a promissory note payable
to a former employee of the Company related to expenses that such
employee incurred during his employment with the Company, which
note was secured by such parcels. In addition, the Company had a
lease through July, 1997 for another parcel of real estate in
Prichard, Alabama at a rent of approximately $22,000 per year,
which lease was not renewed.
<PAGE>
<PAGE> 19
Keno. On March 28, 1996 the Company entered into an assignment
and transfer agreement (the "Keno Agreement") with American
Heartland Corporation ("AHC"), and Big Red Keno, Ltd., a licensed
keno operator in Omaha, Nebraska ("BRK"), pursuant to which: (i)
the Company assigned, and AHC assumed, all of the Company's
rights and obligations under a certain financing agreement with
BRK to provide equipment, services and financing for the
operation of a multiple parlor keno game in the City of Omaha in
exchange for a revenue participation equal to 50% of cash net
income of BRK after deduction of certain cash payments by BRK:
(ii) the Company transferred and assigned to AHC all of the
Company's right, title and interest to all of the assets utilized
by the Company in the conduct of its keno gaming activities (the
"Keno Assets"), including, without limitation, the Company's
computerized keno system and all maintenance and servicing
agreements with the licensed operators for stations and locations
at which the Company's computerized keno system is utilized;
(iii) the Company agreed not to compete, directly or indirectly,
with AHC or BRK as a distributor, manufacturer or maintainer of
keno equipment or software, other than in the normal course of
any casino operations of the Company for a period of five years;
(iv) AHC paid the Company $500,000 on March 29, 1996; and (v) AHC
issued and delivered its promissory note to the Company in the
principal amount of approximately $1,112,000 (the "Keno Note").
The Keno Note requires principal and interest payments, at an
interest rate of 8% per annum, based on a fifty-three month
amortization with payments commencing on April 28, 1996. The
Company has received principal and interest payments totaling
$575,000 through February 28, 1998. The Keno Note is secured by
the Keno Assets and is guaranteed by BRK, which guarantee is
secured by keno equipment previously provided to BRK by the
Company.
Sioux City Sue. Effective May 1994, Bennett Management
consummated the purchase of the Vessels from a third party. The
Company believed, at such time, the Vessels were suitable for
riverboat gaming operations and planned to use the Vessels for
such operations if successful in obtaining a gaming license in
any of a number of jurisdictions in which riverboat gaming has
been legalized or is being considered for legalization.
In conjunction therewith, the Company entered into the SCS Lease
with Bennett Management whereby the Company leased the Vessels
for casino gaming purposes at a monthly rental of approximately
$106,000 plus operating and maintenance expenses. The SCS Lease
was approved by a special committee of the Board of Directors
which makes recommendations to the Board of Directors concerning
potential transactions between the Company and entities which may
be deemed affiliates of the Company and such action was ratified
by the Board of Directors of the Company. As a result of the
Company's determination in 1995 that there was a substantial
likelihood that the Company would not record any revenues from
the Vessels through the end of the SCS Lease term to offset the
remaining lease payments due Bennett Management under the SCS
Lease from January 1, 1996 to the end of the lease term totaling
approximately $4,463,000, such remaining lease payments were
recognized as a liability as of December 31, 1995 by the Company.
The Company has been advised by Shamrock that the SCS Barge was
sold by Shamrock on November 20, 1996. The Company has advised
Shamrock that it believes that the SCS Lease terminated on such
date and accordingly reversed the remaining lease payments due<PAGE>
<PAGE> 20
Bennett Management under the SCS Lease from November 20, 1996 to
the end of the lease term totaling approximately $3,329,000. The
Company has not paid approximately $2,701,000 in rent to Bennett
Management due under the SCS Lease from November 10, 1994 through
November 20, 1996.
Shamrock has orally represented to the Company that Bennett
Management, prior to its bankruptcy filing, assigned to Shamrock
all of Bennett Management's rights and obligations under the SCS
Lease. However, the Company has not been provided with written
evidence of such assignment and, as the result of the bankruptcy
filing of Bennett Management, any such assignment might be
challenged as a fraudulent transfer or voidable preference under
the Code. There can be no assurance that such assignment was
entered into between Shamrock and Bennett Management or, if
entered into, that it will not be voided as a fraudulent transfer
or voidable preference in the bankruptcy proceeding of Bennett
Management.
West Virginia. The Company had been engaged by Mountaineer Park,
Inc. ("Mountaineer") pursuant to a management agreement (the
"Mountaineer Park Management Agreement") to provide management
services for the video lottery and other gaming activities of
Mountaineer which may be permitted from time to time under West
Virginia law other than pari-mutuel horse racing and off-track
betting on horse racing (the "Managed Activities") at the
Mountaineer Facility. The provision of such services began in
1994.
Under the Mountaineer Park Management Agreement, the Company was
entitled to receive a management fee of 3% of the gross revenues
of the Managed Activities at the Mountaineer Facility. In
addition, the Company was entitled to receive 8% of the earnings
before interest, taxes, depreciation and amortization of all
businesses conducted at or, in the case of off-track betting,
generated as a result of, the Mountaineer Facility, including the
Managed Activities and all pari-mutuel horse racing and off-track
betting on horse racing.
On June 30, 1995 the Company, Mountaineer and Winners
Entertainment, Inc., the parent of Mountaineer, entered into an
agreement pursuant to which the Mountaineer Park Management
Agreement and all relationships established, and all obligations
arising, thereunder were permanently stayed. American Newco, Inc.
("Newco"), a corporation owned by the Company's then President
and Chief Executive Officer, was contemporaneously retained by
Mountaineer pursuant to a Consulting Agreement (the "MP
Consulting Agreement") to consult with Mountaineer concerning
marketing services, operation of gaming activities and
construction of the Mountaineer Facility, among other matters.
Under the MP Consulting Agreement, Newco is entitled to receive a
base fee of $10,000 per month and additional compensation of not
less than $30,000 for each three month period commencing July 1,
1995. Newco agreed to remit to the Company any such funds
received pursuant to an assignment agreement (the "Assignment"),
which obligation was terminated pursuant to a separation
agreement dated December 15, 1995 executed by the Company and
such then President and Chief Executive Officer, among others.
For the period from July 1, 1995 through December 15, 1995, the
Company received approximately $60,000 from Newco pursuant to the
Assignment.<PAGE>
<PAGE> 21
California. On September 29, 1994, the Company executed a
Memorandum of Understanding ("MOU") with International Marine and
Gaming, Inc. to jointly pursue the potential development of a
card club casino in Bell, California. In connection with the
execution of the MOU, the Company deposited $1,027,000 (the "Bell
Deposit") in trust with the City of Bell in order to participate
as a 25% interest holder in the card club casino project. The
Company withdrew from such project in January 1996 and the Bell
Deposit was returned to the Company, without interest, in
February 1996. The Company used $1,000,000 of the Bell Deposit to
repay (i) approximately $183,000 of its indebtedness to Shamrock
under a $1,900,000 working capital line of credit provided to the
Company by Shamrock in September 1994, (ii) approximately
$175,000 of its indebtedness to Bennett Funding under a line of
credit provided to the Company by Bennett Funding in March 1995,
including outstanding accrued interest on such debt and (iii)
approximately $642,000 of its indebtedness to Shamrock under a
non-revolving working capital line of credit provided by Shamrock
to the Company in July 1995, including outstanding accrued
interest on such debt.
NET OPERATING LOSS CARRYFORWARDS AND RELATED OWNERSHIP CHANGE
LIMITATIONS
As of December 31, 1997, the Company had net operating loss
carryforwards ("NOL's") of approximately $52,397,000 available to
offset future taxable income. Under Section 382 of the Internal
Revenue Code of 1986, as amended (the "Tax Code") if a loss
corporation has an "ownership change" (as defined in the Tax
Code) within a designated testing period, its ability to use its
NOL's is subject to certain limitations. The Company has had
various ownership changes for Section 382 purposes which limit
the amount of pre-April 9, 1993 losses that may be utilized
annually to offset taxable income. Net operating losses subject
to an annual limitation as of April 9, 1993 amounted to
approximately $17,000,000. Losses after April 9, 1993 totaling
approximately $35,397,000 are also subject to such limitation as
of the date of this filing. There can be no assurance that a
future ownership change will not occur or that a past event will
be determined to not be an ownership change which could further
limit the utilization of the Company's NOL's during future
periods, nor can there be any assurance that operations of the
Company will generate taxable income in future years so as to
realize a tax benefit from such NOL's.
COMPETITION AND GOVERNMENT REGULATION
Certain forms of casino gaming, including riverboat casino
gaming, are now permitted in portions of Colorado, Illinois,
Indiana, Iowa, Louisiana, Michigan, Mississippi, Missouri,
Nevada, New Jersey and South Dakota, as well as on American
Indian lands in many States. Some form of gaming (e.g.,
lotteries, horse or dog racing, charitable games) is now legal in
every State except Utah and Hawaii. The many forms of gaming
conducted both on and off Indian lands in the United States may,
in a broad sense, be deemed to be in competition with the gaming
ventures in which the Company invests and affect the value of
such gaming ventures. The extent to which the various forms of
gaming conducted both on and off Indian lands in the United
States <PAGE>
<PAGE> 22
may be competitive with the gaming ventures in which the Company
invests depends upon several factors including the nature and
location of the gaming activity and the demographics of the
player populations.
Additionally, the gaming industry in which the Company invests is
subject to extensive government regulation by federal, state and
local authorities and, accordingly, regulatory and legislative
changes, including gaming related taxes, could have an adverse
effect on the Company's investments by increasing competition, by
increasing costs or by making gaming a relatively less attractive
activity for its customers as compared with other competing
activities.
To the extent the Company continues to do business in the gaming
industry, if at all, such competition and government regulation
could have an adverse effect on the Company's business by
increasing competition, by increasing costs, by making gaming a
relatively less attractive activity for its customers as compared
with other competing activities, and by imposing restrictions on
the Company's business activities. To the extent the Company's
activities in a particular jurisdiction are regulated, the
Company has complied, or has taken the appropriate steps to
comply, with any applicable regulations. To the extent the
Company commences gaming operations in other jurisdictions, it
will become subject to the regulatory systems in effect in those
jurisdictions.
No material portion of the business of the Company is seasonal.
No portion of the Company's business is subject to termination of
contracts or renegotiation of profits at the election of the
government. Compliance with federal, state and local
environmental regulations has not had and is not expected to have
a material effect upon the capital expenditures, earnings (or
losses) or competitive position of the Company. Inflation has not
had and is not expected to have a material effect on the
Company's business.
SERVICE MARKS
The Company has registered the service mark for "MEGAPICK" with
the United States Patent and Trademark Office (the "PTO"). The
Company has granted to MegaBingo, Inc. the exclusive, paid-up
perpetual right and license to use the service mark "MEGAPICK" or
any variant thereof in connection with any and all bingo
operations. The Company has granted to AHC the right to use the
names "Gamma", "Gamma International" and variants thereof,
provided however, that the Company retains the right to continue
to use the name "Gamma" or any variant thereof for corporate, but
not commercial, purposes (See -"Discontinued Ventures - Keno").
The Company has registrations pending with the PTO for the
service marks "GOLD SHORE CASINO" and "MISSISSIPPI GOLD SHORE
CASINO", but intends to abandon such registrations upon the
liquidation of AMGAM.
EMPLOYEES
As of February 28, 1998, the Company had 2 employees, consisting
of 1 executive officer and 1 office employee. All of the
Company's personnel are employed full-time.
<PAGE>
<PAGE> 23
For additional information concerning the Company and its
business and operations, see "Management's Discussion and
Analysis."<PAGE>
<PAGE> 24
Item 2. Description of Property
Headquarters. The Company's operations are located in Paramus,
New Jersey. The property is currently in operative condition and
is sufficient for the Company's current administrative and known
operating needs. The property is leased with an expiration term
of August 31, 1998.
The Gold Coast Barge. The Gold Coast Barge measures 300' x 90'
with two decks measuring 300' x 110' (approximately 33,000 square
feet each) and one deck measuring 300' x 40' (approximately
12,000 square feet). As discussed above, on February 17, 1995 the
Company entered into the Charter Agreement with PMCC to charter
the Gold Coast Barge to PMCC for use at PMCC's existing site in
Biloxi, Mississippi. Shamrock has ship mortgages on the Gold
Coast Barge totaling approximately $35,062,000 related to loans
utilized to finance the construction and opening of the Gold
Shore Casino previously operated on the Gold Coast Barge. See
"Description of Business - Liquidity and Continuation of
Business" for a discussion of the status of the Bennett Debt
Exchange, pursuant to which the Gold Coast Barge was to be
transferred by the Company to Bennett Management in exchange for
cancellation of certain debt due Shamrock.
Nevada. As discussed above, the Company is obligated pursuant to
the HC Purchase Agreement to transfer to Shamrock all of the
Company's rights, title and interest in certain land leases
related to the Harolds Club by July 30, 1995 but such transfer
has not been completed pending the negotiation by the Company
with Shamrock relating to possible future sale or development of
the Harolds Club.
Alabama. The Company owns the GM&O Building in Mobile, Alabama.
See "Description of Business - Investments - Mississippi, -
Nevada, and - Mobile, Alabama."
For a description of the general competitive conditions related
to the above mentioned properties see "Description of Business -
Competition."
Pursuant to the Charter Agreement, PMCC is responsible for
insuring the Gold Coast Barge. Shamrock is responsible for
insuring the Harolds Club. Management has no knowledge that such
properties are not adequately insured and believes that all other
properties are adequately insured.
Item 3. Legal Proceedings
On September 20, 1995 AMGAM was informed by the U.S. Department
of Labor (the "DOL") that it had concluded an investigation of
the AMGAM Associates d/b/a Gold Shore Casino Associate Benefit
Plan (the "AMGAM Benefit Plan") for the period May 15, 1994
through September 20, 1995. As a result of such investigation,
the DOL has alleged that AMGAM and possibly certain related
parties and/or AMGAM officers violated, and continue to violate,
certain provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA") with respect to the administration of the AMGAM
Benefit Plan. The DOL has indicated that AMGAM's failure<PAGE>
<PAGE> 25
to take necessary corrective action may result in the referral of
this matter to the Office of the Solicitor of Labor for possible
legal action. In addition, whether or not any such referral is
made, AMGAM is and would remain liable to possible legal action
by other parties including plan fiduciaries and plan participants
or their beneficiaries. Certain violations of ERISA may also
result in the assessment of civil penalties by the Secretary of
Labor against the violating parties. The DOL has requested AMGAM
to discuss how such violations noted in the DOL's investigation
may be corrected and how to restore any losses to the AMGAM
Benefit Plan. The Company responded to such allegations on
November 20, 1995, and advised the DOL (i) that AMGAM does not
believe that there have been any fiduciary violations or
prohibited transactions under ERISA, (ii) AMGAM intends to
satisfy medical claims due and payable under the AMGAM Benefit
Plan to the extent permitted by the Code and the Bankruptcy Court
and intends to use its best efforts to seek priority status under
the Code for the payment of such medical claims, and (iii) in no
event will the amount paid with respect to such medical claims be
less than the employee contributions collected under the AMGAM
Benefit Plan after March 28, 1995. Although the actions taken by
AMGAM, certain related parties and AMGAM officers with respect to
the AMGAM Benefit Plan will be vigorously defended, the outcome
of this matter is uncertain. Any legal action or civil penalties
arising out of this matter could materially affect the Company
and its business and financial condition.
The AMGAM Committee has filed the Complaint seeking that (i) the
transfer of the ownership interests in the Gold Coast Barge by
AGRM and AMGAM to the Company be declared null and void, (ii) the
transfer of the leasehold interest in the Gold Coast Barge by
AMGAM to the Company be declared null and void, (iii) the Company
and Shamrock be required to deliver to AGRM and AMGAM their
respective interests in both the ownership and leasehold in the
Gold Coast Barge, (iv) the Company and Shamrock disgorge and
return to the respective AMGAM and AGRM estates all PMCC Payments
received, such funds to be deposited in an escrow account and not
expended without further order of the Bankruptcy Court, and (v)
PMCC be ordered and directed to immediately deposit all PMCC
Payments into an escrow account for the benefit of the creditors
of AMGAM and AGRM, such funds not to be expended without further
order of the Bankruptcy Court. The Bankruptcy Court has not
scheduled a hearing date on the Complaint. AMGAM, AGRM and the
Company presently intend to oppose the Complaint on the bases,
among others, that the transfer of the Gold Coast Barge from AGRM
to the Company involved contemporaneous exchanges of value and
that the Company and Shamrock were not insiders of AMGAM or AGRM
at the time such entities granted the Company and Shamrock
security interests in their assets, including the Gold Coast
Barge.
As discussed above (See "Description of Business - Liquidity and
Continuation of Business"), pursuant to the Plan, as currently
agreed upon pursuant to the terms of the Term Sheet, the
Committees would agree to stay all litigation, including the
Complaint, until the Confirmation Date, at which time the
Committees would dismiss the Complaint and all other litigation
brought against the Company with prejudice, that is, the
Committees would be precluded from filing any action against the
Company based on the alleged causes of action set forth in the
Complaint or any such other litigation.<PAGE>
<PAGE> 26
If (i) the Company, AMGAM, AGRM and the Committees can not agree
on a joint consensual plan of liquidation for AMGAM and AGRM
incorporating the terms of the Term Sheet or any other acceptable
terms or any such plan is agreed upon but not approved by the
creditors in the AMGAM and AGRM bankruptcy proceedings in
accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) the AMGAM Committee
prevails on the Complaint, the Company would not be able to meet
its obligations as they come due. Additionally, if the Company
and the Committees can not agree on a joint consensual plan of
liquidation for AMGAM and AGRM incorporating the terms of the
Term Sheet or any other acceptable terms and, as a result the
Bankruptcy Court (i) terminates the Preliminary Injunction and
(ii) disallows any payments to the Company for its monthly
operating expenses from the PMCC Payments, 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 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.
As discussed above (See "Description of Business - Liquidity and
Continuation of Business"), the Bankruptcy Court has entered the
Preliminary Injunction. The Preliminary Injunction was sought by
the Committees and the Company in connection with their
negotiations involving the Plan, but it is independent of the
Complaint which seeks, among other things, similar relief.
On September 16, 1996, two stockholders of the Company, who were
bondholders and stockholders of AGRM prior to the merger of AGRM
into the Company (the "Merger"), filed suit against the Company
and three former officers and/or directors of AGRM in the Circuit
Court of Harrison County, Mississippi, Second Judicial District
(Civil Action No. A2402-96-00210). The plaintiffs allege (i)
federal and state securities fraud by the defendants based on
alleged fraudulent misrepresentations made by the defendants in
connection with plaintiffs' decision to purchase common stock of
AGRM, to convert certain debentures issued by AGRM into common
stock of AGRM and to tender their common stock of AGRM in
exchange for Common Stock of the Company in connection with the
Merger and (ii) a breach of directors' duties of good faith and
due care by the three former officers and/or directors of AGRM.
The plaintiffs are seeking compensatory damages in the amount of
$250,000, punitive damages in the amount of $1,000,000 and
attorneys fees and costs. As discovery and depositions have not
yet commenced, outside counsel to the Company, due to the limited
facts available on this matter, is unable to predict the outcome
of this lawsuit. However, should the plaintiffs 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>
<PAGE> 27
In July 1996 and August 1996, in separate actions filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe (Case Nos. CV9604947, CV9604933, CV9604939,
CV9604997 and CV9604692), the five lessors of the Harolds Club
property have filed suit against, among others, the Company and
Shamrock seeking, variously, among other relief, (i) payment of
all unpaid lease payments and property taxes, (ii) a court order
voiding the transfer of the title to the land and the building
related to the Harolds Club from the Company to Shamrock to the
extent necessary to satisfy the claims of creditors of the
Company, (iii) a court order prohibiting and enjoining Shamrock
from transferring the title to the land and the building related
to the Harolds Club during the pendency of the actions, (iv)
temporary and permanent court orders mandating that the Company
protect the grandfathered right of nonlicensed gaming on the
leaseholds by locating a suitable gaming sub-tenant and (v)
reasonable attorneys fees and costs of suit. The Company has
filed answers in four actions. Judgment in one of the actions has
been taken against co-defendants and the lessor's claim has been
satisfied. Judgment has been taken against the Company in another
action in the approximate amount of $591,000. The Company is
presently considering its options regarding such judgment. If
undisturbed, the judgment would have a material adverse effect on
the Company's business and financial condition. The third action
has been stayed to permit arbitration between the plaintiff and
one of the defendants. Although the Company has filed an answer
in the fifth action to the cross-claims of Hughes Properties,
Inc. and Fitzgeralds Reno, Inc., the other defendants in such
action, the plaintiff has not requested that an answer be filed
by the Company and the pleadings in this case remain open. As
pleadings are not yet closed, discovery is not completed and
depositions have not commenced, outside counsel to the Company,
due to the facts available on this matter, is unable to predict
the outcome of these remaining suits. However, should the
plaintiffs prevail, these suits would have a material adverse
effect on the Company's business and financial condition. If the
judgment is undisturbed or the plaintiffs in the remaining suits
prevail, 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. If either reorganization or liquidation is
necessary, it is unlikely that all of the Company's obligations
would be completely satisfied or that stockholders of the Company
would recover any of their investment in the Company.
On May 3, 1996, a class action was filed in the United States
District Court, Northern District of New York (Case No. 96-CV-
712) against certain Bennett Entities and related parties. The
Company was named as a defendant in such lawsuit. Such class
action has been consolidated into a class action complaint filed
in September 1996; the Company is not named as a defendant in
such consolidated class action complaint.
In addition to the items set forth above, the Company is involved
in other legal proceedings and claims of various types. While
any litigation contains an element of uncertainty, it is the
opinion of management, after consultation with counsel, that the
outcome of each such other proceeding or claim which is pending
or known to be threatened, or all of them combined, can be
successfully defended or resolved. In addition, management is
unable, with any degree of certainty, to predict the outcome, or
to estimate the amount of any liability, if any, that may result<PAGE>
<PAGE> 28
from these actions. However, management believes that none of
such other proceedings or claims will have a material adverse
effect on the Company's business or financial condition.
Item 4. Submission Of Matters To A Vote Of Security Holders
Not Applicable. The last annual meeting of stockholders of the
Company was held on October 12, 1995. No meeting of stockholders
has been held since such date and the Company has no present
intention of holding a meeting of stockholders in 1998.<PAGE>
<PAGE> 29
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
(a) Market Information. The Common Stock trades under the
symbol "AGEL" on the OTC Bulletin Board. The following table sets
forth, for the calendar periods indicated, the high and low bid
prices (which prices are interdealer prices without retail
markup, markdown or commissions, and may not necessarily
represent actual transactions).
Sales Price Per Share
Except as Indicated Above
Calendar Periods High Low
1996
First Quarter $ 0.2188 $ 0.0313
Second Quarter 0.1406 0.0781
Third Quarter 0.1250 0.0625
Fourth Quarter 0.0781 0.0156
1997
First Quarter $ 0.0625 $ 0.0156
Second Quarter 0.0313 0.0156
Third Quarter 0.0625 0.0156
Fourth Quarter 0.0469 0.0156
1998
First Quarter
(through February 28, 1998)$ 0.0313 $ 0.0156
(b) Holders. At February 28, 1998, there were approximately 265
holders of record of the Common Stock.
(c) Dividends.
(1) The Company has never declared or paid any dividends
on its Common Stock. The Board of Directors presently intends to
retain any and all earnings for use in the Company's business and
therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
(2) The terms of the Company's Series C Preferred Stock
provide that the Company shall not declare or pay any dividends
on the Common Stock or Series A Preferred Stock if there are, at
such time, any cumulative accrued but unpaid dividends on the
Series C Preferred Stock. The Series C Preferred Stock ranks
equally as to dividends with all shares of the Company's Series D
Preferred Stock. The Company has accrued and declared, but has
not paid as of February 28, 1998, dividends totaling
approximately $152,000 which were due and payable on <PAGE>
<PAGE> 30
the outstanding shares of Series C Preferred Stock as of December
31, 1994. The Company has accrued, but has not declared or paid
as of February 28, 1998, dividends totaling approximately
$925,000 on the outstanding shares of Series C Preferred Stock
from January 1, 1995 through February 28, 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.
(3) The terms of the Company's Series D Preferred Stock
provide that the Company shall not declare or pay any dividends
on the Company's Common Stock or Series A Preferred Stock if
there are, at such time, any cumulative accrued but unpaid
dividends on the Series D Preferred Stock. The Series D
Preferred Stock ranks equally as to dividends with all shares of
the Company's Series C Preferred Stock. The Company has accrued
and declared, but has not paid as of February 28, 1998, dividends
totaling approximately $152,000 which were due and payable on the
outstanding shares of Series D Preferred Stock as of December 31,
1994. The Company has accrued, but has not declared or paid as of
February 28, 1998, dividends totaling approximately $825,000 on
the outstanding shares of Series D Preferred Stock from January
1, 1995 through February 28, 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.
<PAGE>
<PAGE> 31
Item 6. Management's Discussion and Analysis or Plan of
Operation
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the
Company's financial statements, including the notes thereto,
contained elsewhere in this report.
Results of Operations: Comparison of the years ended December
31, 1997 and December 31, 1996 Revenues
Revenues for the year ended December 31, 1997 amounted to
approximately $633,000, an increase of approximately $417,000 or
approximately 193% compared to the year ended December 31, 1996.
For the year ended December 31, 1997, the Company recorded
revenues of approximately $623,000 attributable to the RSR
Interest. Although the Rising Sun Project opened for business in
September 1996, no financial statement information for the year
ended December 31, 1996 was available nor were any cash
distributions made until the first quarter of 1997. For the year
ended December 31, 1996, the Company recorded revenues of
approximately $194,000 attributable to keno operations. The
Company's keno assets and operations were sold on March 28, 1996
and therefore no keno revenues were generated during the year
ended December 31, 1997.
Costs and Expenses
Direct operating expenses and cost of sales were approximately
$65,000 for the year ended December 31, 1996. The Company's keno
assets and operations were sold on March 28, 1996 and therefore
no such costs were incurred for the year ended December 31, 1997.
Selling, general and administrative expenses were approximately
$1,646,000 for the year ended December 31, 1997, representing a
decrease of approximately $1,207,000 or approximately 42% when
compared to the year ended December 31, 1996. The decrease in
selling, general, and administrative expenses was primarily due
to the Company's current business direction of holding equity
interests in casino gaming projects, resulting in reduced legal
and personnel expenses, and a decrease of approximately $96,000
in keno related expenses, resulting from the sale of the
Company's keno assets and operations on March 28, 1996.
Casino project development costs for the year ended December 31,
1996 were approximately $272,000. No expenses were classified as
casino project development costs for the year ended December 31,
1997 as a result of the Company's current business direction.
On November 20, 1996 the SCS Barge was sold by Shamrock. The
Company believes that the SCS Lease terminated on such date and
accordingly, in 1996, reversed previously expensed lease payments
due Bennett Management under the SCS Lease from November 20, 1996
to the end of the lease term totaling approximately $3,329,000.
<PAGE>
<PAGE> 32
Depreciation and amortization costs were approximately $1,317,000
for the year ended December 31, 1997, representing a decrease of
approximately $255,000 or approximately 16% when compared to the
year ended December 31, 1996. The decrease in depreciation and
amortization expense was primarily due to decreases of
approximately $142,000 related to the Company's keno assets which
were sold on March 28, 1996, and approximately $96,000 related to
the Gold Coast Barge.
Writedown of impaired assets was approximately $4,438,000 for the
year ended December 31, 1996, consisting primarily of writedowns
of $2,762,000, $750,000, $351,000 and $566,000 in the values of
the Company's investments in the Gold Coast Barge, in Empire,
real property in Mobile, Alabama and real estate in Prichard,
Alabama, respectively. No writedowns were recorded for the year
ended December 31, 1997.
Equity in losses of subsidiaries in bankruptcy for the year ended
December 31, 1996 is attributable to an accrual of $2,250,000 as
management's estimate of additional settlement liabilities to be
paid out of the PMCC Payments; no such accrual was recorded for
the year ended December 31, 1997.
Net interest expense for the year ended December 31, 1997 was
approximately $5,493,000, a decrease of approximately $79,000 or
approximately 1% compared to the year ended December 31, 1996.
During the year ended December 31, 1996, the Company wrote off
approximately $2,086,000 of deferred financing fees due to
Shamrock and approximately $1,418,000 of deferred financing and
commitment fees due to Shamrock because the amounts due under the
financing arrangements pursuant to which such fees were incurred
have been recorded as current liabilities and the Company
determined that such fees had no future benefit.
Net gain on sale of investments for the year ended December 31,
1997 was substantially due to a net gain of approximately
$625,000 on the sale of 12,500 shares of Multimedia Games, Inc.
preferred stock. Net gain on sale of investments for the year
ended December 31, 1996 was substantially due to a net gain of
approximately $948,000 on the sale of keno operations.
Liquidity and Capital Resources
For a discussion of liquidity and capital resources, see
"Description of Business - Liquidity and Continuation of
Business."
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 <PAGE>
<PAGE> 33
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 on terms acceptable to the Company or terminate the
Bennett Debt Exchange (excluding Shamrock's assumption of the
Ship Mortgage) and restructure all other 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 "Legal Proceedings"),
and (v) the legal problems described above relating to certain
Bennett Entities (see "Description of Business - Liquidity and
Continuation of Business" and "Legal Proceedings").
Item 7. Financial Statements
See pages 47 through 86 following Item 13 below.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.<PAGE>
<PAGE> 34
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Section 16(a) Beneficial Ownership Compliance Report.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
(a) Executive Officers and Directors
The executive officers and directors of the Company are as
follows:
DIRECTOR
NAME AGE SINCE POSITION
J. Douglas Wellington 44 1996 President and Chief
Executive Officer
("CEO"), General Counsel,
Secretary, Director
Paul L. Patrizio 41 1996 Chairman of the Board of
Directors
William R. Rafferty 59 1993 Director
Each of the Company's current directors serve until the next
annual meeting of stockholders and until his successor is duly
elected and qualified. The holders of the Series A Preferred
Stock are entitled to elect one director to the Board of
Directors, but have not elected a director. In connection with a
prior year restructuring of the Company's debt (the
"Restructuring"), the Company agreed that Shamrock would be
entitled to control the Board of Directors by designating for
election two of the then four directors to be elected by the
holders of Common Stock, in addition to electing one director as
the holder of Series A Preferred Stock. The Company believes
that, in connection with an amendment of the by-laws of the
Company reducing the total number of directors to four, Shamrock
currently has the right to designate for election one of the
three directors to be elected by the holders of Common Stock.
However, in accordance with the terms of the Restructuring, such
designee will only serve on the Board of Directors as a designee
of Shamrock until such time that (i) the Company has raised $50
million in financing from sources other than Shamrock and (ii)
the management of the Company has invested $1,250,000 into equity
of the Company (of which total the Company's management, as of
February 28, 1998 has invested $293,000 into equity of the
Company). Shamrock has not designated anyone for election to the
Board of Directors pursuant to such right under the
Restructuring. Mr. Wellington was elected to the Board of
Directors on April 11, 1996; Mr. Wellington has agreed to serve
as a director until such time as Shamrock designates someone for
election to the Board of Directors in his stead pursuant to such
right.
J. Douglas Wellington was elected CEO of the Company in September
1996, after being elected President and Chief Operating Officer
in August 1996. Mr. Wellington joined the Company in November
1993 as Corporate Counsel, was elected an Assistant Secretary of
the Company in December 1993, was elected Secretary in May 1994
and was promoted to General Counsel in December 1994. In April
1996, Mr. Wellington was elected to the Board of Directors. Mr.
Wellington was elected Controller (which position he held until
September 1996) and Principal <PAGE>
<PAGE> 35
Accounting Officer in May 1996 and was elected interim President
and Chief Operating Officer in July 1996. From November 1992
through December 1993, Mr. Wellington attended New York
University full-time completing the program for an LL.M. degree.
Paul L. Patrizio was elected a director of the Company in April
1996 and was appointed the Company's Chairman of the Board of
Directors in September 1996. Mr. Patrizio has been Chairman of
Angel Partners, an investment firm specializing in the
communications and entertainment industries, and a principal of
such firm's broker-dealer affiliate, Angel Investments LLC, since
July 1995. From July 1995 to July 1997 Mr. Patrizio was a partner
at the law firm of Rick, Steiner & Tannenbaum, P.C. in New York,
New York, since July 1997 he has been of counsel to such law
firm. From November 1992 to June 1995, Mr. Patrizio was a partner
at Campbell & Fleming, P.C. in New York, New York.
William R. Rafferty was elected a director of the Company in
October 1993. Mr. Rafferty has been, since 1978, President of
Rafferty Real Estate, Inc., a real estate brokerage firm
specializing in commercial real estate transactions, including
acquisitions of properties in Atlantic City, New Jersey for
companies engaged in the gaming industry and residential housing
developments.
(b) Significant Employees. None.
(c) Family Relationships. None.
(d) Involvement in Certain Legal Proceedings. None.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE REPORT
Section 16(a) of the Exchange Act, requires the Company's
officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file an
initial report of ownership of such securities on Form 3 and
changes in ownership of such securities on Form 4 or 5 with the
Commission. Such officers, directors and 10% stockholders are
required to furnish the Company with copies of all Section 16(a)
forms they file with the Commission.
Based solely on its review of the copies of such forms received
by it, or written representations from certain such reporting
persons that no Form 5's were required for such persons, the
Company believes that, for the fiscal year ended December 31,
1998, its officers, directors and 10% stockholders complied with
all applicable Section 16(a) filing requirements.
<PAGE>
<PAGE> 36
Item 10. Executive Compensation
The following tables set forth certain information respecting the
compensation awarded to, earned by, or paid to the sole
individual serving as the Company's CEO during 1997. No other
individual had a total annual compensation exceeding $100,000 for
the year ended December 31, 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
Other Annual Securities All Other
Name and Principal Year Salary($) Bonus($) Compensation Underlying Compen-
Position ($) Options (#) sation ($)
__________________ ____ ________ _______ ____________ ____________ __________
<S> <C> <C> <C> <C> <C>
J. Douglas Wellington, 1997 125,000 62,500 ___ ___ 21,275
CEO 1996 125,000 62,500 ___ 500,000 (1)
1995 80,000 ___ ___ ___ 6,693(2)
___
(1) Consists of $15,148 for accrued vacation and sick time, $6,000 for car allowance and
$127 for interest on a letter of credit (discussed below).
(2) Consists of $4,593 for accrued vacation and sick time and $2,000 for car allowance.
</TABLE>
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Value of
Unexercised Unexercised in-the-
Options Money Options at
Shares Value At FY-End (#) FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
____________________ ____________ ________ ______________ ___________________
<S> <C> <C> <C> <C>
J. Douglas Wellington 0 $0 268,750/250,000 $0/$0
/TABLE
<PAGE>
<PAGE> 37
Compensation of Directors
The Company's non-employee directors were each paid a fee of
$4,000 per month as compensation for services as a director.
Directors who are employed by the Company receive no such
compensation. Every director is reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings of
the Board of Directors and other Company business.
Employment Contracts and Termination of Employment
The Company and Mr. Wellington executed an agreement dated as of
September 12, 1996 (the "Wellington Employment Agreement"). The
Wellington Employment Agreement has a term of two years and
provides for annual compensation payable to Mr. Wellington of
$125,000. The Wellington Employment Agreement also provides for
(i) a signing bonus of $62,500, which amount was paid to Mr.
Wellington upon execution of the Wellington Employment Agreement,
(ii) a severance payment of $250,000 to be paid to Mr. Wellington
in the event (a) Mr. Wellington is terminated "without cause",
(b) a "substantial breach" occurs or (c) Mr. Wellington resigns
after a "change of control" (as such terms are defined in the
Wellington Employment Agreement), (iii) the issuance of an
irrevocable letter of credit in the amount of $62,500, which
amount was paid to Mr. Wellington upon Mr. Wellington being
employed by the Company through September 11, 1997, (iv) the
grant of options to purchase 350,000 shares of Common Stock, and
(v) a car allowance of $500 per month.
<PAGE>
<PAGE> 38
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth information as of February 28,
1998 with respect to the only persons or groups known to the
Company who may be deemed to own beneficially more than 5% of the
Company's voting securities (i.e. Common Stock or Series A
Preferred Stock). Unless otherwise noted, each holder has sole
voting and investment power with respect to the shares of the
listed securities.
Title of Class Name and Address Amount and Nature Percent of Class
of Beneficial Owner of Beneficial
Ownership (1)
Common Stock Shamrock Holdings Group, Inc. 5,823,019 (2) 41.8%
2 Clinton Square
Syracuse, NY 13202
Common Stock Richard C. Breeden, Trustee 494,790,917 (3) 98.7%
c/o Shamrock Holdings
Group, Inc.
2 Clinton Square
Syracuse, NY 13202
Series A Shamrock Holdings Group, Inc. 55,982.61 (4) 100%
Preferred 2 Clinton Square
Stock Syracuse, NY 13202
Series A Richard C. Breeden, Trustee 55,982.61 (5) 100%
Preferred c/o Shamrock Holdings
Stock Group, Inc.
2 Clinton Square
Syracuse, NY 13202
(1) Based on information supplied by persons listed or as reported on the
most recent Schedule 13D filed by any such persons. As used in this table,
"beneficial ownership" of securities means the sole or shared power to vote, or
to direct the voting of, such securities, or the sole or shared investment power
with respect to such securities, including the power to dispose of, or to direct
the disposition of, such securities. In addition, for purposes of this table, a
person is deemed to have "beneficial ownership" of any security that such person
had the right to acquire within 60 days after February 28, 1998 (see "- Changes
in Control").
(2) Includes 1,399,565 shares of Common Stock issuable upon the conversion
of Series A Preferred Stock.
<PAGE>
<PAGE> 39
(3) Includes the 5,823,019 shares of Common Stock beneficially owned by
Shamrock. The Company understands that Mr. Breeden is sole stockholder and
President of Shamrock. Includes, collectively, 487,467,898 shares of Common
Stock issuable upon conversion of Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock assuming that those conversions took place on
February 28, 1998 and that the Company amended its Certificate of Incorporation
increasing the number of authorized shares of Common Stock to 500,000,000 shares
(see "- Changes in Control").
(4) Each share of Series A Preferred Stock is convertible into 25 shares
of Common Stock.
(5) Includes the 55,982.61 shares of Series A Preferred Stock beneficially
owned by Shamrock. The Company understands that Mr. Breeden is sole stockholder
and President of Shamrock.
<PAGE>
<PAGE> 40
Security Ownership of Management
The following table sets forth information as of February 28,
1998 with respect to (i) each director, (ii) all individuals
serving as the Company's CEO during 1997, and (iii) all directors
and all such executive officers as a group. Unless otherwise
noted, each holder has sole voting and investment power with
respect to the shares of the listed securities. An asterisk (*)
indicates beneficial ownership of less than 1%.
COMMON STOCK
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
(1) (2) (3)
___________________ ____________________ __________
J. Douglas Wellington 518,750 3.97%
c/o American Gaming &
Entertainment, Ltd.,
One Woodland Avenue,
Paramus, New Jersey, 07652
Paul L. Patrizio 0 *
c/o Angel Partners
Wall Street Tower
20 Exchange Place
30th Floor
New York, NY 10005
William R. Rafferty 0 *
c/o Rafferty Real Estate
10 N. California Avenue
Atlantic City, NJ 08401
Executive Officers and 518,750 3.97%
Directors as a group
(3 persons)
(1) As used in this table, "beneficial ownership" of
securities means the sole or shared power to vote, or to direct
the voting of, such securities, and/or the sole or shared
investment power with respect to such securities (i.e., the power
to dispose of, or to direct the disposition of, such securities).
In addition, for purposes of this table, a person is deemed to
have "beneficial ownership" of any security which such person had
the right to acquire within 60 days after February 28, 1998.
(2) Includes for J. Douglas Wellington and all executive
officers and directors as a group, 518,750 shares of Common Stock
that, in each case, are subject to presently exercisable options
or options which will become exercisable within 60 days after
February 28, 1998.
<PAGE>
<PAGE> 41
Changes in Control
Except as described below, the Company knows of no arrangements
the operation of which may at a subsequent date result in a
change of control.
Shamrock, of which 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 February 28, 1998 into 1,273,084,587 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 February 28, 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 February 28, 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. As of
March 25, 1998, the Trustee has not asserted any rights he may
have against the Company for the Company's failure to maintain a
sufficient number of authorized shares of Common Stock to enable
the Trustee to convert all of the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock.
In addition to the right of Shamrock, as beneficial owner of 100%
of the Series A Preferred Stock, to elect one director to the
Board of Directors, in connection with the Restructuring,
Shamrock was given the right to designate, and but has not so
designated, one additional director of the four present directors
to the Board of Directors (see "Directors, Executive Officers,
Promoters and Control Persons; Section 16(a) Beneficial Ownership
Report Compliance - <PAGE>
<PAGE> 42
Directors, Executive Officers, Promoters and Control Persons -
Executive Officers and Directors").
Item 12. Certain Relationships and Related Transactions
See "Security Ownership of Certain Beneficial Owners and
Management" for those persons or groups known to the Company who
may be deemed to own beneficially more than 5% of the Company's
voting securities (i.e. Common Stock or Series A Preferred
Stock). Bennett Funding and Bennett Management are assumed to be
affiliates of Shamrock. However, this should not be deemed to
constitute an admission that such entities are, in fact,
affiliates of Shamrock.
See "Description of Business - Liquidity and Continuation of
Business" for a description of certain relationships and related
transactions related to the Gold Coast Barge, the Charter
Agreement and PMCC Payments.
Current Transactions
As more fully described above, the Company and Shamrock entered
into the HC Purchase Agreement on May 31, 1995, the Harolds
Agreements as of August 15, 1995 and the HC Reimbursement
Agreement in September 1996 (see "Description of Business -
Investments in Gaming Ventures - Nevada").
The shares of Series A Preferred Stock, all of which outstanding
shares are held by Shamrock, are convertible at the holder's
option into 25 shares of Common Stock per share of Series A
Preferred Stock, bear the right to elect, but Shamrock has not so
elected, one director to the Board of Directors prior to the
first annual meeting of the Company's stockholders held after
June 30, 1997 and otherwise vote, and receive dividends, as one
class with the Common Stock as if converted into Common Stock,
are non-redeemable, and do not accrue or pay dividends or bear
any liquidation preference.
The shares of Series C Preferred Stock, Series D Preferred Stock
and the Series E Preferred Stock, all of which outstanding shares
are held by the Trustee, are senior to all other classes of the
Company's outstanding stock. Each of the Series C Preferred
Stock, Series D Preferred Stock and the Series E Preferred Stock
is convertible by the holder thereof into the number of shares of
Common Stock equal to the then-applicable redemption price for
each such Series (as described below) divided by an amount equal
to 75% of the average market price of Common Stock for the ten
consecutive business days prior to the conversion date.
Conversion of each of the Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock could result in
significant dilution to the ownership interest of the Company's
stockholders (see "Security Ownership of Certain Beneficial
Owners and Management - Changes in Control"). The Company has
the right to redeem all three series of Preferred Stock at any
time. The redemption price for each share of the three series of
Preferred Stock (which price is also used to determine the
conversion price) increases quarterly as follows: (i) for the
Series C Preferred Stock, from a redemption price of $1,294.67
per share as of January 1, 1998, $29.17 per share per quarter;
(ii) for the Series D Preferred Stock, from a redemption price of
$1,240.48 per share as of January 1, <PAGE>
<PAGE> 43
1998, $29.17 per share per quarter; and (iii) for the Series E
Preferred Stock, from a redemption price of $1,194.59 per share
as of January 1, 1998, $20.83 per share per quarter. The Series
C Preferred Stock and the Series D Preferred Stock each have a
current cumulative dividend rate of 7.5%. The Series E Preferred
Stock has no stated dividend rate.
For the years ended December 31, 1997 and 1996, the law firm of
Rick, Steiner & Tannenbaum, P.C., in which Mr. Patrizio was
formerly a partner, and is now of counsel, was paid approximately
$39,000 and $21,000, respectively.
Terminated or Superseded Agreements
On March 21, 1996 the Company invested $400,000 with Bennett
Funding. Such investment is evidenced by a demand promissory note
from Bennett Funding to the Company, which terms included
interest of 8% per annum on outstanding balances. On March 28,
1996 the Company demanded payment of such note. Bennett Funding
filed for protection under the Code on March 29, 1996, and has
not repaid such note. In 1996, the Company set off the amount of
such investment against the then remaining balance of the
Company's indebtedness due to Bennett Funding.
<PAGE>
<PAGE> 44
Item 13. Exhibits And Reports On Form 8-K.
(a) Exhibits.
EXHIBIT
NO. DESCRIPTION LOCATION
3.1 Restated Certificate of Incorporation (1) Exh. 3.1
3.2 Certificate of Amendment of Restated Certificate of
Incorporation (2) Exh. 3.3
3.3 Bylaws, as amended (3) Exh. 3.3
4.1 Specimen Common Stock Certificate (4) Exh. 4.1
10.1 Stock Option Plan (4) Exh 10.7; (15)
10.2 Employment Agreement dated September 12, 1996
between the Company and J. Douglas Wellington (5) Exh. 10.71; (15)
10.3 Charter Agreement dated as of February 17, 1995
between the Company and President Mississippi
Charter Corporation (3) Exh. 10.3
10.4 Preferred Ship Mortgage dated January 14, 1994,
granted by American Gaming Corporation to
Ship Mortgage, L.P., (4) Exh. 10.28
10.5 First Amendment of Preferred Ship Mortgage dated
July 26, 1994 from American Gaming Corporation to
Ship Mortgage, L.P. (4) Exh. 10.29
10.6 Assumption and Second Amendment of Preferred Ship
Mortgage dated January 31, 1995 made by the Company
and executed by American Gaming and Resorts of
Mississippi, Inc. in favor of Ship Mortgage, L.P. (4) Exh. 10.30
10.7 First Preferred Ship Mortgage, dated May 6, 1994
granted by American Gaming Corporation to the
Company (4) Exh. 10.33
10.8 First Amendment to First Preferred Ship Mortgage
dated July 28, 1994 from American Gaming
Corporation to the Company (4) Exh. 10.34
10.9 Second Amendment to First Preferred Ship Mortgage
dated December 15, 1994 granted by American Gaming
and Resorts of Mississippi, Inc. to the Company,
together with Assignment of First Preferred Ship
Mortgage dated December 15, 1994 from the Company
to Shamrock, Inc. (4) Exh. 10.35
10.10 Assumption and Third Amendment of First Preferred
Ship Mortgage dated as of January 31, 1995 made by
the Company and executed by AGRM in favor of
Shamrock, Inc. (4) Exh. 10.36
10.11 Agreement and Plan of Merger dated November 10, 1994
by and between the Company, American Gaming and
Resorts of Mississippi, Inc., AMGAM Associates and
American Gaming Corporation (6) Exh. 10.91
<PAGE>
<PAGE> 45
10.12 AMGAM/AGRM Settlement Agreement & Term Sheet dated
as of November 1, 1996 between AMGAM Associates,
American Gaming & Resorts of Mississippi, Inc.,
the Company, Shamrock Holdings Group, Inc. the
Official Committee of Unsecured Creditors of AMGAM
Associates and the Official Committee of Unsecured
Creditors of American Gaming & Resorts of
Mississippi, Inc. (7)
10.13 Irrevocable Proxy and Consent Agreement dated as
of August 23, 1996 by and between Paul L.
Partridge, Patrick F. Daly, James A. Everatt,
Charles E. Reisert, Jr., Eric C. Jackson, the
Company and RSR,LLC (8) Exh. 10.72
10.14 Trust Agreement dated as of August 23, 1996 by and
between the Company and NBD Bank, N.A. (8) Exh. 10.73
10.15 Assignment and Transfer Agreement dated as of
March 28, 1996 by and between the Company, American
Heartland Corporation and Big Red Keno, Ltd. (3) Exh. 10.5
10.16 Agreement to Restructure and Cancel Debt dated as
of April 12, 1995 by and between Bennett Management
and Development Company and the Company (4) Exh. 10.44
10.17 Assignment of Charter Agreement and Collateral
Assignment Agreement dated as of April 13, 1995 by
and between the Company and Shamrock, Inc. (4) Exh. 10.45
10.18 Security Agreement dated April 12, 1995 by and
between Bennett Management and Development Company
and the Company. (9) Exh. 10.101
10.19 Amendment to Agreement to Restructure and Cancel
Debt and Assignment of Charter Agreement and
Collateral Assignment executed on July 10, 1995 by
and between the Company, Bennett Management and
Development Company and Bennett Holdings, Inc. (10) Exh. 10.104
10.20 Agreement dated as of August 15, 1995 by and
between Bennett Holdings, Inc. and Emerald
Gaming, Inc. (11) Exh. 10.111
10.21 Exclusive Management Agreement dated as of
August 15, 1995 by and between Bennett Holdings,
Inc. and Emerald Gaming, Inc. (11) Exh. 10.112
10.22 Letter Agreement dated September 26, 1996 between
Shamrock Holdings Group, Inc. and the Company (12) Exh. 10.74
10.23 Letter agreement dated September 20, 1994 by and
between Bennett Holdings, Inc. and the Company (13) Exh. 10.89
10.24 Letter agreement dated November 5, 1997 by and
between Shamrock Holdings Group, Inc. and the
Company (14)
11 Statement re computations of per share earnings (14)
21 List of Subsidiaries (14)<PAGE>
<PAGE> 46
23 Consent of Deloitte & Touche LLP (14)
27 Financial Data Schedule (14)
(1) This exhibit is incorporated by reference to the Company's Current
Report on Form 8-K dated June 24, 1994.
(2) This exhibit is incorporated by reference to the Company's Current
Report on Form 8-K dated November 30, 1994.
(3) Each of these exhibits is incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995.
(4) Each of these exhibits is incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994.
(5) Each of these exhibits is incorporated by reference to the Company's
Current Report on Form 8-K dated August 23, 1996.
(6) This exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1994.
(7) Each of these exhibits is incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996.
(8) This exhibit is incorporated by reference to the Company's Current
Report on From 8-K dated December 15, 1995.
(9) Each of these exhibits is incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1995.
(10) Each of these exhibits is incorporated by reference to the Company's
Current Report on Form 8-K dated June 18, 1995.
(11) Each of these exhibits is incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the period ended September 30, 1995.
(12) This exhibit is incorporated by reference to the Company's Quarterly
Report on Form 10-QSB for the period ended September 30, 1996.
(13) This exhibit is incorporated by reference to the Company's Current
Report on From 8-K dated September 30, 1994.
(14) Enclosed herewith.
(15) Each of these exhibits is a management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Form 10-KSB.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the fourth quarter of
1997.
<PAGE>
<PAGE> 47
American Gaming & Entertainment, Ltd.
Form 10-KSB - Item 7
List of Financial Statements
The following financial statements are included in Item 7:
Independent Auditors' Report ............................... 48
Consolidated Balance Sheets at December 31, 1997 and
1996................................................. 49 and 50
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996 ................................. 51
Consolidated Statements of Stockholders' Deficiency for
the years ended December 31, 1997 and 1996 ................. 52
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 ................................. 53
Notes to Consolidated Financial Statements ...... 54 through 86
<PAGE>
<PAGE> 48
To the Board of Directors and Stockholders of
American Gaming & Entertainment, Ltd.
Paramus, New Jersey
We have audited the accompanying consolidated balance sheets of American Gaming
& Entertainment, Ltd. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' deficiency and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
(or disclaim) an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our report.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company's recurring losses, negative
working capital, stockholders' deficiency, defaults under its debt agreements,
uncertainties relating to the liquidation of its subsidiaries (see Note 4) and
uncertainties relating to the bankruptcy of, and charges relating to affiliates
of its major stockholder and creditor (see Note 5) 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 6. The financial
statements do not include any additional adjustments that might result from the
outcome of these uncertainties.
Because of the possible material effects of the uncertainties referred to in
the preceding paragraph, we are unable to express, and we do not express, an
opinion on the financial statements for 1997 or 1996.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 20, 1998
<PAGE>
<PAGE> 49
<TABLE>
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
____________ ____________
<S> <C> <C>
ASSETS
Current Assets
Cash $ 381,000 $ 265,000
Restricted cash 630,000 --
Prepaid expenses 232,000 397,000
Other current assets 313,000 293,000
__________ __________
Total current assets 1,556,000 955,000
Assets held for sale 431,000 539,000
Casino barge and improvements,
subject to lease, net of
accumulated depreciation of
$3,907,000 - 1997
and $2,599,000 - 1996 8,686,000 9,994,000
Furniture, fixtures and equipment,
net of accumulated depreciation
of $71,000 - 1997 and
$62,000 - 1996 14,000 19,000
Other non-current assets 465,000 729,000
_________ _________
$ 11,152,000 $ 12,236,000
============ ============
</TABLE>
See Notes to Consolidated
Financial Statements
<PAGE>
<PAGE> 50
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, December 31,
1997 1996
____________ ____________
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Amounts due to related parties:
Accrued interest $ 16,788,000 $ 11,217,000
Dividends payable 1,953,000 1,353,000
Accrual for lease costs 2,701,000 2,701,000
Current portion of long term debt 40,510,000 39,688,000
____________ ____________
61,952,000 54,959,000
Accounts payable 68,000 75,000
Accrued payroll and related expenses 12,000 13,000
Accrued expenses and other current
liabilities 1,389,000 1,040,000
Short term portion of estimated net
liabilities for subsidiaries in
bankruptcy 1,162,000 513,000
Current portion of mortgage note
payable -- 27,000
____________ ____________
Total current liabilities 64,583,000 56,627,000
Long term portion of estimated net
liabilities for subsidiaries in
bankruptcy 3,329,000 4,500,000
Long term portion of mortgage note
payable -- 96,000
____________ ____________
67,912,000 61,223,000
____________ ____________
Commitments and Contingencies
Stockholders' Deficiency
Preferred stock, 1,000,000 shares authorized:
Series A preferred stock, par value $.01 1,000 1,000
per share, 55,983 shares issued
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 14,602,000 13,336,000
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 43,288,000 45,154,000
Cost of shares held in treasury (25,000) (25,000)
Accumulated deficit (114,752,000) (107,579,000)
_____________ ____________
(56,760,000) (48,987,000)
_____________ ____________
$ 11,152,000 $ 12,236,000
============ ============
See Notes to Consolidated Financial
Statements
/TABLE
<PAGE>
<PAGE> 51
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Years ended December 31,
_____________________________________
1997 1996
<S> <C> <C>
Revenues $ 633,000 $ 216,000
___________ ___________
Costs and expenses
Direct operating and cost of sales -- 65,000
Selling, general and administrative 1,646,000 2,853,000
Casino project development costs -- 272,000
Accrual for (reversal of)
unutilized lease costs - (3,329,000)
Depreciation and amortization 1,317,000 1,572,000
Writedown of impaired assets -- 4,438,000
Equity in losses of subsidiaries in
bankruptcy -- 2,250,000
______________ ________________
Total costs and expenses 2,963,000 8,121,000
______________ ________________
Operating loss (2,330,000) (7,905,000)
______________ ________________
Other income (expense)
Interest income 81,000 69,000
Interest expense (5,574,000) (5,641,000)
Writeoff of deferred financing fees -- (3,504,000)
Net gain on sale of investments 650,000 937,000
______________ ________________
Total other income (expense) (4,843,000) (8,139,000)
______________ ________________
Net loss (7,193,000) (16,044,000)
Dividends and accretion on preferred
stock 1,866,000 1,809,000
______________ ________________
Net loss for common stockholders $ ( 9,039,000) $ (17,853,000)
============== ================
Net loss per common share $ (0.72) $ (1.42)
============== ================
Weighted average number of common
shares outstanding 12,532,102 12,532,102
=============== ================
</TABLE>
See Notes to Consolidated Financial
Statements
<PAGE>
<PAGE> 52
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
1997 1996
Series A Preferred
Stock
Balance at beginning and end of year $1,000 $1,000
====== ======
_______________________________________________________________________
Series C, D & E
Preferred Stock
Balance at beginning of year $13,336,000 $12,102,000
Accretion 1,266,000 1,234,000
__________ __________
Balance at end of year $14,602,000 $13,336,000
=========== ===========
_______________________________________________________________________
Common Stock
Balance at beginning and end of year $ 126,000 $ 126,000
=========== ===========
_______________________________________________________________________
Additional Paid-In
Capital
Balance at beginning of year $45,154,000 $46,963,000
Accrual of dividends
on preferred stock (600,000) (575,000)
Accretion of
Preferred Stock (1,266,000) (1,234,000)
__________ ___________
Balance at end of year $43,288,000 $45,154,000
=========== ===========
_______________________________________________________________________
Treasury Stock
Balance at beginning and end of year ($25,000) ($25,000)
======= =======
_______________________________________________________________________
Deferred Financing
and Commitment
Fees
Balance at beginning of year $ 0 ($1,547,000)
===
Amortization and
writeoff of deferred
financing
performance
shares 1,547,000
_________
Balance at end of year $ 0 $ 0
=== ===
_______________________________________________________________________
Accumulated Deficit
Balance at beginning of year ($107,579,000) ($91,535,000)
Net loss for
common
stockholders (7,173,000) ($16,044,000)
_________ ____________
Balance at end of year ($114,752,000) ($107,579,000)
============ ============
See Notes to Consolidated Financial Statements<PAGE>
<PAGE> 53
AMERICAN GAMING & ENTERTAINMENT, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE> Years ended December 31,
_________________________
1997 1996
Operating Activities
<S> <C> <C>
Net loss $(7,173,000) $(16,044,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Restricted proceeds from investment (626,000) -
Depreciation and amortization 1,317,000 1,572,000
Accrued interest 5,571,000 5,181,000
Write-off of deferred financing costs - 3,504,000
Amortization of deferred financing costs - 318,000
Writedown of impaired assets - 4,438,000
(Reversal of) unutilized lease costs - (3,329,000)
Net gain on sale of securities (625,000) -
Net gain on sale of keno operations (21,000) (948,000)
Net loss on sale of other investments - 11,000
Equity in losses of subsidiaries in
in bankruptcy - 2,250,000
Changes in operating assets and liabilities
Litigation settlement payment (375,000) -
Other current assets 173,000 (292,000)
Other non-current assets (6,000) (75,000)
Accounts payable, accrued expenses and
other current liabilities 215,000 (774,000)
____________ _____________
Net cash used in operating activities (1,550,000) (4,188,000)
____________ _____________
Investing Activities
Proceeds from asset dispositions 110,000 120,000
Proceeds from sale of securities 625,000 -
Proceeds from sale of keno operations - 500,000
Proceeds from return of investment deposit - 1,027,000
___________ ____________
Net cash provided by investing activities 735,000 1,647,000
___________ ____________
Financing Activities
Proceeds from notes receivable and other
long-term assets 232,000 163,000
Utilization of proceeds from charter
of casino barge 822,000 3,451,000
Principal payments on notes payable
and other long-term obligations (123,000) (1,295,000)
____________ ____________
Net cash provided by financing activities 931,000 2,319,000
____________ ____________
Increase (decrease) in cash 116,000 (222,000)
Cash at beginning of year 265,000 487,000
___________ ____________
Cash at end of period $ 381,000 $ 265,000
=========== ============
</TABLE>
See Notes to Consolidated Financial Statements<PAGE>
<PAGE> 54
AMERICAN GAMING & ENTERTAINMENT, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Note 1 - Significant Accounting Policies
Basis of Presentation
The accompanying consolidated 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 6, 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 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 and
Bennett Funding, 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 its subsidiaries
(see Note 4) and uncertainties relating to the bankruptcy of, and charges
relating to certain related entities of its major stockholder and creditor
(see Note 5) 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 6. The financial statements do not include any
additional adjustments that might result from the outcome of these
uncertainties.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Except as described below, all
significant intercompany accounts and transactions have been eliminated.
These financial statements reflect significant related party transactions
which are described throughout the notes to the consolidated financial
statements.
As a result of the bankruptcy proceedings under Chapter 11 of the U.S.
Bankruptcy Code (the "Code") affecting the Company's wholly owned
subsidiaries, AMGAM Associates, a Mississippi partnership ("AMGAM") and
American Gaming and Resorts of Mississippi, Inc., ("AGRM") and the expected
liquidation of these subsidiaries in the near future, the Company's control
of these entities is likely to be temporary and therefore AMGAM and AGRM
are not included in the consolidated financial statements for financial
reporting purposes. The Company follows the equity method of accounting
for its investment in AMGAM and AGRM. (See Note 4).
Revenues
Revenues are principally from an equity interest in a riverboat gaming
entertainment complex (see Note 8) and sales of keno game systems. Revenues
from sales of keno systems are recognized upon installation of the related
machines.
<PAGE>
<PAGE> 55
Assets Held for Sale
Assets held for sale are stated at cost and consist primarily of land,
buildings and assets which, at the respective times of purchase, were
anticipated to be utilized in casino gaming projects. Management
periodically reviews the status of such assets as well as the likelihood of
gaming being legalized in the jurisdiction related to the asset and, if
necessary, adjusts the carrying value of such assets to estimated fair
market value (See Notes 8 and 9).
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
are provided over the estimated useful lives of the assets using the
straight-line method based on the following:
Furniture, fixtures and equipment 3-10 years
Software 5 years
Leased assets at December 31, 1997 consist of the Gold Coast Casino barge
and related leasehold improvements (collectively, the "Gold Coast Barge"),
net of accumulated depreciation, calculated on the straight-line method
over a 10 year life (See Note 9).
Loss For Common Stockholders Per Common Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which was adopted by the Company effective for the year ended
December 31, 1997, as required. Loss for common stockholders per common
share is computed by dividing net loss for common stockholders by the
weighted average number of shares of common stock outstanding for the
period. Diluted loss for common stockholders per common share includes the
effect of potential dilution from the exercise of outstanding potential
shares of common stock into common stock using the treasury stock method.
For the years ended December 31, 1997 and 1996, the Company's Series A
Preferred Stock, Series C Cumulative Preferred Stock ("Series C Preferred
Stock"), Series D Cumulative Preferred Stock ("Series D Preferred Stock"),
Series E Preferred Stock and Common Stock options and warrants which are
considered to be potential shares of common stock are excluded from the
calculation of diluted loss for common stockholders per common share
because they have an antidilutive effect. Accordingly, diluted loss for
common stockholders per common share has not been presented.
Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax basis of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse (See Note 14).
<PAGE>
<PAGE> 56
Asset Impairment
Long-lived Assets are reviewed for impairment on an annual basis in
conjunction with the preparation of the annual budget or when a specific
event indicates that the carrying value of an asset may not be recoverable.
Recoverability is assessed based on estimates of future cash flows expected
to result from the use and eventual disposition of the asset. If the sum
of expected undiscounted cash flows is less than the carrying value of the
asset, an impairment loss is recognized. The impairment loss is measured as
the amount by which the carrying amount of the asset exceeds its estimated
fair value (See Notes 3, 8 and 9).
Fair Market Value of Financial Instruments
The amounts reported in the Consolidated Balance Sheets for cash and cash
equivalents, receivables, and payables approximate fair value. Because of
the related party nature of the Company's debt, determination of fair value
would be impractical.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of management's estimates
and assumptions. Management believes the estimates and assumptions used in
the preparation of these consolidated financial statements are reasonable
based upon currently available facts and known circumstances but recognizes
that actual results may differ from those estimates and assumptions. Such
differences, if any, are not expected to have a material impact on the
Company's financial condition, results of operations or liquidity.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997. Reclassification of financial
information for earlier periods presented for comparative periods is
required under SFAS No. 130. As this statement only requires additional
disclosures in the Company's consolidated financial statements, its
adoption will not have any impact on the Company's consolidated financial
position or results of operations. The Company will adopt SFAS No. 130 in
1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement, which establishes
standards for the reporting of information about operating segments and
requires the reporting of selected information about operating segments in
interim financial statements, is effective for fiscal years beginning after
December 15, 1997. Reclassification of segment information for earlier
periods presented for comparative periods is required under SFAS No. 131.
The Company does not expect adoption of this statement to result in changes
to its presentation of financial information. The Company will adopt SFAS
No. 131 in 1998.
<PAGE>
<PAGE> 57
Reclassifications
Certain reclassifications have been made to the 1996 amounts in order to
conform to the classifications used in 1997.
Supplemental Cash Flow Information
The Consolidated Statements of Cash Flows exclude the effects of certain
noncash financing activities, as follows:
1997 1996
_________ ________
Dividends on Series C and D
Preferred Stock $600,000 $575,000
Accretion on Series C, D and E
Preferred Stock 1,266,000 1,234,000
The Company paid interest of approximately $3,000 and $142,000 for the
years ended December 31, 1997 and 1996, respectively. The Company paid no
income taxes for the years ended December 31, 1997 and 1996 (See Note 14).
Note 2 - Nature of Business
The Company owns equity interests in various properties which, at the
respective times of purchase, were anticipated to be utilized in casino
gaming projects. The Company has a 4.9% beneficial equity interest in a
riverboat gaming and entertainment complex in Rising Sun, Indiana, which
interest the Company has agreed to sell by August 23, 1998 (See Note 8).
The Company has entered into an agreement (the "Charter Agreement"), with
President Mississippi Charter Corporation ("PMCC") whereby PMCC is leasing
from the Company the Gold Coast Barge which the Company owns and on which
the Company had previously operated the Gold Shore Casino (See Note 3). The
Company owns one site in Alabama and a 15% equity interest in the Marine
Star (formerly known as the S.S. Aquarama), which the Company believes are
suitable for use as casino gaming facilities if gaming legislation is
enacted by appropriate jurisdictions (See Note 8). The Company is no longer
actively seeking to develop gaming projects and is currently managing its
equity interests. Given the Company's present financial and liquidity
position, the legal problems described below relating to Bennett Funding
and Bennett Management and the Company's other litigation described below
(see Notes 4, 5, 6 and 15), the business of the Company is unlikely to
continue to be the ownership of equity interests in casino gaming ventures.
The gaming industry in which the Company invests is subject to extensive
government regulation by federal, state and local authorities and,
accordingly, regulatory and legislative changes, including gaming related
taxes, could have an adverse effect on the Company's investments by
increasing competition, by increasing costs or by making gaming a
relatively less attractive activity for its customers as compared with
other competing activities.
<PAGE>
<PAGE> 58
To the extent the Company continues to do business in the gaming industry,
if at all, competition and government regulation could have an adverse
effect on the Company's business by increasing competition, by increasing
costs, by making gaming a relatively less attractive activity for its
customers as compared with other competing activities, and by imposing
restrictions on the Company's business activities. To the extent the
Company's activities in a particular jurisdiction are regulated, the
Company has complied, or has taken the appropriate steps to comply, with
any applicable regulations. To the extent the Company commences gaming
operations in other jurisdictions, it will become subject to the regulatory
systems in effect in those jurisdictions.
Note 3 - AMGAM, AGRM and Gold Shore Casino
As a result of a merger transaction prior to 1996 (the "Merger"), the
Company became indirectly the sole owner of AMGAM and the sole owner of
AGRM.
The Company provided AMGAM with approximately $18,947,000 to finance
leasehold improvement expenditures associated with the construction of the
Gold Shore Casino and the Gold Coast Barge. The Company has also lent
AMGAM (i) approximately $6,970,000 as a supplemental loan, pursuant to the
terms of AMGAM's partnership agreement, bearing interest at 14% per annum,
and (ii) approximately $3,978,000 under a separate secured loan bearing
interest at 14% per annum.
Prior to 1996, AMGAM and AGRM, each, filed for reorganization under Chapter
11 of the Code with the United States Bankruptcy Court, Southern District
of Mississippi (the "Bankruptcy Court") (see Note 4).
As a result of AMGAM's continuing operating losses and liquidity problems
prior to the date of filing for reorganization under Chapter 11 of the
Code, as well as an inability on the part of the Company to raise the
financing required to address the operating and liquidity problems of the
Gold Shore Casino, the Company, prior to 1996, entered into the Charter
Agreement with PMCC to charter the Gold Coast Barge to PMCC for use at
PMCC's existing site in Biloxi, Mississippi for a monthly rent of
approximately $329,000. Prior to 1996, the Gold Coast Barge was transferred
to the Company from AGRM in exchange for the cancellation of AGRM's
guaranty to the Company of certain unpaid lease obligations of AMGAM to the
Company, which transfer is being challenged by the committee for unsecured
creditors in the bankruptcy proceeding of AMGAM (the "AMGAM Committee") as
a fraudulent transfer or voidable preference under the Code (See Note 4 for
a description of the Complaint (as defined below)). Pursuant to terms of
the Charter Agreement, PMCC is responsible for operating, insurance and
maintenance costs of the Gold Coast Barge.
Pursuant to the Charter Agreement, PMCC made payments totaling $822,000 and
$3,451,000 for the years ending December 31, 1997 and 1996, respectively
(collectively, the "Original Charter Payments") into an escrow account (the
"Escrow Account") for the benefit of creditors of AMGAM and AGRM. On
October 22, 1997, the Company, Shamrock, the AMGAM Committee, the committee
for unsecured creditors in the bankruptcy proceeding of AGRM <PAGE>
<PAGE> 59
(collectively with the AMGAM Committee, the "Committees") (collectively,
the "AMGAM Group") and PMCC entered into the a term sheet (the "Charter
Term Sheet"). Pursuant to the Charter Term Sheet, among other things, (i)
within ten business days after an order of the Bankruptcy Court approving
an amendment to the Charter Agreement incorporating the terms of the
Charter Term Sheet (the "Closing Date"), PMCC shall pay $1,525,000 (the
"Settlement Payment") into the Escrow Account for the benefit of the
creditors of AMGAM and AGRM, (ii) PMCC shall pay into the Escrow Account a
monthly charter payment of $215,000 ("PMCC Payments, previously $329,000
per month as discussed above) for 28 1/2 months, commencing December 1, 1997
and ending on April 15, 2000 (the "Remaining Charter Term"), (iii) PMCC
shall pay into the Escrow Account a late fee of $21,500 for each monthly
charter payment which is paid later than the tenth of such month, (iv) PMCC
and the AMGAM Group will fund equally an escrow account not to exceed
$1,000,000 to remove the Gold Coast Barge from PMCC's Biloxi, Mississippi
site at the end of the Remaining Charter Term, (v) at any time during the
Remaining Charter Term, PMCC has the right to make a written offer to
purchase the Gold Coast Barge, which offer shall be deemed accepted unless
rejected by the AMGAM Group within thirty days of receipt of such offer,
(vi) the Charter Agreement or the Gold Coast Barge may be assigned or sold,
subject to PMCC's written consent, which may not be unreasonably withheld,
(vii) during the Remaining Charter Term, PMCC has a right of first refusal
to purchase the Gold Coast Barge on the same terms and conditions set forth
in any offer acceptable to the AMGAM Group and (viii) on the Closing Date,
PMCC and the AMGAM Group shall execute mutual releases and file appropriate
pleadings seeking dismissal, with prejudice, of all lawsuits and
counterclaims, including suits brought by the Company against PMCC and
President Riverboat Casino - Mississippi, Inc. and counterclaims filed by
PMCC against the Company alleging various respective breaches of the
Charter Agreement . If the Bankruptcy Court does not approve an amendment
to the Charter Agreement incorporating the terms of the Charter Term Sheet
and Company does not, by some means, (i) receive its portion of the PMCC
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.
The Company, Shamrock, AMGAM, AGRM and the Committees are presently
negotiating revisions to a previously executed term sheet (the "Original
Term Sheet"; as proposed to be revised, the "Term Sheet") for a proposed
joint plan of liquidation (the "Plan"), more fully described below,
pursuant to which the PMCC Payments and payments (the "FF&E Payments") with
respect to substantially all of the furniture, fixtures and equipment,
including certain slot machines, acquired by PMCC from AMGAM formerly used
in the operation of the Gold Shore Casino (the "Acquired Equipment") would
be deemed assets of the bankruptcy estates of AMGAM and AGRM and the
Company would receive a portion of such aggregate payments, if any. As more
fully described below, upon confirmation of the Plan, all litigation
brought against <PAGE>
<PAGE> 60
the Company by the Committees would be dismissed, including an adversary
complaint (the "Complaint") filed by the AMGAM Committee in the Bankruptcy
Court challenging the 1995 transfers of the ownership interests in the Gold
Coast Barge by AGRM and AMGAM to the Company and the 1995 transfer of the
leasehold interest in the Gold Coast Barge by AMGAM to the Company as
fraudulent transfers or voidable preferences under the Code. In January
1998, the AMGAM Committee voluntarily dismissed a motion filed in the
Bankruptcy Court seeking the substantive consolidation of the AMGAM and
AGRM bankruptcy proceedings. There can be no assurance that the Plan will
be implemented or that the Company will receive any payments from the AMGAM
or AGRM bankruptcy cases pursuant to the Plan or otherwise.
Pursuant to the Original Term Sheet, the Company and Shamrock have agreed,
among other matters, to have one collective general allowed unsecured claim
against AMGAM and AGRM in the amount of $33,000,000, which claim amount
includes a first preferred ship mortgage (the "Ship Mortgage") in the
amount of approximately $2,278,000 held by Shamrock (See Note 6).
The Company has also entered into an agreement with Shamrock (the "Escrow
Allocation Agreement") pursuant to which Shamrock will receive (i)
approximately $874,000 from the Settlement Payment, (ii) approximately
$129,000 per month from the PMCC Payments paid into the Escrow Account
during the Remaining Charter Term, (iii) 60% of any charter payments after
the Remaining Charter Term, and (iv) 67.5% of any net proceeds from the
sale of the Gold Coast Barge, which amounts, collectively, will reduce the
Company's indebtedness to Shamrock.
Pursuant to the Term Sheet, notwithstanding the Preliminary Injunction (as
described and defined in Note 4), the Company received approximately
$705,000 and $3,214,000 for the years ending December 31, 1997 and 1996,
respectively from the Original Charter Payments. Pursuant to the Charter
Term Sheet, Term Sheet and the Escrow Allocation Agreement, notwithstanding
the Preliminary Injunction, the Company will receive (i) approximately
$188,000 in a lump sum payment from the Settlement Payment, (ii)
approximately $32,000 per month from the PMCC Payments paid into the Escrow
Account during the Remaining Charter Term (collectively, with the lump sum
payment, the "AGEL/PMCC Payments"), (iii) 15% of any charter payments after
the Remaining Charter Term, and (iv) 7.5% of any net proceeds from the sale
of the Gold Coast Barge. There can be no assurance, however, that the
Bankruptcy Court will approve an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet or that the Bankruptcy
Court will approve payments to the Company from the Escrow Account prior to
confirmation of a plan of liquidation for AMGAM and AGRM.
If (i) the Company, AMGAM, AGRM and the Committees cannot agree on a joint
consensual plan of liquidation for AMGAM and AGRM incorporating the terms
of the Term Sheet or any other acceptable terms or any such plan is agreed
upon but not approved by the creditors in the AMGAM and AGRM bankruptcy
proceedings in accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) the AMGAM Committee prevails on
the Complaint, the Company would not be able to meet its obligations as
they come due. Additionally, if the Company and the Committees cannot agree
on a joint consensual plan of liquidation for AMGAM and AGRM incorporating
the terms of the Term Sheet or any other <PAGE>
<PAGE> 61
acceptable terms, and, as a result, the Court (i) terminates the
Preliminary Injunction and (ii) disallows any payments to the Company for
its monthly operating expenses from the PMCC Payments, 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. 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. Even if the Plan is confirmed in the AMGAM and
AGRM bankruptcies, and the Company receives its portion of the PMCC
Payments, such payments would not be sufficient to satisfy the Company's
currently anticipated operating needs and its obligations to Shamrock and
Bennett Management (see Note 6).
In addition, pursuant to an order (the "PMCC Order") of the Bankruptcy
Court, on September 21, 1995, PMCC acquired from AMGAM the Acquired
Equipment in exchange for the promise to make to AMGAM the FF&E Payments,
consisting of an initial payment of approximately $48,000 and twenty-six
equal monthly payments of approximately $121,000 through October 1, 1997
totaling approximately $3,188,000. Pursuant to the PMCC Order (a)
commencing October 1, 1995 any such payments made by PMCC to AMGAM are
escrowed in the AMGAM bankruptcy proceeding pending a determination by the
Bankruptcy Court as to the disposition of such proceeds and (b)
approximately $22,000 was disbursed from such account in satisfaction of
the secured claim of one creditor in the AMGAM bankruptcy proceeding. PMCC
made FF&E Payments for the year ending December 31, 1996 totaling
approximately $845,000, all of which were escrowed (no FF&E Payments were
made for the year ending December 31, 1997). On January 31, 1997 AMGAM and
the AMGAM Committee filed suit in the Bankruptcy Court against PMCC and an
affiliate seeking payment of all FF&E Payments currently due under the PMCC
Order, among other relief. As currently agreed under the Charter Term
Sheet, such suit will be dismissed, with prejudice, on the Closing Date.
Prior to 1996, the Company, Shamrock and Bennett Management executed the
Bennett Debt Exchange (as described and defined in Note 6). The Bennett
Debt Exchange was to become effective the day on which Shamrock was
licensed to own the Gold Coast Barge as a gaming facility by the
Mississippi Gaming Commission Exchange (the "BDE Date"). However, the
Company continued to utilize the Charter Agreement rental payments for its
operating needs after the BDE Date because the Company's management
determined on the BDE Date that, because of the Company's liquidity
problems, consummating the Bennett Debt Exchange and transferring the
Charter Agreement and related payments would prevent the Company from
meeting its obligations to its creditors. In the opinion of management,
consummating the Bennett Debt Exchange at that time would have required the
Company to file for protection under the Code.
Prior to 1996, Shamrock notified the Company that the Company had not
fulfilled its obligations under the Bennett Debt Exchange to assign the
Charter Agreement and the Gold Coast Barge from the Company to Shamrock and
Bennett Management, respectively, and that Shamrock is entitled to all PMCC
Payments. Additionally, in June 1996, the Trustee (the "Trustee") for<PAGE>
<PAGE> 62
Bennett Funding and Bennett Management under Chapter 11 of the Code, who,
pursuant to information from the Trustee, is the sole owner of Shamrock,
orally notified the Company that Shamrock is entitled to all PMCC Payments
to be received by the Company as a result of Shamrock being the holder of
the Ship Mortgage and a second preferred ship mortgage on the Gold Coast
Barge in the amount of $33,000,000 (the "Second Mortgage"), which secures
approximately $22,722,000 in debt due Shamrock with respect to the Gold
Shore Casino (the "Barge Debt"). Accordingly, the Company has recorded the
PMCC Payments received by the Company from the BDE Date through November
30, 1997 (totaling approximately $5,917,000) as indebtedness due to
Shamrock ("PMCC/Bennett Debt") in the line item "Current portion of Long
Term Debt - Due to Related Parties" in the accompanying Balance Sheet. In
addition, the Company has (a) recorded interest expense on such
PMCC/Bennett Debt for the years ended December 31, 1997 and 1996 (totaling
approximately $846,000 and $550,000, respectively) and (b) for the reasons
set forth below, continued to record for the years ended December 31, 1997
and 1996 (i) interest expense on the Barge Debt that was to have been
canceled by Shamrock, or, if necessary, Bennett Management pursuant to the
Bennett Debt Exchange and (ii) depreciation and amortization expense on the
Gold Shore Barge that was to have been transferred to Shamrock pursuant to
the Bennett Debt Exchange (totaling approximately $1,308,000 and $1,388,000
for the years ended December 31, 1997 and 1996, respectively) (although, as
discussed below, the Company is not recognizing any rental revenue
associated with such expenses). For the reasons set forth below, the Barge
Debt is classified as "Current Portion of Long Term Debt" in the
accompanying Consolidated Balance Sheets as of December 31, 1997 and 1996.
Except for the Escrow Allocation Agreement, Shamrock has not rescinded such
letter nor executed documents agreeing to a termination or postponement of
the Bennett Debt Exchange. The Company has not yet transferred the Gold
Shore Barge, the Charter Agreement and PMCC Payments received by the
Company from the BDE Date through November 30, 1997. Additionally, Shamrock
or, to the extent an assignment to Shamrock of Bennett Management's
interest in the agreements constituting the Bennett Debt Exchange never
took place or are voided as a fraudulent transfer or voidable preference in
the bankruptcy proceeding of Bennett Management, Bennett Management has not
yet canceled the Barge Debt as required by the Bennett Debt Exchange. If
Shamrock, and, to the extent an assignment to Shamrock of Bennett
Management's interest in the agreements constituting the Bennett Debt
Exchange never took place or is voided as a fraudulent transfer, voidable
preference or otherwise in the bankruptcy proceeding of Bennett Management,
Bennett Management agree to a termination of the Bennett Debt Exchange as
of the respective dates of the agreements comprising the Bennett Debt
Exchange (excluding Shamrock's assumption of the Ship Mortgage) and agree
to continue to let the Company utilize the PMCC Payments (subject in all
cases to the Preliminary Injunction and the Term Sheet) (i) the Company
would recognize as revenue amounts previously recorded as PMCC/Bennett Debt
from the BDE Date through November 30, 1997 as of the date of such
termination and (ii) the Company would reverse interest expense recognized
on such PMCC/Bennett Debt.
Based upon the Escrow Settlement Agreement, the Company is entitled to
utilize and retain the AGEL/PMCC Payments from December 1, 1997. However,
the Company did not recognize as revenues any AGEL/PMCC Payments in 1997
because the there can be no assurance that the <PAGE>
<PAGE> 63
Bankruptcy Court will approve an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet.
The Gold Coast Barge (with a value on the Company's books of approximately
$8,686,000 net of accumulated depreciation and amortization, as of December
31, 1997) that was to have been transferred to Bennett Management pursuant
to the Bennett Debt Exchange and the Barge Debt (totaling approximately
$22,722,000 as of December 31, 1997, and accrued interest on such debt of
approximately $7,566,000 from the BDE Date through December 31, 1997) that
was to have been canceled by Shamrock or, if necessary, Bennett Management
pursuant to the Bennett Debt Exchange are shown as assets and liabilities,
respectively, of the Company as of December 31, 1997 and 1996. Such amounts
are shown on the accompanying Consolidated Balance Sheets as of December
31, 1997 and 1996 because documents have not been executed to formally
transfer the Gold Coast Barge from the Company to Bennett Management and to
forgive such indebtedness by Shamrock or, if necessary, Bennett Management
all in accordance with the terms of the Bennett Debt Exchange. The related
revenues for the years ended December 31, 1997 and 1996, however, were not
recognized as such and instead are recorded as PMCC/Bennett Debt because
(i) in June 1996 the Trustee notified the Company that Shamrock is entitled
to all PMCC Payments to be received by the Company and (ii) except for the
Escrow Settlement Agreement, as of December 31, 1997 Shamrock had not
executed documents agreeing to a termination or postponement of the Bennett
Debt Exchange and therefore the Company may not have had a right to keep
such revenues prior to December 1, 1997.
In the third quarter of 1996, the Company recognized a writedown of
$2,146,000 in the value of its investment in the Gold Coast Barge to
reflect an appraisal of its fair market value (see Note 9).
Note 4 - Subsidiary Bankruptcies and Related Legal Proceedings
Prior to 1996, AMGAM was served by certain creditors with a petition filed
in the Bankruptcy Court seeking liquidation of AMGAM under Chapter 7 of the
Code. AMGAM responded to such petition by requesting the Bankruptcy Court
to convert the case into a reorganization under Chapter 11 of the Code,
which request was granted by the Bankruptcy Court. On February 1, 1996, the
Bankruptcy Court approved the sale of the leases comprising the Gold Shore
Casino site to a third party for the sum of $750,000 plus the assumption
and payment of all outstanding liabilities relating to and arising from
such leases. On March 12 and 13, 1996, the personal property of AMGAM was
sold at auction for the net sum of $337,000.
Prior to 1996, AGRM filed a voluntary petition for reorganization under
Chapter 11 of the Code with the Bankruptcy Court. On April 18, 1996 the
Bankruptcy Court lifted the automatic stay to allow an action of
foreclosure on a parcel of property in Vicksburg, Mississippi owned by AGRM
which served as collateral for certain borrowing agreements and the
creditors under such borrowing agreements subsequently foreclosed on such
parcel. Additionally, on March 14, 1996 the Bankruptcy Court approved the
rejection by AGRM of its lease with the lessor of the parcel constituting
the remainder of the property in Vicksburg, Mississippi.
<PAGE>
<PAGE> 64
The AMGAM Committee has filed the Complaint with the Bankruptcy Court
seeking that (i) the transfer of the ownership interests in the Gold Coast
Barge by AGRM and AMGAM to the Company be declared null and void, (ii) the
transfer of the leasehold interest in the Gold Coast Barge by AMGAM to the
Company be declared null and void, (iii) the Company and Shamrock be
required to deliver to AGRM and AMGAM their respective interests in both
the ownership and leasehold in the Gold Coast Barge, (iv) the Company and
Shamrock disgorge and return to the respective AMGAM and AGRM estates all
PMCC Payments, such funds to be deposited in an escrow account and not
expended without further order of the Bankruptcy Court, and (v) PMCC be
ordered and directed to immediately deposit all PMCC Payments into an
escrow account for the benefit of the creditors of AMGAM and AGRM, such
funds not to be expended without further order of the Bankruptcy Court. The
Bankruptcy Court has not scheduled a hearing date on the Complaint. AMGAM,
AGRM and the Company will oppose the Complaint on the bases, among others,
that the transfer of the Gold Coast Barge from AGRM to the Company involved
contemporaneous exchanges of value and that the Company and Shamrock were
not insiders of AMGAM or AGRM at the time such entities granted the Company
and Shamrock security interests in their assets, including the Gold Coast
Barge.
The Company, Shamrock, AMGAM, AGRM and the Committees are presently
negotiating the Term Sheet, which terms are to be incorporated into the
Plan. Pursuant to the Plan as currently being negotiated by such parties,
(i) the Company would transfer to a creditors trust for the holders of
allowed claims in the bankruptcy proceedings of AMGAM and AGRM (excluding
the Company and Shamrock) an undivided 25% (22.7% in the Original Term
Sheet) ownership interest in the Gold Coast Barge and the Charter
Agreement, which assets will be held by a trustee (the "Mississippi
Trustee"), (ii) the Mississippi Trustee would receive and disburse in
accordance with the terms of the Plan all PMCC Payments and all FF&E
Payments, (iii) each administrative and priority claim, as defined in the
Code, incurred in connection with the bankruptcy proceedings of AMGAM and
AGRM would be paid in full from the respective estates of AMGAM and AGRM in
accordance with statutory priorities pursuant to the Code, (iv) each
secured claim (excluding the Ship Mortgage) would be paid in full from the
sale of the related collateral, (v) each unsecured claim, excluding any
claims of the Company and Shamrock, would be paid on a pro rata basis (a)
from the assets of the respective estates of AMGAM and AGRM, including all
FF&E Payments made from October 1, 1995 through October 1, 1997 and the
funds remaining in the Escrow Account, (b) from a monthly payment in the
aggregate amount of approximately $54,000 (approximately $68,000 in the
Original Term Sheet) out of the PMCC Payments (which total approximately
$215,000 (approximately $329,000 in the Original Term Sheet) per month)
from the date the Plan is confirmed (the "Confirmation Date") through
Remaining Charter Term and (c) from 25% (22.7% in the Original Term Sheet)
of the net proceeds of a sale of the Gold Coast Barge, if any, and (vi) the
Company's and Shamrock's unsecured claims and the Ship Mortgage (in the
collective claimed amount of $33,000,000) would be paid from the balance of
(a) the monthly PMCC Payments (approximately $161,000 (approximately
$259,000 in the Original Term Sheet)) from the Confirmation Date and (b)
the net proceeds of a sale of the Gold Coast Barge, if any. As stated
above, pursuant to the Escrow Allocation Agreement, Shamrock (i) will
receive $874,000 in a <PAGE>
<PAGE> 65
lump sum payment from the Settlement Payment and (ii) will receive $129,000
per month from the PMCC Payments paid into the Escrow Account during the
Remaining Charter Term, which amounts, collectively, will reduce the
Company's indebtedness to Shamrock.
The amounts to be paid to creditors would be subject to the claim allowance
process in the AMGAM and AGRM bankruptcies, pursuant to which all allowed
claim amounts, in the order set forth above, would be fixed for purposes of
distributions under the Plan. Prior to the final approval of any settlement
agreement incorporating the terms of the Plan, the Company and Shamrock
shall advise AMGAM, AGRM and the Committees of the allocation between the
Company and Shamrock of the distributions to be made pursuant to clause
(vi) in the immediately preceding paragraph. The Bankruptcy Court set May
17, 1996 as the final date for filing proofs of claim or interest in both
the AMGAM and AGRM bankruptcy cases, except with respect to Bennett
Management and related entities, for which the Bankruptcy Court has
extended such date until the Confirmation Date. Additionally, pursuant to
the Plan, the Committees would agree to stay all litigation, including the
Complaint, until the Confirmation Date, at which time the Committees would
dismiss the Complaint and all other litigation brought against the Company
with prejudice, that is, the Committees would be precluded from filing any
action against the Company based on the alleged causes of action set forth
in the Complaint or any such other litigation.
There can be no assurance that the Company, AMGAM, AGRM and the Committees
will agree on a joint plan of liquidation for AMGAM and AGRM with terms and
conditions substantially equivalent to the Plan, that the Company will
receive any distributions under the Plan, that the creditors in the AMGAM
and AGRM bankruptcy proceedings will approve any such plan in accordance
with the provisions of the Code or that any such plan will thereafter be
confirmed by the Bankruptcy Court.
If (i) the Company, AMGAM, AGRM and the Committees cannot agree on a joint
consensual plan of liquidation for AMGAM and AGRM incorporating the terms
of the Term Sheet or any other acceptable terms or any such plan is agreed
upon but not approved by the creditors in the AMGAM and AGRM bankruptcy
proceedings in accordance with the provisions of the Code or thereafter
confirmed by the Bankruptcy Court and (ii) the AMGAM Committee prevails on
the Complaint, the Company would not be able to meet its obligations as
they come due. Additionally, if the Company and the Committees cannot agree
on a joint consensual plan of liquidation for AMGAM and AGRM incorporating
the terms of the Term Sheet or any other acceptable terms and, as a result
the Bankruptcy Court (i) terminates the Preliminary Injunction and (ii)
disallows any payments to the Company for its monthly operating expenses
from the PMCC Payments, 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 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. Even if
the Plan is confirmed in the AMGAM and AGRM bankruptcies, and the Company
<PAGE>
<PAGE> 66
receives its portion of the PMCC Payments, such payments would not be
sufficient to satisfy the Company's currently anticipated operating needs
and its obligations to Shamrock and Bennett Management.
On April 29, 1996, a preliminary injunction (the "Preliminary Injunction"),
which was agreed upon by the Committees and the Company, was entered by the
Bankruptcy Court, (i) to require the PMCC Payments from May 1996 through
July 1996 be deposited into the Escrow Account pending confirmation of a
proposed joint plan of liquidation and (ii) to allow a monthly payment from
the Escrow Account to the Company in the amount of $304,000 for the
Company's monthly operating expenses.
The Preliminary Injunction was revised and extended by the Bankruptcy Court
effective August 1, 1996 (i) to require the PMCC Payments from August 1996
until the agreement by the Company and the Committees on a joint plan of
liquidation of the AMGAM and AGRM estates or upon further order of the
Bankruptcy Court be deposited into the Escrow Account pending confirmation
of a proposed joint plan of liquidation and (ii) to allow a monthly payment
from the Escrow Account to the Company in the amount of approximately
$282,000 for the Company's monthly operating expenses (subject, however, to
the Term Sheet).
As discussed above (See Note 3), on January 31, 1997 AMGAM and the AMGAM
Committee filed suit in the Bankruptcy Court (Adv. No. 970868) against PMCC
and an affiliate seeking payment of all FF&E Payments currently due under
the PMCC Order, among other relief. As currently agreed under the Charter
Term Sheet, such suit will be dismissed, with prejudice, on the Closing
Date.
Prior to 1996 AMGAM was informed by the U.S. Department of Labor (the
"DOL") that it had concluded an investigation of the AMGAM Associates d/b/a
Gold Shore Casino Associate Benefit Plan (the "AMGAM Benefit Plan") for the
period May 15, 1994 through September 20, 1995. As a result of such
investigation, the DOL has alleged that AMGAM and possibly certain related
parties and/or AMGAM officers violated, and continue to violate, certain
provisions of the Employee Retirement Income Security Act of 1974 ("ERISA")
with respect to the administration of the AMGAM Benefit Plan. The DOL has
indicated that AMGAM's failure to take necessary corrective action may
result in the referral of this matter to the Office of the Solicitor of
Labor for possible legal action. In addition, whether or not any such
referral is made, AMGAM is and would remain liable to possible legal action
by other parties including plan fiduciaries and plan participants or their
beneficiaries. Certain violations of ERISA may also result in the
assessment of civil penalties by the Secretary of Labor against the
violating parties. The DOL has requested AMGAM to discuss how such
violations noted in the DOL's investigation may be corrected and how to
restore any losses to the AMGAM Benefit Plan. The Company responded to such
allegations and advised the DOL (i) that AMGAM does not believe that there
have been any fiduciary violations or prohibited transactions under ERISA,
(ii) AMGAM intends to satisfy medical claims due and payable under the
AMGAM Benefit Plan to the extent permitted by the Code and the Bankruptcy
Court and intends to use its best efforts to seek priority status under the
Code for the payment of such medical claims, and (iii) in no event <PAGE>
<PAGE> 67
will the amount paid with respect to such medical claims be less than the
employee contributions collected under the AMGAM Benefit Plan after March
28, 1995. Although the actions taken by AMGAM, certain related parties and
AMGAM officers with respect to the AMGAM Benefit Plan will be vigorously
defended, the outcome of this matter is uncertain. Any legal action or
civil penalties arising out of this matter could materially affect the
Company and its business and financial condition.
On September 16, 1996, two stockholders of the Company, who were
bondholders and stockholders of AGRM prior to the Merger, filed suit
against the Company and three former officers and/or directors of AGRM in
the Circuit Court of Harrison County, Mississippi, Second Judicial District
(Civil Action No. A2402-96-00210). The plaintiffs allege (i) federal and
state securities fraud by the defendants based on alleged fraudulent
misrepresentations made by the defendants in connection with plaintiffs'
decision to purchase common stock of AGRM, to convert certain debentures
issued by AGRM into common stock of AGRM and to tender their common stock
of AGRM in exchange for Common Stock of the Company in connection with the
Merger and (ii) a breach of directors' duties of good faith and due care by
the three former officers and/or directors of AGRM. The plaintiffs are
seeking compensatory damages in the amount of $250,000, punitive damages in
the amount of $1,000,000 and attorneys fees and costs. As discovery and
depositions have not yet commenced, outside counsel to the Company, due to
the limited facts available on this matter, is unable to predict the
outcome of this lawsuit. However, should the plaintiffs 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.
The Company has determined that, because of AMGAM and AGRM Chapter 11
bankruptcy filings and the expected liquidation in the near future of AMGAM
and AGRM under a consolidated plan of liquidation, it would be appropriate
to deconsolidate AMGAM and AGRM. A combined condensed balance sheet of
these entities as of December 31 is as follows:
<PAGE>
<PAGE> 68
Assets 1997 1996
_____ ____
Current Assets and Other $3,767,000 $3,897,000
Property and Equipment, Net 41,000 41,000
__________ __________
Total Assets $3,808,000 $3,938,000
========== ==========
Liabilities and Stockholders'
Deficiency
Current Liabilities $27,862,000 $25,005,000
Amounts Due to Parent 12,147,000 12,147,000
Stockholders' Deficiency (36,201,000) (33,214,000)
___________ ___________
Total Liabilities and
Stockholders' Deficiency $ 3,808,000 $ 3,938,000
=========== ===========
In addition, in connection with the Plan, the Company has accrued
approximately $4,491,000 as management's estimate of the settlement
liabilities to be paid to unsecured creditors of AMGAM and AGRM pursuant to
the Term Sheet and the Plan. For the year ended December 31, 1997,
estimated net liabilities for subsidiaries in bankruptcy was reduced by (i)
$375,000 relating to the settlement of a lawsuit brought by IGT North
America ("IGT") (see Note 7) and (ii) approximately $147,000 relating to
the portion of PMCC Payments paid by PMCC into the Escrow Account for the
benefit of creditors of AMGAM and AGRM. It is reasonably possible that the
Company's ultimate settlement of these liabilities will change in the near
term due to the uncertainties regarding the bankruptcies of AMGAM and AGRM,
the charter of the Gold Coast Barge and potential sale, if at all, of the
Gold Coast Barge, and that the effect of such uncertainties could be
material to the Company's financial statements. The Company has classified
the long term portion of this liability in the accompanying Consolidated
Balance Sheet as of December 31, 1997 in the amount of $3,329,000 as "Long
Term Portion of Estimated Net Liabilities for Subsidiaries in Bankruptcy".
There can be no assurance that the Company, AMGAM, AGRM and the Committees
will agree on a joint plan of liquidation for AMGAM and AGRM with terms and
conditions substantially equivalent to the Plan, that the creditors in the
AMGAM and AGRM bankruptcy proceedings will approve any such plan in
accordance with the provisions of the Code or that any such plan will
thereafter be confirmed by the Bankruptcy Court.
Note 5 - Related Party Developments
On March 28, 1996, Mr. Patrick Bennett, the Chief Financial Officer of
Bennett Funding and Bennett Management, was charged by the federal
government with, among other charges, (a) fraud and making material
misstatements and omissions in connection with the purchase and sale of up
to $80,000,000 of notes issued by a wholly-owned subsidiary of Bennett
Funding and (b) perjury in testimony before the U.S. Securities and
Exchange Commission (the "Commission"). Additionally, on or about March 28,
1996, Mr. Patrick Bennett, Bennett Funding, Bennett Management and two
wholly-owned subsidiaries of Bennett Funding were charged by the Commission
with, among other charges, using misrepresentations and omissions of
material facts <PAGE>
<PAGE> 69
to offer and sell over $570,000,000 of purported assignments of equipment
leases and promissory notes issued by Bennett Funding or such subsidiaries.
On March 29, 1996, Bennett Funding and Bennett Management filed for
protection under Chapter 11 of the Code. The Company's management believes,
based on recent court filings, that, at the time of filing for protection
under Chapter 11 of the Code, Bennett Funding was owned by members of the
Bennett family and Bennett Management was owned by Mr. Patrick Bennett. The
Company understands that, based upon certain oral representations made by
Shamrock and a review of public records, Shamrock has not filed for
protection under the Code, although the Company has not received from
Shamrock written confirmation of such understanding. The ultimate impact,
if any, of these allegations on the accompanying consolidated financial
statements can not presently be determined.
Note 6 - Liquidity and Continuation of Business
The Company has sustained recurring operating losses since its inception,
including significant losses related to the Gold Shore Casino (See Note 3).
The Company also has had a history of insufficient liquidity and has been
dependent upon Shamrock, Bennett Funding and Bennett Management for both
working capital and project related financing. However, as a result of the
bankruptcy filings of Bennett Funding and Bennett Management and the filing
of securities charges by the Commission against Bennett Funding and Bennett
Management (see Note 5), the Company does not anticipate receiving any
additional funds from the Bennett Entities. As of December 31, 1997 the
Company owed approximately $61,952,000 to Shamrock, which amount includes
(i) approximately $2,701,000 under an operating lease between the Company
and Bennett Management (the "SCS Lease") with respect to the "Sioux City
Sue" riverboat vessel and its supporting barge (the "SCS Barge",
collectively with the "Sioux City Sue" riverboat vessel, the "Vessels")
which SCS Lease, as discussed below, Shamrock has orally represented to the
Company that Bennett Management, prior to its bankruptcy filing, assigned
to Shamrock (See Note 7) and (ii) accrued and declared dividends
collectively totaling approximately $303,000 which are due and payable on
the Series C Preferred Stock and Series D Preferred Stock (excluding
accrued but undeclared dividends collectively totaling approximately
$1,650,000 on the Series C Preferred Stock and Series D Preferred Stock)
(See Notes 11 and 12).
The Company had available cash of approximately $381,000 as of December 31,
1997 and its only current significant sources of cash receipts are payments
of $25,000 per month under a note issued to the Company in connection with
the sale of its keno operations (see Note 7). 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 middle 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 will probably 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 <PAGE>
<PAGE> 70
satisfied and stockholders of the Company would probably not recover any of
their investment in the Company. If an amendment to the Charter Agreement
incorporating the terms of the Charter Term Sheet is approved by the
Bankruptcy Court and the Term Sheet is executed, and pursuant thereto 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 1998,
based on the Company's current level of operations and projected
expenditures.
As of December 31, 1997, the Company had recorded as "Restricted Cash" in
the accompanying Consolidated Balance Sheets approximately $630,000
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
(the "Rising Sun Project"). 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 (see Note 8).
See Note 4 for a discussion on the possible effects of the bankruptcies of
AMGAM and AGRM on the Company's liquidity and continuation of business.
As discussed below, the Company is seeking the modification or termination
of certain agreements (excluding Shamrock's assumption of the obligation
related to the Ship Mortgage on the Gold Coast Barge of approximately
$2,278,000, which assumption has been consummated) executed between the
Company, Shamrock and Bennett Management prior to 1996, whereby the Company
agreed to assign all its rights and interests in the Charter Agreement,
including the rights to all PMCC Payments, and the Gold Coast Barge to
Shamrock and Bennett Management, respectively, for cancellation of the
Barge Debt and Shamrock's assumption of the Ship Mortgage (collectively,
the "Bennett Debt Exchange") and a restructuring of all other obligations
due from the Company to Shamrock because (i) the Company would not be able
to meet all of its obligations as they come due if all or a significant
portion of the PMCC Payments were required to be paid to Shamrock and (ii)
the Company is otherwise unable to service the debt or repay the principal
due to Shamrock under all other such obligations.
Shamrock has orally represented to the Company that Bennett Management,
prior to its bankruptcy filing, assigned to Shamrock all of Bennett
Management's rights and obligations under all agreements previously
executed by and between the Company and Bennett Management including,
without limitation, (i) agreements constituting the Bennett Debt Exchange,
(ii) a security agreement whereby the Company granted to Bennett Management
a security interest in all of the Company's accounts receivable and all
bank accounts in the State of <PAGE>
<PAGE> 71
New Jersey to secure all obligations owing by the Company to Bennett
Management and its affiliates and to obtain the agreement of Shamrock to
enter into the Bennett Debt Exchange (the "Security Agreement") and (iii)
the SCS Lease. However, the Company has not been provided with written
evidence of such assignment and, as the result of the bankruptcy filing of
Bennett Management, any such assignment might be challenged as a fraudulent
transfer or voidable preference under the Code. There can be no assurance
that such assignment was entered into between Shamrock and Bennett
Management or, if entered into, that it will not be voided as a fraudulent
transfer or voidable preference in the bankruptcy proceeding of Bennett
Management or otherwise voided on other grounds if any such assignment
became effective within one year prior to the bankruptcy filing of Bennett
Management.
There can be no assurance that Shamrock or, if necessary, Bennett
Management will agree to modify or terminate the Bennett Debt Exchange or
restructure all other obligations due from the Company to Shamrock and, if
applicable, Bennett Management. Failure to obtain such modification,
termination or restructuring would have a material adverse effect on the
Company and the Company would need to pursue a formal plan of
reorganization or liquidation. Any action to be taken by Bennett Management
in connection with modifying or terminating the Bennett Debt Exchange would
probably require the approval of the bankruptcy court before which the
Bennett Management bankruptcy proceeding is being heard.
The Company is delinquent in the payment of interest due on its various
obligations to Shamrock totaling approximately $16,788,000 as of December
31, 1997 and is therefore in default with respect to such payments under
the Company's various loan agreements with Shamrock. If Shamrock takes any
action with respect to its rights and remedies in connection with such
defaults, it would have a material adverse effect on the Company's business
and financial condition and the Company would need to pursue a formal plan
of reorganization or liquidation. The Company is also delinquent in the
payment of rent totaling approximately $2,701,000 as of December 31, 1997
under the SCS Lease. Shamrock or Bennett Management, to the extent an
assignment to Shamrock of Bennett Management's interest in the Security
Agreement never took place or is voided as a fraudulent transfer, voidable
preference or otherwise in the bankruptcy proceeding of Bennett Management,
has a security interest in certain assets of the Company including (i) the
Gold Coast Barge pursuant to the Ship Mortgage, the Second Mortgage and
other agreements and (ii) all of the Company's accounts receivable and
bank accounts located in the State of New Jersey and therefore because of
such defaults could foreclose on such assets in the amount of such
defaults. There can be no assurance that Shamrock and, if necessary,
Bennett Management will agree on and execute an agreement restructuring the
Company's obligations to Shamrock and, if applicable, Bennett Management.
Additionally, any action required to be taken by Bennett Management would
probably require the approval of the bankruptcy court before which the
Bennett Management bankruptcy proceeding is being heard. Since the
announcement of securities fraud charges against, and the commencement of
bankruptcy proceedings by, Bennett Funding and Bennett Management, and
certain related parties, and the transfer of all of the outstanding stock
of Shamrock by Mr. Michael Bennett to the Trustee, the Company has had
preliminary negotiations with the Trustee on a restructuring of the
Company's obligations to Shamrock and, if applicable, Bennett Management.
Even if the Plan is confirmed, and such a <PAGE>
<PAGE> 72
restructuring is consummated, there can be no assurance that the Company
would receive payments pursuant to the Plan sufficient to satisfy the
Company's currently anticipated operating needs and its obligations to
Shamrock and, if applicable, Bennett Management, as restructured.
The Company has not experienced any success in raising debt or equity
financing from sources independent of the Bennett Entities and has no
present commitments or other alternatives for such financing. Given the
Company's historical operating losses and present liquidity position and
the legal problems described above relating to certain Bennett Entities it
is unlikely that the Company will achieve any success in raising additional
equity, working capital or long-term project related financing.
Given the Company's present financial and liquidity position, the legal
problems described above relating to certain Bennett Entities and the
Company's other litigation described below (see Note 15), 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 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 on terms acceptable to the Company or
terminate the Bennett Debt Exchange (excluding Shamrock's assumption of the
Ship Mortgage) and restructure all other obligations due from the Company
to Shamrock and, if applicable, Bennett Management, (iii) consummate 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, and (iv) satisfactorily resolve the
litigation filed against the Company (see Note 15). However, there can be
no assurance the Company will be successful in obtaining Shamrock's and, if
necessary, Bennett Management's agreement to modify on terms acceptable to
the Company or terminate the Bennett Debt Exchange (excluding Shamrock's
assumption of the Ship Mortgage) and restructure all other 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. 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 the stockholders of the Company will
recover any of their investment in the Company.
Note 7 - Discontinued Ventures
Keno
Under the terms of a financing agreement (the "BRK Agreement") with Big Red
Keno, Ltd., a licensed keno operator in Omaha, Nebraska ("BRK"), the
Company provided equipment, technical services, and financing to BRK as
well as a working capital loan with an original balance of $800,000. In
return, the Company was entitled to repayment of the working capital <PAGE>
<PAGE> 73
loan through April 1996. On March 28, 1996 the Company entered into an
assignment and transfer agreement with American Heartland Corporation
("AHC"), and BRK, pursuant to which: (i) the Company assigned, and AHC
assumed, all of the Company's rights and obligations under the BRK
Agreement: (ii) the Company transferred and assigned to AHC all of the
Company's right, title and interest to all of the assets utilized by the
Company in the conduct of its keno gaming activities (the "Keno Assets"),
including, without limitation, all maintenance and servicing agreements
with the licensed operators for stations and locations at which the
Company's computerized keno system is utilized and the Company's
computerized keno system; (iii) the Company agreed not to compete, directly
or indirectly, with AHC or BRK as a distributor, manufacturer or maintainer
of keno equipment or software, other than in the normal course of any
casino operations of the Company for a period of five years; (iv) AHC paid
the Company $500,000 on March 29, 1996; and (v) AHC issued and delivered
its promissory note to the Company in the principal amount of approximately
$1,112,000 (the "Keno Note"). The Keno Note requires principal and interest
payments, at an interest rate of 8% per annum, based on a fifty-three month
amortization with payments commencing on April 28, 1996. The Company
received principal and interest payments totaling $300,000 and $225,000 for
the years ended December 31, 1997 and 1996, respectively. The Keno Note is
secured by the Keno Assets and is guaranteed by BRK, which guarantee is
secured by keno equipment previously provided to BRK by the Company. The
non-current portion of the Keno Note at December 31, 1997 and 1996 of
approximately $465,000 and $717,000, respectively, is included in "Other
Non-current Assets" in the accompanying Consolidated Balance Sheets.
In the fourth quarter of 1997, the Company wrote off accounts payable of
approximately $21,000 related to the keno operations sold by the Company.
Sioux City Sue
Prior to 1996, Bennett Management consummated the purchase of the Vessels
from a third party. The Company believed, at such time, the Vessels were
suitable for riverboat gaming operations and planned to use the Vessels for
such operations if successful in obtaining a gaming license in any of a
number of jurisdictions in which riverboat gaming has been legalized or is
being considered for legalization.
In conjunction therewith, the Company entered into the SCS Lease with
Bennett Management whereby the Company leased the Vessels for casino gaming
purposes at a monthly rental of approximately $106,000 plus operating and
maintenance expenses. The SCS Lease was approved by a special committee of
the Board of Directors which makes recommendations to the Board of
Directors concerning potential transactions between the Company and
entities which may be deemed affiliates of the Company and such action was
ratified by the Board of Directors of the Company. Prior to 1996, the
Company determined that it did not have the necessary financing to renovate
the Vessels to make them suitable for use as gaming vessels and had no
present intention of utilizing the vessels as gaming vessels. As a result
of the Company's determination prior to 1996 that there was a substantial
likelihood that the Company would not record any revenues from the Vessels
through the end of the SCS Lease term to offset the remaining lease
payments due Bennett Management under the SCS Lease from January 1, 1996 to
the end of the <PAGE>
<PAGE> 74
lease term totaling approximately $4,463,000, such remaining lease payments
were recognized as a liability by the Company. The Company has been advised
by Shamrock that the SCS Barge was sold by Shamrock on November 20, 1996.
The Company advised Shamrock that it believes that the SCS Lease terminated
on such date and accordingly, in 1996, reversed the remaining lease
payments due Bennett Management under the SCS Lease from November 20, 1996
to the end of the lease term totaling approximately $3,329,000. The Company
has not paid approximately $2,701,000 in rent to Bennett Management due
under the SCS Lease as of December 31, 1997. Such amount is included in
"Current Portion of Long Term Debt" in the accompanying Consolidated
Balance Sheets at December 31, 1997 and 1996.
Shamrock has orally represented to the Company that Bennett Management,
prior to its bankruptcy filing, assigned to Shamrock all of Bennett
Management's rights and obligations under the SCS Lease. However, the
Company has not been provided with written evidence of such assignment and,
as the result of the bankruptcy filing of Bennett Management, any such
assignment might be challenged as a fraudulent transfer or voidable
preference under the Code. There can be no assurance that such assignment
was entered into between Shamrock and Bennett Management or, if entered
into, that it will not be voided as a fraudulent transfer or voidable
preference in the bankruptcy proceeding of Bennett Management.
Bell City Card Club Casino
Prior to 1996, the Company executed a Memorandum of Understanding with
International Marine and Gaming, Inc. to jointly pursue the potential
development of a card club casino in Bell, California, and deposited
$1,027,000 in trust with the City of Bell in order to participate as a 25%
interest holder in the card club casino project. The Company withdrew from
such project in January 1996 and received its investment of $1,027,000
from the City of Bell without interest in February 1996. These funds were
utilized to repay Shamrock and Bennett Funding outstanding principal and
interest under various lines of credit granted by Shamrock and Bennett
Funding to the Company.
Prichard, Alabama
Prior to 1996, the Company purchased seven adjoining parcels of real estate
in Prichard, Alabama for a total of approximately $676,000 for possible
development in connection with a casino gaming facility. On March 27, 1997,
the Company sold such parcels to the City of Prichard for $110,000. The net
sales proceeds of approximately $98,000 were used to repay a portion of a
promissory note payable to a former employee of the Company related to
expenses that such employee incurred during his employment with the
Company, which note was secured by such parcels. In addition, the Company
had a lease through July 1997 for another parcel of real estate in
Prichard, Alabama at a rent of approximately $22,000 per year, which lease
was not renewed.
Multimedia Games, Inc. Preferred Stock
On October 10, 1997, the Company sold 12,500 shares of preferred stock of
Multimedia Games, Inc. for $625,000, and recorded a net gain of
approximately $625,000. The Company used
<PAGE>
<PAGE> 75
$375,000 of such funds to settle a lawsuit brought by IGT seeking a
judgment against the Company under a guarantee of AMGAM's indebtedness to
IGT totaling approximately $3,306,000 (see Note 4). Pursuant to the Escrow
Allocation Agreement, the Company has agreed to use $125,000 of such funds
to repay indebtedness due to Shamrock.
Note 8 Assets Held for Sale
Assets held for sale consists of the following at December 31:
1997 1996
____ ____
Rising Sun $ 56,000 $ 54,000
Alabama 375,000 485,000
________ ________
$431,000 $539,000
======== ========
Rising Sun
The Company owns the RSR Interest, representing the equivalent of a 4.9%
equity interest in the Rising Sun Project. Effective August 23, 1996, the
Company transferred legal title to the RSR Interest to NBD, as trustee.
Additionally, at such time, the Company granted a irrevocable proxy to the
other members of RSR (collectively, the "Remaining Members") to vote the
RSR Interest in the same manner and proportion as the Remaining Members
vote on any matter, provided, however, that such proxy may not be exercised
to vote in favor of any action that could reasonably be viewed as
decreasing or otherwise adversely affecting the value of the RSR Interest
or the ability to sell or otherwise transfer the RSR Interest. Prior to
August 23, 1998, the Company may instruct NBD to sell any portion of the
RSR Interest, for the benefit of the Company, to a third party approved by
the Indiana Gaming Commission, subject to rights of first refusal held by
RSR, the Remaining Members and Indiana RBG, L.P., the partner of RSR in the
Rising Sun Project. Any portion of the RSR Interest which is not
transferred prior to August 23, 1998 shall be purchased from NBD, for the
benefit of the Company, by either the Remaining Members or RSR at an
average appraised fair market value.
Alabama
Prior to 1996, the Company acquired, for $1,006,000 in cash, a former
railroad station in Mobile, Alabama (the "GM&O Building"), that the Company
believes is suitable for use as a casino gaming facility if the State of
Alabama enacts gaming legislation. Prior to 1996, as a result of the
Company's determination that there is a substantial likelihood that the
GM&O Building will not be able to be utilized as a gaming facility in the
next few years, the Company recognized a write down of $280,000 in the
value of its investment in the GM&O Building to reflect its estimated sale
value if it is unable to be developed as a gaming facility. In the third
quarter of 1996, the Company recognized an additional writedown of $351,000
in the value of its investment in the GM&O Building to reflect an appraisal
of its fair market value. The Company does not have, nor does it anticipate
having, the financial ability or personnel to develop the GM&O Building as
a gaming or other facility.<PAGE>
<PAGE> 76
On July 2, 1997, the Company agreed to sell the GM&O Building in Mobile,
Alabama to the City of Mobile for approximately $423,000, subject to
approval of the City Council of the City of Mobile. The GM&O Building is
recorded as "Assets Held for Sale" in the amount of $375,000 in the
accompanying Consolidated Balance Sheets. The Company intends to use the
net sales proceeds for working capital purposes. The sale was scheduled to
close on or before September 30, 1997, but such closing has been postponed
until such time as the sale has been approved by the State Department of
Transportation of Alabama ("ALDOT"). There can be no assurance, however,
that ALDOT will approve the purchase of the GM&O Building by the City of
Mobile. If the sale of the GM&O Building to the City of Mobile does not
close, the Company will assess other opportunities to sell the GM&O
Building.
Marine Star
In a prior year, the Company invested $3,000,000 in cash to acquire a 15%
initial equity interest (with the right to increase its percentage
ownership to 30%) in Empire Cruise Lines, Ltd., a Delaware corporation
("Empire"), which has acquired ownership of the Marine Star, a U.S. flag
cruise ship suitable for refurbishment as a gaming vessel. Under an
agreement with Empire, the Company has the right to manage the Marine Star.
The Company does not have, nor does it anticipate having, the financial
ability or personnel to manage such property as a gaming or other facility.
The Company is currently assessing opportunities to sell its equity
ownership in Empire. Additionally, the Company, on behalf of Empire, is
currently seeking opportunities to sell the Marine Star. Prior to 1996, the
Company recognized a writedown of $2,250,000 in the carrying value of its
investment in Empire to reflect the estimated net scrap metal proceeds
which would be received by the Company if the Marine Star was unable to be
developed as a gaming project and instead sold for its scrap metal value.
As a result of the Company's determination in the fourth quarter of 1996
that (i) there is a substantial likelihood that the Marine Star will not be
able to be utilized as a gaming project and (ii) the outstanding carrying
costs of the Marine Star exceed its estimated net scrap metal value, the
Company wrote off its investment of $750,000 in Empire (See Note 9).
Harolds Club Casino
Prior to 1996, the Company consummated an agreement with Fitzgerald's Reno,
Inc. to purchase the Harolds Club casino in Reno, Nevada (which is not
presently operating as a casino and which would require significant
additional funding for sufficient renovations and equipment purchases to
enable it to operate as a casino) for a purchase price of $8,900,000,
consisting of $1,150,000 previously paid into escrow by the Company and
$7,750,000 provided by Shamrock. The Company did not have sufficient funds
to complete the purchase. To prevent the Company from forfeiting the
escrowed funds because of a failure to consummate the purchase by the date
required in the agreement, Shamrock agreed to provide the additional
financing in exchange for the transfer to it by the Company of the property
constituting the Harolds Club, all as more fully described below.
Pursuant to an agreement prior to 1996 between Shamrock and the Company
under which Shamrock provided the necessary funds to the Company to close
the purchase of the Harolds Club casino, the Company transferred to
Shamrock title to the land and the building related to the <PAGE>
<PAGE> 77
Harolds Club and the Company agreed to transfer to Shamrock all of the
Company's rights, title and interest in certain land leases related to the
Harolds Club.
The Company is in breach of the latter provision because such transfer has
not been completed pending the negotiation by the Company with Shamrock
relating to possible future sale or development of the Harolds Club.
Although the Company is obligated until such transfer to make all lease
payments under such leases and notwithstanding that such leases have not
yet been assigned to Shamrock, prior to 1996 Shamrock assumed
responsibility for all carrying costs of the Harolds Club property
including, but not limited to, such lease payments, taxes, insurance and
utilities. However, 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 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
lease payments from April 1996 through December 1997 due under such leases
or quarterly property taxes due under such leases, collectively totaling
approximately $1,356,000 (the "Unpaid Harolds Club Obligations"). 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. Four such leases
require aggregate annual lease payments of approximately $548,000 for each
of the years 1998, 1999 and 2000, subject to increase based upon increases
in the Consumer Price Index, and have terms ending between April 2001 and
October 2022. A fifth land lease relating to the Harolds Club, with an
annual lease payment of approximately $72,000, subject to increase based
upon increases in the Consumer Price Index, expired in June 1997. On March
25, 1997, the Company exercised its option to renew such land lease.
However, the lessor has advised the Company that such option may not be
exercised until all defaults currently existing under such land lease,
including defaults in the payment of rent and real property taxes, are
cured in full. If such land lease is not renewed, sale or development of
the Harolds Club could be adversely affected.
The Company has recorded the Unpaid Harolds Club Obligations as current
liabilities as of December 31, 1997. The Company has also recorded the
amounts of the Unpaid Harolds Club 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, wrote off
such amounts as of December 31, 1996 and 1997.
In September 1996, Shamrock and the Company entered into an agreement
pursuant to which Shamrock has agreed, upon the sale of the Harolds Club,
to reimburse the Company for (i) all costs and expenses, in an amount not
to exceed $15,000, incurred by the Company in connection with such sale,
(ii) all reasonable attorneys' fees incurred by the Company in connection
with litigation commenced against, among others, the Company by the five
lessors of the Harolds Club property seeking, among other relief, payment
of all unpaid lease payments and property taxes (see Note 15), and (iii)
all reasonable costs and expenses incurred by the Company in connection
with the operation and maintenance of the Harolds Club.
Pursuant to agreements between Shamrock and the Company, the Company has
the right to lease Harolds Club from Shamrock or, under certain
circumstances, manage the Harolds Club. The <PAGE>
<PAGE> 78
Company does not have, nor does it anticipate having, the financial ability
or personnel to exercise the above described lease option. Additionally,
the Company has no current intention of exercising such lease option or
managing the Harolds Club.
The Company is precluded from conducting casino operations in the Harolds
Club prior to receipt of a gaming license from the Nevada State Gaming
Control Board. In January 1996, the Company withdrew, without prejudice to
reapply, a previously filed licensing application. Accordingly, prior to
1996, the Company wrote off approximately $543,000 which represented all
related costs previously capitalized as investments (including application
fees for such gaming license).
Note 9 - Writedown of Impaired Assets
In the third quarter of 1996, the Company (i) recognized a writedown of
$2,146,000 in the value of its investment in the Gold Coast Barge to
reflect an appraisal of its fair market value (see Note 3), (ii) recognized
a writedown of $351,000 in the value of its investment in real property in
Mobile, Alabama to reflect an appraisal of its fair market value (See Note
8), and (iii) wrote off $2,086,000 of deferred financing fees due to
Shamrock and $1,418,000 of deferred financing and commitment fees due to
Shamrock because the amounts due under the financing arrangements pursuant
to which such fees were incurred have been recorded as current liabilities
and the Company has determined that such fees have no future benefit (See
Note 10). In December 1996, the Company recognized writedowns of (i)
$750,000 related to its investment in Empire as a result of the Company's
determination that there (a) is a substantial likelihood that the Marine
Star will not be able to be utilized as a gaming project and (b) the
outstanding carrying costs of the Marine Star exceed its estimated net
scrap metal value (see Note 8), (ii) $566,000 in the value of its
investment in real property in Prichard, Alabama to reflect an appraisal of
its fair market value (See Note 7) and (iii) $616,000 related to certain
Acquired Equipment which was sold to PMCC.
The above writedowns, except for the write off of deferred financing fees
which have been separately classified, have been classified as "Writedown
of Impaired Assets" in the accompanying Consolidated Statements of
Operations for the year ended December 31, 1996. No writedowns were
recorded for the year ended December 31, 1997.
<PAGE>
<PAGE> 79
Note 10 - Long Term Debt
Debt consists of the following at December 31:
1997 1996
____ ____
Obligations payable to Shamrock
and certain related entities
(a) $40,510,000 $39,688,000
Note payable (b) - 123,000
__________ ____________
40,510,000 39,811,000
Current maturities 40,510,000 (39,715,000)
__________ ____________
$0 $96,000
== =======
At December 31, 1997 and 1996, the total amount payable to Shamrock
and certain related entities was $40,510,000 and $39,688,000, respectively.
The balance at December 31, 1997 and 1996 is comprised of approximately (i)
$1,066,000 and $2,335,000, respectively, related to a working capital line
of credit, (ii) $2,041,000, at the end of each year, related to a term loan
to assist the Company in financing pertaining to the Gold Shore Casino,
(iii) $5,917,000 and $5,096,000, respectively, of PMCC/Bennett Debt, (iv)
$384,000, at the end of each year, related to the Company's utilization of
slot machine sales proceeds, which slot machines were beneficially owned by
Bennett Management and (v) $31,101,000, at the end of each year, related to
project financing for the Gold Shore Casino. The term loan is secured by
the Ship Mortgage and the project financing loan is secured by the Second
Mortgage. Of such project financing debt outstanding, $24,774,000 pertained
to a previous project financing facility which was restructured in 1994
into one 7-year note requiring only interest payments through December
1995, and thereafter principal and interest payments based on a 15 year
amortization, but with a balloon payment at the end of the seventh year.
Such restructuring also required the Company to pay a refinancing fee equal
to 10% of the balance of the amounts encompassed by the restructuring. The
payment of the financing fee bore the same terms as the 7-year note. In
connection with this transaction, the Company recorded a refinancing fee of
$2,797,000, which fee was being amortized as an expense over the term of
the financing pertaining to the Gold Shore Casino. In the third quarter of
1996, the Company wrote off such fee because the amounts due under such
restructuring have been recorded as current liabilities and the Company has
determined that such fees have no future benefit (See Note 9).
The above amounts do not include approximately $2,701,000 as of
December 31, 1997 and 1996, respectively, in rent due under the SCS Lease
(See Note 7).
The weighted average rate of interest (stated or accrued) on all
outstanding amounts due to Shamrock and certain related entities as of
December 31, 1997 and 1996 was 13.86% and 13.83%, respectively. Accrued and
unpaid interest at December 31, 1997 and 1996 was $16,788,000 and
$11,217,000, respectively. The Company is currently delinquent in <PAGE>
<PAGE> 80
the payment of interest due on its obligations to Shamrock and certain
related entities. Accordingly, the Company has classified all of the
outstanding debt to Shamrock and certain related entities as current as of
December 31, 1997 and 1996.
(b) Note payable represents a mortgage note payable in the
principal amount of $157,000 to an individual to fund the settlement of a
lawsuit between that individual and the Company. The note required monthly
principal and interest payments in the amount of approximately $3,000
through August 1, 1998 with a balloon payment of approximately $74,000 due
September 1, 1998. Interest was charged at the rate of 8% and was secured
by a first deed of trust on real estate located in Prichard, Alabama. The
Company used the net sales proceeds of such real estate of approximately
$98,000 to repay a portion of the note (See Note 7) and paid off such note
in October 1997.
Note 11 - Other Transactions with Shamrock and the Trustee
As of December 31, 1997, the Trustee and Shamrock, of which the Trustee is
the sole stockholder, collectively own 100% of the outstanding shares of
the Company's Series A Preferred Stock and approximately 47.3% of the
outstanding shares of the Common Stock and thereby owning approximately
52.6% of the total voting power represented by the Company's outstanding
voting securities. Additionally, the Trustee owns all of the outstanding
shares of the Series C Preferred Stock, Series D Preferred Stock and Series
E Preferred Stock (see Note 12).
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, which
were collectively convertible as of December 31, 1997 into 1,132,782,933
shares of Common 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 December 31, 1997 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 December 31, 1997 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
<PAGE>
<PAGE> 81
shares of Common Stock and the total voting power represented by the total
outstanding voting securities of the Company. As of March 25, 1998, the
Trustee has not asserted any rights he may have against the Company for the
Company's failure to maintain a sufficient number of authorized shares of
Common Stock to enable the Trustee to convert all of the Series C Preferred
Stock, Series D Preferred Stock and the Series E Preferred Stock.
Note 12 - Stockholders' Equity
The shares of Series A Preferred Stock, all of which outstanding shares are
held by Shamrock, are convertible at the holder's option into 25 shares of
Common Stock per share of Series A Preferred Stock, bear the right to
elect, but Shamrock has not so elected, one director to the Board of
Directors prior to the first annual meeting of the Company's stockholders
held after June 30, 1997 and otherwise vote, and receive dividends, as one
class with the Common Stock as if converted into Common Stock, are non-
redeemable, and do not accrue or pay dividends or bear any liquidation
preference.
The shares of Series C Preferred Stock, Series D Preferred Stock and the
Series E Preferred Stock, all of which outstanding shares are held by the
Trustee, are senior to all other classes of the Company's outstanding
stock. Each of the Series C Preferred Stock, Series D Preferred Stock and
the Series E Preferred Stock is convertible by the holder thereof into the
number of shares of Common Stock equal to the then-applicable redemption
price for each such Series (as described below) divided by an amount equal
to 75% of the average market price of Common Stock for the ten consecutive
business days prior to the conversion date. Conversion of each of the
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock could result in significant dilution to the ownership interest of the
Company's stockholders. The Company has the right to redeem all three
series of Preferred Stock at any time. The redemption price for each share
of the three series of Preferred Stock (which price is also used to
determine the conversion price) increases quarterly as follows: (i) for the
Series C Preferred Stock, from a redemption price of $1,265.50 per share as
of December 31, 1997, $29.17 per share per quarter; (ii) for the Series D
Preferred Stock, from a redemption price of $1,211.31 per share as of
December 31, 1997, $29.17 per share per quarter; and (iii) for the Series E
Preferred Stock, from a redemption price of $1,173.76 per share as of
December 31, 1997, $20.83 per share per quarter. The Series C Preferred
Stock and the Series D Preferred Stock each have a current cumulative
dividend rate of 7.5%. The Series E Preferred Stock has no stated dividend
rate.
The terms of the Company's Series C Preferred Stock and Series D Preferred
Stock each provide that the Company shall not declare or pay any dividends
on the Common Stock or Series A Preferred Stock if there are, at such time,
any cumulative accrued but unpaid dividends on the Series C Preferred Stock
or Series D Preferred Stock, respectively. The Series C Preferred Stock
and Series D Preferred Stock rank equally as to dividends. The
Company has accrued and declared on the outstanding shares of Series C
Preferred Stock and Series D Preferred Stock, but has not paid as of
December 31, 1997, dividends which were due and payable as of December 31,
1994 totaling approximately $152,000 and approximately $152,000,
respectively. The <PAGE>
<PAGE> 82
Company has accrued on the outstanding shares of Series C Preferred Stock
and Series D Preferred Stock, but has not declared or paid as of December
31, 1997, dividends from January 1, 1995 through December 31, 1997 totaling
approximately $875,000 and approximately $775,000, respectively. 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.
Note 13 - Stock Options, Warrants and Other Compensation
The Company maintains a stock option plan (the "Stock Option Plan") for
employees which provides for the issuance of both incentive and
nonqualified stock options to purchase shares of Common Stock at exercise
prices not less than the fair market value of the Common Stock on the date
of grant. Options outstanding vest over varying time periods, ranging from
being fully vested upon issuance to being fully vested in March 1998, in
accordance with the individual's stock option agreements. These options
expire up to ten years from the date of grant. At December 31, 1997 and
1996 the Company has reserved 5,250,000 shares, for the exercise of options
granted under the Stock Option Plan. Transactions related to the Stock
Option Plan were as follows:<PAGE>
<PAGE> 83
<TABLE>
Weighted Average Weighted Average
Exercise Price Per Exercise Price Per
1997 Share 1996 Share
____ _____ ____ _____
<S> <C> <C> <C> <C>
Options
outstanding at
beginning of year 1,523,906 $3.12 1,885,399 $3.40
Options granted - - 830,000 $0.07
Options exercised - - -
Options canceled 18,500 $2.78 (1,191,493) $1.43
_________ _________
Options
outstanding at end
of year 1,505,406 $3.12 1,523,906 $3.12
========= =========
</TABLE>
At December 31, 1997, 1,240,406 options were exercisable under the Stock Option
Plan. Significant option groups outstanding at December 31, 1997 were as
follows:
<TABLE>
Weighted
Weighted Average
Average Remaining
Exercise Price Contractual
Per Share of Life of
Options Options Options
Grant Dates Outstanding Exercise Price Outstanding Outstanding
Range
<S> <C> <C> <C> <C>
Pre-1993 392,281 $7.75 to $18.00 $8.46 2 years
1994 583,125 $2.3125 $2.31 7 years
1996 530,000 $0.0625 to $0.08 $0.07 9 years
_________
Total 1,505,406
=========
</TABLE>
<TABLE>
Weighted
Average
Exercise
Price Per
Share of
Options Options
Grant Dates Exercisable Exercisable
<S> <C> <C>
Pre-1993 392,281 $8.46
1994 583,125 $2.31
1996 265,000 $0.07
_______
Total 1,240,406
=========
/TABLE
<PAGE>
<PAGE> 84
The Company has determined that it will continue to account for
employee stock-based transactions under APB No. 25. Accordingly,
no compensation cost has been recognized for options issued with
an exercise price equal to the market value of the Common Stock
at the date of grant. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 defines a fair value method of
accounting for stock options and other equity instruments. Under
the fair value method, compensation cost is measured at the grant
date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period. The
Company granted 830,000 options during the year ended December
31, 1996, of which 300,000 were canceled during such year. The
remaining 530,000 options were granted with exercise prices
ranging from $0.0625 to $0.08, with vesting periods ranging from
January 1, 1997 to March 12, 1998. The market price for the
Common Stock ranged from $0.02 to $0.22 during the year ended
December 31, 1996. Accordingly, the Company believes that had
compensation cost been determined based on the fair value at the
grant dates for option grants in 1996 consistent with the
provisions of SFAS No. 123 there would have been no material
effect on the Company's net loss and net loss for common
stockholders per common share for the years ended December 31,
1997 and 1996. No options were granted during the year ended
December 31, 1997.
In September 1996, the Company's President and Chief Executive
Officer received a bonus of $62,500, which amount was recognized
as compensation expense in 1996, and was issued an irrevocable
letter of credit in the amount of $62,500 to be paid in certain
events, including remaining employed by the Company through
September 11, 1997, which amount was recognized as compensation
expense over such one year period and paid to the Company's
President and Chief Executive Officer at the end of such period.
In the normal course of business, the Company issues warrants on
a one for one basis, from time to time, for the purchase of
shares of Common Stock. The exercise prices of the warrants are
no less than the fair market values of the Common Stock on the
dates of grant. The estimated fair market value of the warrants
are measured on the date of grant (measurement date), if any, and
accounted for as part of the related transaction.
Transactions related to stock purchase warrants are summarized
and more fully discussed below:
<TABLE>
1997 Exercise Price 1996 Exercise Price
Range Range
<S> <C> <C> <C> <C>
Warrants outstanding
at beginning of 355,942 $3.00 to $16.03
year 343,442 $3.00 to $16.03
Warrants expired or
canceled 160,629 $4.00 to $16.00 12,500 $4.00
_______ ______
Warrants outstanding
at end of year 182,813 $3.00 to $16.03 343,442 $3.00 to $16.03
======= =======
/TABLE
<PAGE>
<PAGE> 85
An equal number of shares of Common Stock have been reserved for
future issuance in connection with the warrants. No warrants were
issued or exercised in 1997 or 1996. All warrants outstanding at
December 31, 1997 are exercisable.
Note 14 - Income Taxes
The Company has not provided for any tax benefit for net
operating losses incurred because realization is not more likely
than not. At December 31, 1997, the Company has net operating
loss carryforwards for income tax purposes of approximately
$52,397,000 that expire through the year 2012. In total, the
Company has deductible temporary differences for differences
between the reported amounts and the tax basis of its assets and
liabilities of approximately $32,500,000. The difference between
the reported amounts and the tax basis principally relates to
certain start-up costs capitalized for tax purposes, allowances
for amounts not collectible under financing agreements and other
receivables, accrued expenses and different methods of
depreciation. For financial reporting purposes, a valuation
allowance has been recognized to completely offset the deferred
tax assets related to the carryforwards and deductible
differences. The change in valuation allowance during 1997
relates primarily to net operating losses generated for the year.
As a result of changes in ownership of the Company's stock there
will be significant annual limitations imposed on the Company's
use of pre-ownership change net operating losses for federal tax
purposes.
Note 15 - Other Commitments and Contingencies
Leases
Future minimum lease payments at December 31, 1997 are $5,000
under a noncancelable operating lease for the Company's office
facilities.
Rental expenses under operating leases amounted to approximately
$65,000 and approximately $255,000 in 1997 and 1996,
respectively.
Other Litigation
See Note 4 for a discussion of litigation related to AMGAM and
AGRM.
In July 1996 and August 1996, in separate actions filed in the
Second Judicial District Court of the State of Nevada in and for
the County of Washoe (Case Nos. CV9604947, CV9604933, CV9604939,
CV9604997 and CV9604692), the five lessors of the Harolds Club
property have filed suit against, among others, the Company and
Shamrock seeking, variously, among other relief, (i) payment of
all unpaid lease payments and property taxes, (ii) a court order
voiding the transfer of the title to the land and the building
related to the Harolds Club from the Company to Shamrock to the
extent necessary to satisfy the claims of creditors of the
Company, (iii) a court order prohibiting and enjoining Shamrock
from transferring the title to the land and the building related
to the Harolds Club during the pendency of the actions, (iv)
temporary and permanent <PAGE>
<PAGE> 86
court orders mandating that the Company protect the grandfathered
right of nonlicensed gaming on the leaseholds by locating a
suitable gaming sub-tenant and (v) reasonable attorneys fees and
costs of suit. The Company has filed answers in four actions.
Judgment in one of the actions has been taken against co-
defendants and the lessor's claim has been satisfied. Judgment
has been taken against the Company in another action in the
approximate amount of $591,000. The Company is presently
considering its options regarding such judgment. If undisturbed,
the judgment would have a material adverse effect on the
Company's business and financial condition. The third action has
been stayed to permit arbitration between the plaintiff and one
of the defendants. Although the Company has filed an answer in
the fifth action to the cross-claims of Hughes Properties, Inc.
and Fitzgeralds Reno, Inc., the other defendants in such action,
the plaintiff has not requested that an answer be filed by the
Company and the pleadings in this case remain open. As pleadings
are not yet closed, discovery is not completed and depositions
have not commenced, outside counsel to the Company, due to the
facts available on this matter, is unable to predict the outcome
of these remaining suits. However, should the plaintiffs prevail,
these suits would have a material adverse effect on the Company's
business and financial condition. If the judgment is undisturbed
or the plaintiffs in the remaining suits prevail, 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. If either
reorganization or liquidation is necessary, it is unlikely that
all of the Company's obligations would be completely satisfied or
that stockholders of the Company would recover any of their
investment in the Company.
On May 3, 1996, a class action was filed in the United States
District Court, Northern District of New York (Case No. 96-CV-
712) against certain Bennett Entities and related parties. The
Company was named as a defendant in such lawsuit. Such class
action has been consolidated into a class action complaint filed
in September 1996; the Company is not named as a defendant in
such consolidated class action complaint.
In addition to the items set forth above, the Company is involved
in other legal proceedings and claims of various types. While
any litigation contains an element of uncertainty, it is the
opinion of management, after consultation with counsel, that the
outcome of each such other proceeding or claim which is pending
or known to be threatened, or all of them combined, can be
successfully defended or resolved. In addition, management is
unable, with any degree of certainty, to predict the outcome, or
to estimate the amount of any liability, if any, that may result
from these actions. However, management believes that none of
such other proceedings or claims will have a material adverse
effect on the Company's business or financial condition.
<PAGE>
<PAGE> 87
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American Gaming & Entertainment, Ltd.
Date: 3/25/98 By: /s/ J. Douglas Wellington
_______________________ _________________________________
J. Douglas Wellington
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ J. Douglas Wellington Date: 3/25/98 /s/ Paul L. Patrizio Date: 3/25/98
__________________________________________ _________________________________
J. Douglas Wellington, President and Chief Paul L. Patrizio, Chairman of
Executive Officer, General Counsel and the Board of Directors
Secretary, Principal Financial Officer and
Principal Accounting Officer and Director
/s/ William R. Rafferty Date: 3/25/98
_______________________________________________
William R. Rafferty, Director
<PAGE>
<PAGE> 88
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
_____ ___________ _____
3.1 Restated Certificate of Incorporation *
3.2 Certificate of Amendment of Restated Certificate of
Incorporation *
3.3 Bylaws, as amended *
4.1 Specimen Common Stock Certificate *
10.1 Stock Option Plan *
10.2 Employment Agreement dated September 12, 1996 between
the Company and J. Douglas Wellington *
10.3 Charter Agreement dated as of February 17, 1995 between
the Company and President Mississippi Charter Corporation *
10.4 Preferred Ship Mortgage dated January 14, 1994, granted by
American Gaming Corporation to Ship Mortgage, L.P., *
10.5 First Amendment of Preferred Ship Mortgage dated July 26,
1994 from American Gaming Corporation to Ship Mortgage, L.P. *
10.6 Assumption and Second Amendment of Preferred Ship Mortgage
dated January 31, 1995 made by the Company and executed by
American Gaming and Resorts of Mississippi, Inc. in favor
of Ship Mortgage, L.P. *
10.7 First Preferred Ship Mortgage, dated May 6, 1994 granted by
American Gaming Corporation to the Company *
10.8 First Amendment to First Preferred Ship Mortgage dated
July 28, 1994 from American Gaming Corporation to the
Company *
10.9 Second Amendment to First Preferred Ship Mortgage dated
December 15, 1994 granted by American Gaming and
Resorts of Mississippi, Inc. to the Company, together
with Assignment of First Preferred Ship Mortgage dated
December 15, 1994 from the Company to Shamrock, Inc. *
10.10 Assumption and Third Amendment of First Preferred Ship
Mortgage dated as of January 31, 1995 made by the
Company and executed by AGRM in favor of Shamrock, Inc. *
10.11 Agreement and Plan of Merger dated November 10, 1994 by
and between the Company, American Gaming and Resorts of
Mississippi, Inc., AMGAM Associates and American Gaming
Corporation *
<PAGE>
<PAGE> 89
10.12 AMGAM/AGRM Settlement Agreement & Term Sheet dated as of
November 1, 1996 between AMGAM Associates, American Gaming
& Resorts of Mississippi, Inc., the Company, Shamrock
Holdings Group, Inc. the Official Committee of Unsecured
Creditors of AMGAM Associates and the Official
Committee of Unsecured Creditors of American Gaming &
Resorts of Mississippi, Inc. *
10.13 Irrevocable Proxy and Consent Agreement dated as of
August 23, 1996 by and between Paul L. Partridge,
Patrick F. Daly, James A. Everatt, Charles E. Reisert, Jr.,
Eric C. Jackson, the Company and RSR, LLC *
10.14 Trust Agreement dated as of August 23, 1996 by and
between the Company and NBD Bank, N.A. *
10.15 Assignment and Transfer Agreement dated as of March 28,
1996 by and between the Company, American Heartland
Corporation and Big Red Keno, Ltd. *
10.16 Agreement to Restructure and Cancel Debt dated as of
April 12, 1995 by and between Bennett Management and
Development Company and the Company *
10.17 Assignment of Charter Agreement and Collateral Assignment
Agreement dated as of April 13, 1995 by and between the
Company and Shamrock, Inc. *
10.18 Security Agreement dated April 12, 1995 by and between
Bennett Management and Development Company and the Company. *
10.19 Amendment to Agreement to Restructure and Cancel Debt
and Assignment of Charter Agreement and Collateral
Assignment executed on July 10, 1995 by and between
the Company, Bennett Management and Development Company
and Bennett Holdings, Inc. *
10.20 Agreement dated as of August 15, 1995 by and between
Bennett Holdings, Inc. and Emerald Gaming, Inc. *
10.21 Exclusive Management Agreement dated as of August 15,
1995 by and between Bennett Holdings, Inc. and Emerald
Gaming, Inc. *
10.22 Letter Agreement dated September 26, 1996 between Shamrock
Holdings Group, Inc. and the Company *
10.23 Letter agreement dated September 20, 1994 by and between
Bennett Holdings, Inc. and the Company *
10.24 Letter agreement dated November 5, 1997 by and between
Shamrock Holdings Group, Inc. and the Company 91
11 Statement re computations of per share earnings 93
21 List of Subsidiaries 94<PAGE>
<PAGE> 90
23 Consent of Deloitte & Touche LLP 95
27 Financial Data Schedule 96
* Incorporated by reference.
<PAGE>
<PAGE>
EXHIBIT 10.24
AMERICAN GAMING & ENTERTAINMENT, LTD.
_____________________________________
One Woodland Avenue
Paramus, New Jersey 07652
Phone: 201-689-0189 Fax: 201-689-0185
November 5, 1997
Richard C. Breeden, Trustee
Shamrock Holdings Group, Inc.
Two Clinton Square
Syracuse, NY 13202
Dear Mr. Breeden:
This letter is to confirm certain agreements between Shamrock Group
Holdings, Inc. ("Shamrock") and American Gaming & Entertainment, Ltd.
("AGEL"). The parties have agreed to the following:
1. AGEL will pay Shamrock $125,000 from the proceeds of $625,000 from
the sale of 12,500 shares of Multimedia Games, Inc. preferred stock. Such
payment shall reduce AGEL's indebtedness to Shamrock. AGEL hereby confirms
that $375,000 of such proceeds were used to settle a lawsuit brought by IGT
against AGEL. AGEL also hereby confirms that such stock was sold to an
unaffiliated third party through an independent broker/dealer and agrees to
provide Shamrock with details of such sale.
2. Pursuant to the term sheet executed on October 22, 1997, if approved
by the United States Bankruptcy Court, Southern District of Mississippi and
the United States Bankruptcy Court, Northern District of New York, President
Mississippi Charter Corporation ("PMCC") shall pay into an escrow account for
the benefit of the creditors of AMGAM Associates ("AMGAM") and American
Gaming and Resorts of Mississippi, Inc. ("AGRM") (i) $1,525,000 in the fourth
quarter of 1997 and (ii) a monthly charter payment of $215,000 for 28 1/2
months, commencing December 1, 1997 and ending on April 15, 2000. Pursuant to
an agreement between AGEL, Shamrock and the committees for unsecured
creditors in the bankruptcy proceedings of AMGAM and AGRM, AGEL and Shamrock,
collectively, will be entitled to 75% of such amounts. Shamrock will receive
directly from such escrow account 60% (80% of 75%) of any charter payments
for the Gold Coast Barge and 67.5% (90% of 75%) of any net proceeds from the
sale of the Gold Coast Barge. Shamrock shall therefore be entitled to receive
from the payments to be made by PMCC (i) $915,000 and (ii) a monthly charter
payment of $129,000. <PAGE>
<PAGE>
Shamrock agrees that receipt of such funds shall reduce AGEL's indebtedness
to Shamrock by the amount of such funds.
3. AGEL and Shamrock shall continue discussions regarding AGEL's
indebtedness to Shamrock, including, without limitation, the possible payment
by AGEL to Shamrock of (a) the remaining proceeds ($125,000) received by AGEL
from the sale of the Multimedia Games, Inc. preferred stock, (b) any funds
received by AGEL from the chartering of the Gold Coast Barge ($228,750
anticipated in the fourth quarter of 1997 and anticipated monthly charter
payments of $32,250, based on 20% of 75% of total funds received) or (c) any
funds received by AGEL from the sale of the Gold Coast Barge (10% of 75% of
the net proceeds from any such sale).
AMERICAN GAMING & ENTERTAINMENT, LTD.
/s/ J. Douglas Wellington
_________________________
By: J. Douglas Wellington
President & CEO
AGREED
SHAMROCK HOLDINGS GROUP, INC.
/s/ Richard C. Breeden
______________________
By: Richard C. Breeden
Trustee
<PAGE>
<PAGE>
Exhibit 11
AMERICAN GAMING & ENTERTAINMENT, LTD.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
December 31,
1997 1996
____ ____
Weighted average shares for computation 12,532,102 12,532,102
========== ==========
Net loss $ (7,173,000) $(16,044,000)
Dividends accrued and accretion on
preferred stock 1,866,000 1,809,000
_________ _________
Net loss for common stockholders $(9,039,000) $(17,853,000)
Net loss per share $(0.72) $(1.42)
<PAGE>
<PAGE>
Exhibit 21
AMERICAN GAMING & ENTERTAINMENT, LTD.
SUBSIDIARIES
STATE OF DATE OF
COMPANY INCORPORATION INCORPORATION
_______ _____________ _____________
American Gaming and Resorts
of Mississippi, Inc. Mississippi 04-27-92
Emerald Gaming, Inc. Nevada 06-10-94
<PAGE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
American Gaming & Entertainment, Ltd.:
We consent to the incorporation by reference in the Registration
Statements of American Gaming & Entertainment, Ltd. on Form S-8
(Registration Nos. 33-57194, 33-80714 and 33-87790) of our report
dated March 20, 1998 (which report does not express an opinion on
the 1997 or 1996 financial statements), appearing in this Annual
Report on Form 10-KSB of American Gaming & Entertainment, Ltd. for
the year ended December 31, 1997.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN GAMING & ENTERTAINMENT, LTD. FOR
THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 381,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,556,000
<PP&E> 12,678,000
<DEPRECIATION> 3,978,000
<TOTAL-ASSETS> 11,152,000
<CURRENT-LIABILITIES> 64,583,000
<BONDS> 0
0
14,603,000
<COMMON> 126,000
<OTHER-SE> (71,489,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,152,000
<SALES> 0
<TOTAL-REVENUES> 633,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,963,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,574,000
<INCOME-PRETAX> (7,173,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,173,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,039,000)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
