<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB


(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 1998
                               --------------


[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period ______________  to  _______________

Commission file number 0-5474


              NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION
              ---------------------------------------------------
       (Exact name of small business issuer as specified in its charter)
 

              Delaware                               75 - 2571032
              --------                               ------------
(State of incorporation or organization)            (IRS Employer
                                                  Identification No.)
 

   13150 Coit Road, Suite 125, Dallas, Texas             75240
   -----------------------------------------             -----
   (Address of principal executive offices)            (Zip Code)

 
Issuer's telephone number, including area code    (972) 671-1133
                                                  --------------

Check whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months, and (2) has been subject to such filing requirements for the past 90
days.

                                              Yes  xx  No 
                                                   --     --

Number of shares of common stock, par value $.01 per share, outstanding as of
March 31, 1998:  20,095,698
                 ----------

Transitional Small Business Disclosure Format (Check One):     Yes    No  xx
                                                                   --     --

                                       1
<PAGE>
 
                         PART 1. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

      NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
 
                                                                             31-MAR-98     31-DEC-97
                                                                            ------------  ------------
ASSETS                                                                       UNAUDITED
------
<S>                                                                         <C>           <C>
CURRENT ASSETS:
  Cash                                                                      $   700,662   $   428,454
  Restricted cash                                                               200,209       187,258
  Accounts receivable                                                           226,556       361,684
  Inventories, at cost                                                          141,539       151,903
  Prepaid Expenses                                                              122,160        94,326
  Notes receivable - current                                                     25,263        16,009
  Current deferred tax asset                                                     19,030        19,030
                                                                            -----------   -----------
     TOTAL CURRENT ASSETS                                                     1,435,419     1,258,664
                                                                            -----------   -----------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION                       1,331,873     1,351,791
                                                                            -----------   -----------
 
OTHER ASSETS:
  Deposits                                                                      290,619       151,768
  Long-term deferred tax asset                                                  428,948       428,948
  Revenue interest rights                                                       222,553       235,393
  Trade name, contract rights and organizational costs, net of
    accumulated amortization                                                    156,175       168,418
  Goodwill and merger costs                                                     861,403       928,512
  Notes Receivable-long-term                                                     19,023        33,523
                                                                            -----------   -----------
                                                                              1,978,721     1,946,562
                                                                            -----------   -----------
     TOTAL ASSETS                                                           $ 4,746,013   $ 4,557,017
                                                                            ===========   ===========
 
LIABILITY AND STOCKHOLDERS' EQUITY
----------------------------------
 
CURRENT LIABILITIES:
  Accounts payable and accrued liabilities                                  $ 1,507,469   $ 1,333,703
  Notes payable - current                                                     1,252,370     1,341,130
  Income Taxes Payable                                                           23,274        10,774
  Preferred stock dividends payable                                             780,000       780,000
                                                                            -----------   -----------
     TOTAL CURRENT LIABILITIES                                                3,563,113     3,465,607
 
NOTES PAYABLE-LONG-TERM                                                         601,616       663,249
 
NOTES PAYABLE TO CERTAIN STOCKHOLDERS-LONG-TERM                               1,292,827     1,288,827
                                                                            -----------   -----------
 
     TOTAL LIABILITIES                                                      $ 5,457,556   $ 5,417,683
 
STOCKHOLDERS' EQUITY:
 Class A preferred stock,$3.00 par value, 10% annual cumulative dividend
   1,600,000 shares authorized, 1,287,000 and 1,287,000 shares issued,
   at March 31, 1998 and December 31, 1997                                  $ 3,861,000   $ 3,861,000
 Preferred stock, $.01 par value, 10,000,000 shares authorized 8,000,000
   series "B" issued at March 31, 1998 and December 31, 1997.                    80,000        80,000
 Common stock, $.01 par value, 25,000,000 shares authorized, 20,095,698
   shares issued at March 31, 1998 and December 31, 1997                        200,957       200,957
 Additional paid-in-capital (deficit)                                        (3,257,090)   (3,257,112)
 Retained earnings (deficit)                                                 (1,596,410)   (1,745,511)
                                                                            -----------   -----------
     TOTAL STOCKHOLDERS' EQUITY                                             $  (711,543)  $  (860,666)
                                                                            -----------   -----------
 
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                                    $ 4,746,013   $ 4,557,017
                                                                            ===========   ===========
</TABLE>
    The accompanying notes are an integral part of the financial statements

                                       2
<PAGE>
 
      NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)
                 FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                       QUARTER ENDED
                                                  31-MAR-98      31-MAR-97
                                                --------------  -----------
<S>                                             <C>             <C>
REVENUE:
 Video Poker Revenue                               $3,979,045   $3,786,053
 Truck Stop and Convenience Store                   1,942,587    1,586,726
 Cruise Revenue                                       228,559      282,654
                                                   ----------   ----------
                                                    6,150,191    5,655,433
 
COST AND EXPENSES:
 Cost of Revenues                                   3,894,896    3,547,918
 General and Administrative Expenses                1,767,161    1,520,533
 Interest Expense                                      75,628       69,754
 Depreciation and Amortization                        155,094      164,864
                                                   ----------   ----------
                                                    5,892,779    5,303,069
                                                   ----------   ----------
 
OPERATING INCOME (LOSS)                               257,412      352,364
 
OTHER REVENUE (EXPENSE), NET                          (95,788)      29,480
                                                   ----------   ----------
 
INCOME BEFORE PROVISION FOR INCOME TAXES              161,624      381,844
 
PROVISION FOR INCOME TAXES                            (12,500)    (146,000)
                                                   ----------   ----------
 
NET INCOME                                         $  149,124   $  235,844
 
LESS: Preferred Stock Dividends                             -            -
 
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK       $  149,124   $  235,844
                                                   ==========   ==========
BASIC EARNINGS PER SHARE                           $     0.01   $     0.01
                                                   ==========   ==========
</TABLE>

    The accompanying notes are an integral part of the financial statements

                                       3
<PAGE>
 
      NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                 FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                   31-MAR-98   31-MAR-97
                                                                   ----------  ----------
<S>                                                                <C>         <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income                                                         $ 149,124   $ 235,844
 
Adjustments to reconcile net income to net cash:
Depreciation and amortization                                        155,094     164,864
 
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable                           135,128     (32,273)
(Increase) decrease in inventories                                    10,364       4,780
(Increase) decrease in prepaid expenses                              (27,834)    (86,005)
(Increase) decrease in deposits                                     (138,851)     (2,170)
Increase (decrease) in income taxes payable                           12,500     146,000
Increase (decrease) in accounts payable and accrued liabilities      173,766      19,508
                                                                   ---------   ---------
 
Net cash provided (used) by operating activities                     469,291     450,548
                                                                   ---------   ---------
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment                           (43,363)    (72,624)
Proceeds to borrowers                                                      -      (4,431)
Repayment by borrowers                                                 5,246      15,547
                                                                   ---------   ---------
 
Net cash provided (used) by investing activities                     (38,117)    (61,508)
                                                                   ---------   ---------
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in notes payable                                (146,015)   (250,815)
                                                                   ---------   ---------
 
Net cash provided (used) by financing activities                    (146,015)   (250,815)
                                                                   ---------   ---------
 
NET INCREASE (DECREASE) IN CASH                                      285,159     138,225
 
CASH - beginning of period                                           615,712     548,494
                                                                   ---------   ---------
 
CASH - ending of period                                            $ 900,871   $ 686,719
                                                                   =========   =========
</TABLE>

    The accompanying notes are an integral part of the financial statements
                                        

                                       4
<PAGE>
 
      NORTH AMERICAN GAMING AND ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)
                            MARCH 31, 1998 AND 1997


NOTE 1. OPINION OF MANAGEMENT
-----------------------------

The preceding financial information has been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC") and,
in the opinion of the Company, includes all normal and recurring adjustments
necessary for a fair statement of the results of each period shown.  Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to SEC rules and regulations.  The
Company believes that the disclosures made are adequate to make the information
presented not misleading.  It is suggested that these financial statements be
read in conjunction with the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.

NOTE 2. ACQUISITION OF ASSETS
-----------------------------

In January of 1997 the Company formed a subsidiary called "River Port Truck
Stop, Inc." and entered into an agreement with S.W. Day and T. Joe Callaway
("Lessor") to lease property in Port Allen, LA for a period of 50 years.  The
terms of the lease call for a monthly base rent payment of $7,000 plus
Additional Rent of 10% of Net Revenue as defined in the lease agreement.  Lessor
further agreed that for the first 24 months after the commencement of video
poker operations  the Additional Rent would be 5% (rather than 10%) and that
commencing with the 25th month of video poker operations that the Additional
Rent would be 10% of Net Revenue.   The Company is planning to build and operate
a video poker casino, restaurant, truck stop and convenience store on the
property through River Port Truck Stop, LLC, to be owned approximately 40% by
the Company.  See Note 7, below.  A convenience store and fuel facility is
currently in operation, and effective June 1, 1997 the Company, through its
subsidiary River Port Truck Stop, Inc., began operations.  The Company is
currently in the facility design process, and once this phase is complete,
applications to secure the proper permits will be made.  Construction is
expected to be completed by the end of the third quarter of 1998.

On June 10, 1996, the Company acquired 100% of the issued and outstanding
capital stock of GalaxSea Cruises and Tours, Inc. ("GalaxSea") and 100% of the
issued and outstanding capital stock of I.T. Cruise, Inc. ("I.T. Cruise") from
International Tours, Inc. ("International").  Both corporations were wholly
owned subsidiaries of International.

GalaxSea was acquired by virtue of a merger with a newly created wholly owned
subsidiary of the Company under the terms of which the Company issued 4,934,106
shares of Common Stock and 8,000,000 shares of a newly designated series of the
Company's preferred stock, par value $.01 per share, designated as Series B
Convertible Preferred Stock ("Series B Preferred Stock").  The 8,000,000 shares
of Series B Preferred Stock are entitled to one vote for each share issued and
will vote together with the Common Stock as one class, and not as a separate
class (except as mandated by law); International has converted 4,904,000 shares
of Series B Preferred Stock into Common Stock, leaving 3,096,000 shares of
Series B Preferred Stock outstanding.  As a result of this acquisition,
International is the largest stockholder of the Company, owning approximately
44% of the voting stock.  Simultaneously with the closing of the merger with
GalaxSea, the Company also restructured its existing, outstanding Class A
Preferred Stock by redeeming 313,000 of the 1,600,000 outstanding shares for a
$939,000 subordinated debenture, placing an agreed moratorium on the accrual of
dividends for two years and obtaining from the holders of Class A Preferred
stock the right to force conversion of the remaining 1,287,000 shares of Class A
Preferred Stock into 8,240,000 shares of Common Stock at any time within the
next two years.  In the event of any such forced conversion, as part of the
merger transaction, International was granted anti-dilution protection and will,
upon the issuance of such shares of Common Stock to the former holders of Class
A Preferred Stock, be entitled to an additional 5,452,854 shares of Common Stock
without further consideration, in order to maintain its percentage ownership of
voting stock at 44%.  On May 4, 1998, the Company delivered notice to all
holders of Class A Preferred Stock that the Class A Preferred Stock would be
converted into Common Stock, subject to approval at the annual meeting of
stockholders to be held on June 4, 1998 of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 100 million shares. The $780,000 of dividends on the Class A
Preferred Stock accumulated and accrued through May 31, 1996 continues to exist
as accrued dividends payable, and will continue to exist as accrued dividends
payable after conversion of the Class A Preferred Stock into Common Stock.

I.T. Cruise was acquired in exchange for $100,000 cash and a promissory note in
the principal amount of $1,400,000 payable by the Company to International.  The
promissory note bears interest at nine percent per annum, is payable in 31 equal
monthly installments of $50,000 each and one final installment of $27,414.22,
and is secured by a pledge of the outstanding capital stock of GalaxSea and I.T.
Cruise owned by the Company.

                                       5
<PAGE>
 
GalaxSea is an Oklahoma corporation that was formed in September 1995.
Effective October 1, 1995, GalaxSea acquired substantially all of the operating
assets of GalaxSea Associates, Inc. ("GAI"), a Florida corporation.  GAI had
been in the business of franchising "cruise only" retail travel stores since
1988.  The principal business of GalaxSea will continue to be the granting of
franchises for the operation of travel vacation stores that specialize in the
marketing and selling of cruise travel, tours and related travel arrangements
according to the concept and business system developed by GalaxSea and GAI.

I.T. Cruise is an Oklahoma corporation that was formed in 1993.  I.T. Cruise has
served as the cruise marketing division of International since that time.  The
principal business of I.T. Cruise is to coordinate cruise marketing programs
between the various major cruise lines and International's network of
approximately 900 travel agency locations.

Effective July 1, 1996 the Company entered into a sub-lease agreement with New
Orleans Video Poker, Inc. ("NOVP") to manage the Diamond Jubilee Video Poker
Casino and Truck-Stop in New Orleans, LA.  This agreement provides for a 50/50
split between the Company and NOVP of the net cash flow generated by the Diamond
Jubilee.  The agreement further provides for the Company to assume the
outstanding liabilities of NOVP, exclusive of notes payable to the principals of
NOVP, with all the operating assets becoming the property of the Company.   The
Company has the option to purchase NOVP's 50% share of the cash flow.  The
transaction also included the issuance of 450,000 shares of Common Stock in the
Company to NOVP.

NOTE 3. PRESENT CASH SHORTFALL
------------------------------

As of April 1, 1998, the Company was seventeen principal payments in arrears, at
regular principal and interest payments of $50,000 per month (a total of
$595,384 of principal and $42,687 in interest payable; interest has not been
paid since November 1, 1997), in payments to International on the promissory
note issued to International by the Company as partial consideration for the
I.T. Cruise acquisition.  The note had an original principal balance of
$1,400,000, requires monthly payments of principal and interest of $50,000, had
an unpaid principal balance of $1,120,854 at March 31, 1998, and is secured by a
pledge of the outstanding capital stock of I.T. Cruise and GalaxSea owned by the
Company.  On April 1, 1998, International agreed to allow the $638,071 then
accrued and owed to it to continue to remain outstanding (with interest accruing
thereon) until the earlier of January 1, 1999 or the time that excess cash flow
is available to pay such amount (or any portion thereof) and, further, granted
relief to the Company to allow it to pay the lesser of $50,000 per month or
excess available cash flow, until January 1, 1999, at which time any accrued
amounts will be due and payable and the regular $50,000 scheduled monthly
payments will recommence.  Until such time as the regular scheduled payments on
the International note recommence and the International note is current, all
payments are suspended on the subordinated debentures issued by the Company in
connection with the redemption of 313,000 shares of Class A Preferred Stock,
which have aggregate remaining principal balances of $896,346 and accrued
interest of $80,671 at April 1, 1998, and require aggregate payments of
principal and interest of $11,250 per month until July 1, 1997 and $31,114 per
month thereafter.  As of April 1, 1998, 12 monthly payments, for a total of
$313,776, have not been made pursuant to the subordinated debentures.  The
subordinated debentures and the amounts unpaid are expressly made subordinate to
the International note as well as other senior debt of the Company. Until the
International note is paid in full and the subordinated debentures are paid in
full, the Company is prohibited from paying dividends on its Common Stock.  See,
also, the discussion of the Company's default under certain debt instruments
described in Item 2 - "Management's Discussion and Analysis or Plan of Operation
- Liquidity and Capital Resources - Present Cash Shortfall."

NOTE 4. LEASE TERMINATION
-------------------------

In T.B. Guillory ("Guillory") et al versus North American Gaming and
Entertainment Corporation and O.M. Operating, L.L.C., 27th Judicial District
Court, St. Landry Parish, Louisiana, the preliminary question to be decided by
the court was whether the option to renew the term of the contract of lease on
King's Lucky Lady Truck Stop was in compliance with the requirements of the
Louisiana Civil Code governing the validity of such options.  The validity of
the option was assailed on grounds that the alleged failure of the option to
stipulate a price rendered it invalid.  On March 3, 1998, the court rendered
judgment against the Company and OM Operating, L.L.C. ("Operator") on the
grounds that the failure to stipulate a price rendered the option invalid, and
the Company and Operator were ordered to vacate the premises effective April 30,
1997.  The Company and Operator have filed an appeal of this judgment, which
appeal is pending.  The Company and Operator intend to vigorously pursue this
appeal, but there can be no assurance that the Company and Operator will
prevail.  If the judgment is not set aside, the Company and Operator will lose
the right to operate King's Lucky Lady effective April 30, 1997, unless some
other arrangement can be arranged with Guillory.  During the course of the
litigation, Operator was ordered by the court to escrow 50% of the monthly
operating profit generated by King's Lucky Lady, and effective from the date of
the judgment on March 3, 1998 Operator will be required to escrow 100% of the
operating profit, unless Operator and the Company are able to negotiate a
different arrangement with Guillory or convince the court to modify such
arrangement.  As of May 1, 1998, Operator had placed in escrow $259,204 for the
period from May 1997 through March 1998.  Operator and the Company  plan to
petition the court in June 1998 to grant a management fee for services from
April 30, 1997 through the date the appeal is completely concluded.  Presently,
the Company and Operator plan to also assert a claim for damages for unjust
enrichment against Guillory if they do not prevail on the appeal.  There can be
no assurance whether the Company will prevail on appeal or otherwise be able to
negotiate a different arrangement with Guillory or be granted relief from the
court to modify any relief granted.

                                       6
<PAGE>
 
NOTE 5. EARNINGS PER SHARE
--------------------------

In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" which
establishes standards for computing and presenting earnings per share ("eps").
Under SFAS No. 128, primary eps is replaced with basic eps.  Basic eps is
computed by dividing income available to common shareholders by the weighted
average shares outstanding; no dilution for any potentially convertible shares
is included in the calculation.  Fully diluted eps, now called diluted eps, is
still required; however, when applying the treasury stock method, the average
stock price is used rather than the greater of the average or closing stock
price for the period.  The adoption of this statement will have no material
impact on the Company's calculation of earnings per share.  SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997.

NOTE 6. COMPREHENSIVE INCOME
----------------------------

In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and display of comprehensive
income in the financial statements.  Comprehensive income is the total of net
income and all other non-owner changes in equity.  SFAS No. 130 will be
effective for 1998.  Adoption of this standard did not have an effect on the
Company's financial statements, financial position or results of operations in
the first quarter of 1998.

NOTE 7. RESTRUCTURE OF OM OPERATING, L.L.C. AND RELATED MATTERS
---------------------------------------------------------------

     RESTRUCTURE OF OM OPERATING, L.L.C.  Effective April 15, 1998, the Company
and Donald I. Williams ("Williams") entered into Amendment No. One (the
"Amendment") to the Operating Agreement (the "Operating Agreement") of Operator
to effect a restructuring of Operator which the Company believes effectively
addresses certain preliminary questions and concerns raised by the Louisiana
Gaming Control Board ("Gaming Control Board") and the Video Gaming Division of
the Gaming Enforcement Section of the Office of State Police within the
Department of Public Safety and Corrections (the "Division") in their review of
Operator's application for renewal of its license to operate video poker
casinos.  The Company elected to voluntarily effect the restructure of Operator
even though the Gaming Control Board has not made a final determination whether
Operator's existing structure satisfied the Louisiana residency requirements of
the Louisiana Video Draw Poker Devices Control Law and the Rules and Regulations
promulgated thereunder (the "Louisiana Act").  The Company believed its existing
structure satisfied such residency requirements, but believes the restructure of
Operator will make an even stronger case that Operator satisfies such
requirements and will allay any concerns and questions which the Gaming Control
Board or Division may have in this regard. The Company has submitted to the
Division and Gaming Control Board the Amendment and related documents effecting
the restructure of Operator for their review in connection with their review of
Operator's license renewal request.  There can be no assurance that the Gaming
Control Board will agree with the Company's conclusion that Operator, as
restructured, complies with the residency requirements of the Louisiana Act, but
the Company believes the Gaming Control Board will agree with the restructure
and with the Company's conclusion.

     The Amendment deleted several provisions of, and added several new
provisions to, the Operating Agreement, and certain related transactions were
agreed upon to effect the restructure of Operator.  Among these provisions and
transactions are the ones discussed in the following paragraphs.

     The Company contributed to Operator the Company's right to a 20% special
gross income allocation and distribution in exchange for 99% of the ownership
interests in Operator, and then immediately and simultaneously assigned 50% of
the ownership interests in Operator to Williams in exchange for a $4,000,000
nonrecourse note (the "Note") payable by Williams to the Company, so that
immediately thereafter Williams owns 51% and the Company owns 49% of the
ownership interests in Operator, the Company no longer has a 20% gross income
allocation and distribution right, and Williams owes the Company $4,000,000
pursuant to the Note.  The Note is payable solely from cash flow distributions
made by Operator to Williams from the existing five video poker casinos operated
by Operator (less an amount to allow Williams to pay his federal and state
income taxes on Operator's net taxable income attributable to such casinos), and
is secured by his 51% ownership interest and all cash flow distributions made to
him with respect to the five existing video poker casinos.  The principal
balance of the Note is automatically reduced pro-rata (at percentages agreed
upon based on 1997 net operating income of each casino) if Operator loses the
right to operate any of the five existing video poker casinos.

     Williams and the Company agreed to appoint George J. Akmon, who is the
Executive Vice President and Chief Financial Officer of the Company, as the
manager of Operator, to replace Williams, the previous manager.  The manager is
responsible for all routine, daily operational decisions.  Decisions such as
incurring debt, selling or buying devices, entering into additional agreements
to operate video poker devices, amending existing agreements, and other
material, nonroutine decisions require the approval of 65% of the ownership
interests in Operator.  Until the Note is paid in full, the Company has the
right to remove and appoint a new manager with the concurrence of Williams, and
must at the request of Williams remove and replace any manager who fails to
satisfactorily perform his duties.  Once the Note has been paid in full,
managers will be elected by the owners of at least 65% of the ownership
interests in Operator.

                                       7
<PAGE>
 
     On April 15, 1998, the Company and Operator entered into a Consulting and
Administrative Agreement (the "Consulting Agreement") pursuant to which the
Company has agreed to provide consulting and administrative services relating to
the daily management of each of Operator's video poker casinos.  The Company
will receive a fee of $400,000 per year for rendering such services, reduced by
$50,000 for each existing video poker casino Operator loses the right to
operate, and increased by $50,000 for each new video poker casino operated by
Operator during the term of the Consulting Agreement.  The Consulting Agreement
expires on the later of April 15, 2002 or the date the Note is paid in full,
provided the Company has an option to extend the Consulting Agreement for an
additional six years, unless the Note was not paid in full within six years, in
which case the extension is reduced so the maximum term of such extension, when
added to the original term, does not exceed 12 years.  The fee payable during
any extension term is to be agreed upon by the Company and Operator (acting at
the direction of Williams), and if they cannot reach agreement, they have agreed
to submit the issue to binding arbitration so that a reasonable fee will be
determined by binding arbitration.

     Williams and Operator also entered into an Employment Agreement on April
15, 1998 pursuant to which Williams will receive an annual salary of $250,000,
will be eligible to participate in any employee benefit plans of Operator, will
be furnished the use of a Company automobile and will be reimbursed for expenses
incurred on behalf of Operator during the course of his employment.  The
Employment Agreement terminates on the later of April 15, 2002 or the date the
Note is paid in full.

     The Company agreed to lease to Operator the land and buildings constituting
The Gold Rush Truck Stop.  The lease will be effective April 15, 1998 and will
be a triple-net lease pursuant to which Operator will be responsible for
property taxes, insurance and all repairs and maintenance, except for the
foundation, outer walls and roof, for which the Company will be responsible.
The lease will require annual rental payments of $400,000 and will be for a term
commencing April 15, 1998 and expiring April 15, 2008, subject to a five year
renewal option if elected by Williams, on behalf of Operator, at which time the
rent will be adjusted based on the change in the Consumer Price Index.  The
Company also granted Williams a right of first refusal to purchase the land and
buildings constituting The Gold Rush Truck Stop, or any portion thereof, if the
Company proposes to sell them to a third party.  Williams will have the prior
right to purchase the land and buildings, or such portion thereof, upon the same
terms and conditions and at the same price as offered by such third party.

     Pursuant to the Amendment, each of Williams (and certain related parties)
and the Company (and certain affiliates) agreed that all video poker gaming
opportunities within Louisiana that either party desires to pursue must first be
presented to Operator for its review and determination whether it desires to
pursue such opportunity.  If Operator elects not to purse the opportunity, then
the presenting party will be free to pursue it for a certain specified period
upon terms and conditions substantially equivalent to those presented to
Operator.  Williams is also entitled to receive a finder's fee of $50,000 for
each opportunity brought by him to Operator which is consummated by Operator.

     The Company and Williams terminated the various rights of first refusal and
purchase options which the Company previously had with regard to the 51%
ownership interest of Williams.  Pursuant to the Amendment, if either the
Company or Williams fails to maintain the suitability requirements of the
Louisiana Act, his or its ownership interests may be sold to a third party, with
the consent of the other party (which consent may not be unreasonably withheld),
upon such terms and conditions as he or it may negotiate with such third party;
provided, if such sale is not accomplished within specified time periods, the
other party has the right to locate a purchaser (or buy the interest himself or
itself) for a purchase price equal to the allocable share of Operator's net
operating income for the preceding calendar year multiplied by a factor of two.

     As long as the suitability standards are being maintained by each party,
each of Williams and the Company is given the right under the Amendment to sell
his or its ownership interests at any time to any third party with the consent
of the other person, which consent may not be unreasonably withheld.  If the
Company is selling its ownership interests, it is also entitled to assign the
Consulting Agreement to the purchaser with the consent of Williams, which
consent may not be unreasonably withheld, if such purchaser has expertise to
perform the services being performed by the Company under the Consulting
Agreement.

     RIVER PORT TRUCK STOP - PORT ALLEN, LOUISIANA.  As part of the Amendment,
the Company and Williams agreed to form a new limited liability company called
River Port Truck Stop, LLC to pursue development, construction, ownership and
operation of the River Port Truck Stop in Port Allen, Louisiana.  Initially,
River Port Truck Stop, LLC will be owned 50% by the Company and 50% by Williams,
but it is contemplated that additional equity partners may be admitted so that
the ownership interest of each of the Company and Williams would be reduced pro-
rata down to 40% each, with other equity partners owning 20%.  Williams and the
Company have agreed to seek financing to develop the River Port Truck Stop and
other equity partners.  Upon obtaining necessary financing, the Company has
agreed to cause the existing lease covering the River Port location to be
assigned to River Port Truck Stop, LLC.

                                       8
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

     PRESENT CASH SHORTFALL.  As of April 1, 1998, the Company was seventeen
months in arrears (a total of $595,384 of principal and $42,687 in interest
payable) in payments to International on the promissory note issued to
International by the Company as partial consideration for the I.T. Cruise
acquisition.  The note had an original principal balance of $1,400,000, requires
monthly payments of principal and interest of $50,000, had an unpaid principal
balance of $1,120,854 at April 1, 1998, and is secured by a pledge of the
outstanding capital stock of I.T. Cruise and GalaxSea owned by the Company.

     The cash flow currently being generated by the Company is presently not
sufficient to allow it to make the required payments on the International note
and to continue to remain current on its other indebtedness and payables.
Consequently, International has agreed to allow the $638,071 accrued and owed at
April 1, 1998 to it to continue to remain outstanding (with interest accruing
thereon) until the earlier of January 1, 1999  or the time that excess cash flow
is available to pay such amount (or any portion thereof) and, further, has
granted relief to the Company to allow it to pay the lesser of $50,000 per month
or excess available cash flow, until January 1, 1999, at which time any accrued
amounts will be due and payable and the regular $50,000 scheduled monthly
payments will recommence.  Until such time as the regular scheduled payments on
the International note recommence and the International note is current, all
payments will be suspended on the subordinated debentures issued by the Company
in connection with the redemption of 313,000 shares of Class A Preferred Stock,
which have aggregate remaining principal balances of $896,346 and accrued
interest of $80,671 at April 1, 1998.  These debentures require aggregate
payments of principal and interest of $11,250 per month until July 1, 1997 and
$31,114 per month thereafter, and are expressly made subordinate to the
International note as well as other senior debt of the Company.  The Company
believes that the relief granted by International will allow it to meet its cash
flow obligations during 1998.  Further, the Company plans to enter into
negotiations with International and the holders of the subordinated debentures
to attempt to negotiate a revised payment schedule for all of the Company's
indebtedness to such persons which will accommodate the Company's expected cash
flow.  Any such revised schedule will need to be flexible enough to anticipate
revenue fluctuations due to seasonal changes in revenue and to anticipate the
loss of the King's Lucky Lady truck stop and video poker casino and the
restructuring of the Company's revenue and profits interests in Operator, and
any loss of additional video poker devices at any of the Company's video poker
casinos as a result of reduced fuel sales.  The Company believes it will be able
to negotiate a satisfactory revised payment schedule by the middle of the second
quarter of 1998, but there can be no assurance.  If not, it is possible that the
Company might continue to experience certain cash shortfalls in 1998, depending
on the level of revenues generated from the Company's operations.  It is not
possible to predict whether such cash shortfalls might be experienced, but the
Company believes its cruise operations will contribute positive cash flow as it
continues to mature and it is possible that no cash shortfalls will be
experienced even if no revised payment schedule is negotiated, although there
can be no assurance.
 
     As noted previously, the structure of Operator and the various interests
(including revenue and profits interests) of the Company in Operator are being
reviewed by the Louisiana Gaming Control Board.  Any adverse ruling by the
Louisiana Gaming Control Board could further compound the Company's cash flow
situation and possibly result in the inability to meet its scheduled debt
payments, even as revised. The Company does not believe the review will result
in material adverse changes in Operator's structure, but it cannot predict the
results of the review until the review is completed.  Strict enforcement of the
Louisiana Act and the perceived anti-gaming sentiment in Louisiana within
certain segments of the population and with certain politicians may also impact
the review of Operator and any possible restructuring of Operator, or even a
possible loss of Operator's license to Operate the video poker casinos.

     As also noted previously, the Company has been involved in litigation
respecting its continued right to operate King's Lucky Lady Truck Stop, and the
ultimate resolution of such case against the Company and Operator would have an
adverse affect on the Company's cash flow.

     The Company will seek to meet its long-term liquidity needs primarily
through cash flow from operations, restructuring its payment obligations on
certain debt described above, additional borrowings from the Company's
traditional lending sources and possible sales of equity or debt securities.
While the Company believes it will be able to generate and obtain the necessary
capital to meet such needs if it is able to satisfactorily restructure its
payment obligations as described above, there can be no assurance that all of
such capital will be available on terms acceptable to the Company, which could
delay or cause the Company to postpone certain planned activities.


     GENERAL CONDITION.  The Company ended the first quarter of 1998 with
$900,871 in cash and other current assets amounting to $534,548, including
accounts receivable of $226,556, inventories and prepaid expenses of $263,699
and current notes receivable of $25,263. The Company's total liabilities were
$5,457,556 at March 31, 1998, including accounts payable and accrued liabilities
of $1,530,743, current notes payable of $1,252,370, long-term notes payable of
$1,894,443 and preferred stock dividends payable of $780,000.  The Company's
liabilities increased $39,873 from $5,417,683 at December 31, 1997 to $5,457,556
at March 31, 1998.  This variance was comprised of an increase in current
liabilities of $186,266 and reductions in liabilities from other notes payable
totaling

                                       9
<PAGE>
 
$6,570, payments on long and short-term debt to banks totaling $51,285 and
payments on the Ozdon notes issued for the stock purchase of the Gold Rush of
$88,538.

     Accounts payable and accrued liabilities of $1,530,743 included $723,230 in
trade payables, state franchise taxes of $211,715, casino distributions of
$255,932, payroll and payroll taxes of $186,499, income tax payable of $23,274
and accrued interest of $130,093.

     The current portion of other notes payable totaling $1,252,370 includes
$520,611 related to the acquisition of I.T. Cruise and GalaxSea; the stock
purchase note from the Gold Rush acquisition amounting to $246,020; $216,352
payable to a bank for the construction of the Pelican Palace and the purchase of
the Lucky Longhorn; $203,762 payable to Class A Preferred shareholders; and
$65,625 in equipment leases and other notes.

     Long-term debt of $1,894,443 includes $560,988 payable to a bank for the
construction of the Pelican Palace and the purchase of the Lucky Longhorn;
$692,584 payable to Class A Preferred shareholders; $600,243 related to the
acquisition of I.T. Cruise and GalaxSea; and $40,628 in equipment leases and
other notes.

     In July 1993, OM Investors, Inc. committed to loan $1,450,000 to the Curray
Corporation ("Curray") for  the construction of the Pelican Palace truck stop
and video poker facility in Toomey, Louisiana.  Construction was commenced in
1993 and substantially completed in March 1994.  The $1,450,000 loan was
evidenced by a promissory note payable to the Company which was paid-in-full as
of May 31, 1996.  Under the Operating and Financing Agreement with Curray, 70%
of the net income from the operation of the facility was dedicated to the
repayment of the note.  Now that the note receivable from Curray is paid-in-
full, net income is split 50% to the Company and 50% to Curray.

     Effective July 1, 1996 the Company entered into a sublease agreement with
New Orleans Video Poker, Inc. ("NOVP") to sublease and manage The Diamond
Jubilee video poker casino and truck stop in New Orleans, Louisiana.  This
sublease provides for a 50/50 split between the Company and NOVP of the net cash
flow generated by the Diamond Jubilee.  The sublease further provides for the
Company to assume the outstanding liabilities of NOVP, exclusive of notes
payable to the principals of NOVP, as the purchase price for 50 video poker
devices and an automated teller machine.   The Company has the option to
purchase NOVP's 50% share of the cash flow.  The transaction also included the
issuance of 450,000 shares of common stock in the Company to NOVP.

     At March 31, 1998, property and equipment (net) at truck stops, video poker
facilities, cruise marketing and corporate offices totaled $1,331,873.
 
     Effective June 10, 1996, the Company acquired GalaxSea and I.T. Cruise,
companies engaged in the cruise travel industry.  Cruise revenue as reported is
presented on an accrual basis, and is estimated based on the receipt of
quarterly cash payments of previous years actual revenue; adjusted for seasonal
variations.  Cruise revenue is comprised of overrides and commissions on cruise
sales generated by I.T. Cruise from the International network and GalaxSea's
franchise system.  The Cruise lines make payments of overrides and commissions
on a quarterly basis which are received 30-45 days following the end of each
quarter.  Bonus overrides and commissions are paid by the cruise lines on an
annual basis, which are received 30-45 days into the next calendar year.
GalaxSea franchisees are billed monthly for license fees.

     Intense competition for the business of gaming patrons in Louisiana and
Mississippi resulted in a decline in operating profit margins during 1997.  It
is expected that the profit margins may continue to be adversely affected, and
that various gaming establishments may be forced to close because they cannot
compete effectively at such reduced margins.  The Company believes it will be
able to maintain a competitive position by carefully managing expenses and cash
flow, but there can be no assurance.

     At the general election held on November 5, 1996, all parishes in which the
Company operates video poker casinos voted to continue truck stop video poker.
The local option initiative gave the voters in each parish the right to decide
what forms of gaming they want to continue in their parish.

     In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation."  This statement provides accounting and reporting standards for
stock-based employee compensation plans and also applies to equity instruments
issued to acquire goods and services from nonemployees.  SFAS No. 123 defines a
fair value based method of accounting for employee stock option and similar
equity instruments.  Entities may either adopt that accounting method or may
elect to continue the accounting treatment outlined in APB Opinion No. 25,
"Accounting for Stock Issued to Employees."  Entities electing to continue
following Opinion No. 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value based method had been
adopted.  SFAS No. 123 is effective for fiscal years beginning after December
15, 1995.  The Company will follow Opinion No. 25.  Adoption of this statement
will not have a material impact on the consolidated financial statements of the
Company.

                                       10
<PAGE>
 
RESULTS OF OPERATIONS

NET INCOME FOR THE FIRST QUARTER ENDED MARCH 31, 1998.

     Company operations resulted in net income before income taxes of $161,624
for the three months ended March 31, 1998, a decrease of $220,220, or 58%, from
1997's $381,844.  The Company's operating profit before depreciation,
amortization and interest expense amounted to $392,347 through March 31, 1998,
down 36% from 1997's $616,462.  On June 1, 1997 the Company began recording
retail revenues as a result of operating the existing convenience store and fuel
facility at the River Port Truck Stop in Port Allen, LA., with a resulting
operating loss of $2,962 through March 31,1998.  During 1997 the Company and
Operator were subject to a court orders which declared that 50% of the operating
profit from King's Lucky Lady Casino and Truck Stop must be placed in an escrow
account effective May 1, 1997 through March 2, 1998, and 100% from March 3, 1998
until a judgement is made on the Company's and Operator's appeal.  This escrow
requirement, recorded as an expense entitled as a "litigation reserve", amounted
to $139,660 through December 31, 1997, with a total of $119,544 added as a
result of first quarter 1998 operations.

REVENUES TOTALED $6,150,191 THROUGH MARCH 31, 1998 COMPARED TO $5,655,433 FOR
1997, UP 12%.

     VIDEO POKER REVENUES totaled $3,979,045 through March 31, 1998, up
$192,992, or 5% from 1997's $3,786,053.  Gains were achieved at the Pelican
Palace - $146,343;  King's Lucky Lady - $99,621, the Lucky Longhorn $57,696; the
Gold Rush - $42,331 and the Diamond Jubilee - $14,596.  Declines in video poker
revenue were experienced mainly due the closure of Stelly's Southern Gold -
$109,095 and the reduction of Route Operations - $58,500 from 1997 to 1998.
Video poker revenue production by location for 1998 and 1997 was as follows:

     Pelican Palace, Toomey, LA - $883,919 in 1998 and $737,575 in 1997, up 20%;
resulting in average daily revenue per device (50 devices) of $196 through March
31, 1998 compared to 1997's $164.

     King's Lucky Lady, Port Barre, LA - $681,464 in 1998 and $581,844 in 1997,
up 17%; resulting in average daily revenue per device (50 devices) of $151
through March 31, 1998 compared to 1997's $129.

     Lucky Longhorn, Vinton, LA - $932,712 in 1998 and $875,016 in 1997, up 7%;
resulting in average daily revenue per device (50 devices) of $207 through March
31, 1998 compared to 1996's $194.

     Gold Rush, Opelousas, LA - $794,377 in 1998 and $752,045 in 1997, up 6%;
resulting in average daily revenue per device (50 devices) of $177 through March
31, 1998 compared to $167 for 1997.

     Diamond Jubilee, New Orleans, LA - $637,059 in 1998 and $622,462  in 1997,
up 2%; resulting in average daily revenue per device (40 devices) of $177
through March 31, 1998 compared to $159 for 1997( on an average of 43.3
devices).

     Route Operations - South LA - $49,515 in 1998 and $108,015 in 1997, down
54%; resulting in average daily revenue per device (13 devices) of $42 through
March 31, 1998 compared to average daily revenue per device (22 devices) of $54
in 1997.

     Stelly's-LeBeau, LA - closed May 28, 1997; first quarter 1997 production
amounted to $109,095, resulting in average daily revenue per device (16 devices)
of $76.

     RETAIL REVENUES from fuel and convenience store, food and beverage
operations amounted to $1,942,587 for the first quarter of 1998 compared to
1997's $1,586,726, an increase of 22%.

     Combined fuel and convenience store sales for the first quarter of 1998
increased $294,040, or 24%, to $1,507,408 compared to $1,213,368 in 1997.  Fuel
sales for 1998 amounted to $1,240,445, making up 63.9% of the Company's retail
sales, compared to 1997's fuel sales of $1,019,642, contributing 64.3% of the
Company's retail sales.  Convenience store retail sales totaling $266,963 were
up 38% for 1998 versus 1997's $193,726.  Growth occurred at the Gold Rush, which
reported $903,125 in revenue for the first quarter compared to 1997's $788,190,
up 15%;  King's Lucky Lady generated $708,975, down 2% from 1997's $721,266; and
the River Port Truck Stop posted sales totaling $222,137 for the first quarter
of 1998.

     First quarter 1998 food and beverage sales increased $61,821, or 17%, to
$435,179, compared to  $373,358 in 1997.  Food and beverage sales for each
location were as follows:  King's Lucky Lady $213,351 in 1998 compared to 1997's
$203,118, up 5%;  Gold Rush -$113,478 in 1998 compared to $92,970 in 1997, up
22%;  Pelican Palace - $88,570 in 1998 versus $57,443 in 1997, up 54%;  and the
Diamond Jubilee - $19,780 in 1998 compared to $19,827 for 1997.

                                       11
<PAGE>
 
     CRUISE REVENUES accrued for I.T. Cruise and GalaxSea totaled $228,559 for
the first quarter of 1998 compared to 1997's $282,654. I.T. Cruise revenue
resulting from its contracts with International Tours, Inc. amounted to accrued
overrides and commissions of  $60,000 for 1998 compared to 1997's $103,043.  The
accrual of GalaxSea's franchise system revenues was comprised of overrides and
commissions of $45,000 in 1998 versus $80,370 in 1997;  monthly license fees of
$53,218 in 1998 compared to $27,713 in 1997; franchise sales fees of $1,250 in
1998 compared to $1,000 in 1997; marketing fees totaling $62,448 in 1998
compared to 1997's $64,732; and convention and training fees of $6,643 in 1998
compared to $5,796 in 1997.


CASINO AND TRUCK STOP OPERATIONS

     CASINO AND TRUCK STOP OPERATIONS recorded direct operating profit of
$827,187 for the first quarter of 1998, a decrease of $30,962, or 3.6%, from
1997's $858,149.

      The Gold Rush's casino and truck stop operations produced operating profit
of approximately $277,665 in 1998 compared to $298,598 in 1997, down 7%.  Fuel
sales averaged approximately 196,000 gallons per month.

     The Lucky Longhorn's operating profit was approximately $154,895 in 1998
compared to $193,051 in 1997, down 20%.  Operating margins suffered as strong
promotional efforts were implemented to recover market share for the property.
The Lucky Longhorn has fourteen competitors in its market area, including a Las
Vegas style Native American casino and four river boats, one of which was added
in 1997. The raising of the legal drinking age statewide  from 18 to 21 years of
age particularly affected the Lucky Longhorn because it drew many of its
customers from the neighboring Longhorn Club entertainment facility and overall
customer traffic was reduced at both locations. During the month of January
1997, operations were suspended for 3 days due to an ice storm.  Fuel sales
averaged approximately 284,000 gallons per month.

     The Pelican Palace generated operating profit of approximately $176,667 in
1998 compared to 1997's $145,496, an increase of 21%.  Strong promotional
efforts were implemented to gain market share in casino and fuel sales. The
Pelican has fourteen competitors in its market area, including a Las Vegas style
Native American casino and four river boats, one of which was added in 1997.
During the month of January 1998, operations were suspended for 3 days due to an
ice storm.  In 1997, a portion of the income was applied to the reduction of a
note receivable,  which was satisfied in May of 1997 (noted above).  Fuel sales
averaged approximately 146,000 gallons per month.

     King's Lucky Lady's operating profit for 1998 was approximately $184,414
compared to operating profit for 1997 of approximately $145,261, up 27%.  Strong
promotional efforts were implemented to gain market share in casino and fuel
sales.  See Part II, Item 1 -- Legal Proceedings" for a discussion of the
judgement rendered against Company regarding the validity of its option to renew
the lease on King's Lucky Lady.  The Company has filed a suspensive appeal in an
effort to reverse this decision.  Fuel sales averaged approximately 122,000
gallons per month.

     The Diamond Jubilee generated operating profit of approximately $29,793 in
1998, compared to 1997's $43,285, down 37%.  Two competitors with a total of 80
video poker devices came into the market during 1998 thus diluting The Diamond
Jubilee's market share.  The Diamond Jubilee also lost 10 devices at The Diamond
Jubilee after December 31, 1997 due to failure to maintain required fuel sales,
and is expected to lose an additional five devices during the second quarter of
1998, until increased fuel sales are maintained.  Fuel sales averaged
approximately 70,000 gallons per month during the first quarter of 1998 compared
to 76,000 gallons per month in 1997.  Increased price competition has affected
sales, which resulted in less than the required minimum for the fourth quarter
of 1997 (100,000 gallons per month is necessary for 50 devices), so the Company
operated 50 devices from July of 1996 through January of 1997, but has only
operated 40 devices since of February 1, 1997.  In order to increase fuel sales
substantially, the Company will be required to make a substantial investment to
include a convenience store and additional gasoline pumps.  The Company is
presently negotiating with NOVP and the landlord to share such costs if any such
improvements are desired. There can be no assurance that such improvements will
be made and, if not made, it is not likely that the fuel could be maintained at
the minimum level to operate 50 devices, or even 40 devices.

     Route Operations generated operating profit for 1998 of approximately
$6,715 compared to operating profit for 1997 of approximately $15,242, down 56%.
During the first quarter of 1998, the Company had 13 devices operating within 6
locations, compared to 1997, when the Company operated 22 devices within 10
locations.  The reduction in the number of route locations is the result of the
expiration of the initial five year operating leases with tavern owners who have
elected to purchase and operate their own video poker devices. The original
operating leases had no provision for renewal.

     Stelly's Southern Gold was closed May 28, 1997.  Operating profit for the
first quarter of 1997 amounted to $17,216.  Stelly's did not have sufficient
fuel sales necessary to operate 16 video poker devices under Louisiana
regulations for the previous three quarters, therefore the Louisiana State
Police suspended the license to operate video poker devices at this facility on
May 28, 1998.  See "Item

                                       12
<PAGE>
 
1 -- Description of Business -- Operation of Video Poker Casinos -- Stelly's -
LeBeau, Louisiana" for a discussion of the termination of this operating lease
and the loss of all 16 devices at Stelly's.
 
     River Port Truck Stop posted sales of $222,137 for the first quarter of
1998, with a resulting operating loss of $2,962.  Fuel sales averaged
approximately 47,000 gallons per month.


CRUISE OPERATIONS

     Combined Cruise Operations recorded an operating profit which amounted to
$21,441 for the first quarter of 1998, on revenues totaling $228,559, while
1997's operating profit of $31,920 was recorded based on revenues of $282,654.
The loss in revenue was for the most part due to a restructuring of contracts by
certain cruise lines.  Marketing fees accrued are the result of a broad based
program coordinated by GalaxSea to produce cruise industry publications and
promotions subscribed to by the cruise lines.  The GalaxSea franchise system
included 72 franchisees at March 31, 1998 compared to 62 at the end of the first
quarter of 1997.
 
     GalaxSea's first quarter 1998 revenues amounted to $168,559, with an
operating loss of approximately $14,087; revenues recorded for I.T. Cruise were
$60,000, with an operating profit of approximately $35,529 for the first quarter
of 1998.


EXPENSES TOTALED $5,988,567 THROUGH MARCH 31, 1998 COMPARED TO $5,273,589 FOR
1997, UP 14%.

     VIDEO POKER operations recorded a direct cost of revenue amounting to
$2,259,948 in 1998 and $2,187,940 in 1997, an increase of 3%.  This includes
fees paid to the State of Louisiana of $1,349,550 (33.9% of video poker revenue)
in 1998 and $1,289,884 (34.1% of video poker revenue) in 1997, and profit
sharing payments as defined in operating and management contracts of $910,399
(22.9% of video poker revenue) in 1998 and $898,056  (23.7% of video poker
revenue) in 1997.

     RETAIL operations recorded an increase of $264,905, or 20% in the cost of
revenue related to fuel, convenience store, food and beverage operations. The
$1,568,737 (80.8% cost margin on retail sales) in 1998 included $175,432 for the
River Port Truck Stop, compared to $1,303,832 (82.2% cost margin on retail
sales) in 1997.

     Fuel cost of goods sold for 1998 amounted to $1,144,463, representing a
cost margin of 92.3%, compared to 1997's fuel cost of goods sold totaling
$957,225, with a cost margin of 93.9%.  In order to comply with State
regulations governing truck stops, the Company continued to be very competitive
in its marketing and pricing of fuel during the first quarter of 1998, in order
to maintain and/or increase fuel sales.  The regulations require a minimum sales
level of 100,000 gallons per month per location, in order to maintain a
complement of 50 video poker machines.

     Convenience store retail cost of goods sold totaling $226,483 (84.8% of
sales) was up 35% for 1998 versus 1997's $167,917 (86.7% of sales).

     Food and beverage cost of goods sold totaled $197,791, up 11% in 1998, with
a margin on sales of 45.5% compared to 1997's $178,690, with a margin on sales
of 47.9%.  The need to remain competitive at all locations requires the setting
of lower price points, which in turn results in a significant number of sales at
a low dollar value.  The State regulations governing truck stops require
operation of 50 seat (minimum) restaurants on a 24-hour basis in order to
operate 19 or more video poker machines.  The Company presently operates three
of these low volume restaurants.

     CRUISE operations recorded a direct cost of revenue amounting to $66,210
for the first quarter of 1998 compared to 1997's $56,146, an increase of 18%.
This was comprised of marketing, training and promotional expenses totaling
$46,504 and royalty fees of $19,706 for 1998.  1997's marketing, training and
promotional expenses amounted to $44,840 with royalty fees of $11,306.

     GENERAL OPERATING AND ADMINISTRATIVE EXPENSES of $1,767,161 in 1998 and
$1,520,533 in 1997 represented 28.7% and 26.9% of total revenue for 1998 and
1997, respectively.

     DEPRECIATION AND AMORTIZATION amounted to $155,094 for the first quarter of
1998 and $164,864 in 1997.  Interest expense was $75,628 in 1998 and $69,754 in
1997.  Net other revenue/(expense) was ($95,788) in 1998, compared to $29,482 in
1997.

                                       13
<PAGE>
 
COMPARISON OF 1998 TO 1997

     VIDEO POKER revenues increased to $3,979,045 in the first quarter of 1998
from $3,786,053 in 1997, up $192,992, or 5%.  The Pelican Palace produced
$883,919 in 1998 versus $737,575 in 1997, an increase of $146,343, or 20%.
King's Lucky Lady recorded video poker revenues of $681,464 in 1998 versus
$581,844 in 1997, up $99,621, or 17%.  The Lucky Longhorn generated  $932,712 in
1997 to $875,016 in 1998, up $57,696, or 7%.  The Gold Rush posted $794,377 in
1998 compared with $752,045 in 1997, up $42,331, or 6%. The Diamond Jubilee
produced $637,059 in 1998 versus $622,462 in 1997, an increase of $14,596, or
2%.  Declines in video poker revenue were experienced mainly due to the closure
of Stelly's Southern Gold on May 28, 1997- first quarter 1997 production was
$109,095; and the reduction of Route Operations resulting in $49,515 in 1998
from $108,015 in 1997, down $58,500, or 54%.

     RETAIL revenues from fuel and convenience store, food and beverage
operations amounted to $1,942,587 for the first quarter of 1998 compared to
1997's $1,586,726, an increase of 22%. The cost of revenue related to fuel,
convenience store, food and beverage operations increased $264,905, or 20% from
$1,303,832 in 1997 to $1,568,737 in 1998, including $175,432 for the River Port
Truck Stop. The cost of revenue excluding the River Port Truck Stop increased
$89,473, or 7%.

     GENERAL OPERATING AND ADMINISTRATIVE EXPENSES totaled $1,767,161 in 1998
and $1,520,533 for 1997, an increase of $246,628, or 16.2%.  This overall
increase resulted primarily from payroll, contract and professional services,
truck stop and casino promotional expenses and new operations.
 
     Payroll related expenses increased $69,389, or 9%, from $744,742 in 1997 to
$814,131 for the first quarter of 1998, inclusive of an increase from operating
the River Port Truck Stop of $18,702 and a decrease from Cruise Operations of
$39,511;  and all other payroll expenses were up $90,198, an increase of 13%,
which now reflects the full impact of the overall 18.4% increase in the Federal
Minimum Wage from $4.35 per hour to $4.75 per hour (October 1, 1996) and $4.75
per hour to $5.15 per hour (September 1, 1997).  This increase was also passed
through by vendors and contractors which raised the Company's overall level of
direct operating expenses.

     Contract and professional services (outside services) expenses increased
$85,065, or 43%, from $196,121 in 1997 to $281,186 for the quarter ended March
31, 1998; which included  legal and accounting fees totaling $138,020 in 1998
and $72,066 for 1997, an increase of $65,954, or 92%, resulting from regulatory
and licensing issues as discussed above; casino security costs of $77,601 in
1998 and $69,203 for 1997, an increase of $8,399, or 12%, resulting from the
increase in the Federal Minimum Wage; and consulting fees totaling $65,565 in
1998 and $54,852 for 1997, an increase of $10,713, or 20%.

     Truck stop and casino promotional expenses amounted to $248,407 in 1998, up
53%, or $85,581  from 1997's $162,826, consisting of 4.2% and 3.0% of combined
truck stop and casino revenue for 1998 and 1997 respectively.  This increase in
promotional expense was the result of targeted marketing programs to maintain
and/or to increase fuel sales and to increase the length of time customers spend
in the casino.  Complimentary food and beverage was the majority of the increase
amounting to $72,754; the direct cost of revenue being approximately 45%.

     Incremental operating expenses, excluding payroll expenses for the River
Port Truck Stop, amounted to $31,813 for the first quarter of 1998.  Combined
Cruise Operations recorded a decrease of $33,234, or 17%, in other operating
expenses from 1997's $85,022 to $51,788 for the first quarter of 1998.

     All other expenses totaled $339,836 in 1998 compared to $331,822, a
decrease of $8,014, or 2.4%.

     DEPRECIATION AND AMORTIZATION amounted to  $155,094 for the first quarter
of 1998 and $164,864 in 1997, a decrease of $9,770, or 6%.  Depreciation and
amortization on video poker operations, which includes video poker machines,
leasehold improvements and revenue interest rights, amounted to $55,075 in 1998
compared to $76,410 for 1997.  Depreciation and amortization on truck stop and
convenience store operations totaled $14,292 in 1998 and $14,400 for 1997;
Depreciation and amortization on cruise operations amounted to $82,847 in 1998
compared to $71,354 for 1997; and $2,880 in 1998 versus 1997's $2,700 on
corporate assets.  Interest expense was $75,628 in 1998 and $69,754 for 1997, an
increase of $5,875, or 8%.  Net other revenue / (expense) totaled ($95,788) in
1998 compared to 1997's $29,482. This line item includes rental income, interest
income, ATM commissions and miscellaneous gains and losses on the disposal of
assets.  In addition, during 1997 the Company and Operator were subject to court
orders which declared that 50% of the operating profit from King's Lucky Lady
Casino and Truck Stop must be placed in an escrow account effective May 1, 1997
through March 2, 1998, and 100% from March 3, 1998 until a judgement is made on
the Company's and Operator's appeal.  This escrow requirement, recorded as an
expense entitled as a "litigation reserve", amounted to $139,660 through
December 31, 1997, with a total of $119,544 added as a result of first quarter
1998 operations and is recorded in the category of other expense.

                                       14
<PAGE>
 
YEAR 2000 ISSUES

     The Company is aware of the issues associated with the programming code in
many existing computer systems as the millennium approaches.  The "Year 2000"
problem is pervasive; virtually every computer operation may be affected in some
way by the rollover of the digit value to 00. The risk is that computer systems
will not properly recognize sensitive information when the year changes to 2000.
Systems that do not properly recognize such information could generate erroneous
data or cause a system to fail, resulting in business interruption.

     The Company is conducting a review of its computer systems and is taking
steps to correct Year 2000 compliance issues.  The Company benefits from having
relatively new computer systems in most locations and management believes the
Year 2000 issues can be mitigated without a significant potential effect on the
Company's financial position.  However, given the complexity of the Year 2000
issue, there can be no assurance that the Company will be able to address the
problem without costs and uncertainties that might affect the future financial
results or cause reported financial information to not be necessarily indicative
of future operating results or future financial condition.


FORWARD LOOKING STATEMENTS

     Statements that are not historical facts included in this Form 10-QSB are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties that could
cause actual results to differ from projected results. Such statements address
activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future
capital, debt restructuring, the possible effects of anti-gaming sentiment, the
restructuring of Operator, maintaining or increasing fuel sales, compliance with
other gaming law requirements, maintaining a competitive position in the
Company's markets, pending legal proceedings, business strategies, expansion and
growth of the Company's operations, and cash flow. Factors that could cause
actual results to differ materially ("Cautionary Disclosures") are described
throughout this Form 10-QSB. Cautionary Disclosures include, among others:
general economic conditions, the Company's ability to find, acquire, market,
develop and produce new properties, the strength and financial resources of the
Company's competitors, anti-gaming sentiment, labor relations, availability and
cost of material and equipment, the results of debt restructuring efforts,
regulatory developments and compliance, and pending legal proceedings. All
written and oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to
reflect events or circumstances occurring hereafter or to reflect the occurrence
of anticipated or unanticipated events.



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                                       15
<PAGE>
 
                           PART II. OTHER INFORMATION


ITEMS 2, 4 AND 5 ARE OMITTED FROM THIS REPORT AS INAPPLICABLE.

ITEM 1. LEGAL PROCEEDINGS

     On August 25, 1995, the Company filed a petition for declaratory judgment
in the 14th Judicial District Court, Calcasieu Parish, Louisiana, seeking the
court's interpretation of the Act of Contract and Agreement (the "Contract")
under which Operator operates the Lucky Longhorn video poker casino.  At issue
is whether Operator deducts the full 32.5% net device revenue tax, or only 22.5%
(which was the statutory rate prior to the amendment of the statute effective
July 1, 1994), in calculating net revenues for distribution under the Contract.
Longhorn, the other party to the Contract, filed an answer to the Company's suit
on November 28, 1995 claiming that only the old rate of 22.5% should be
deducted, and claiming that Operator was in default for deducting the higher
rate and that the Contract should therefore be terminated.  No trial date has
been set, and settlement discussions are ongoing with Longhorn.  The Company
believes the issue will be resolved satisfactorily, but there can be no
assurance in this regard.

     T.B. Guillory ("Guillory") et al versus North American Gaming and
Entertainment Corporation and O.M. Operating, L.L.C., 27th Judicial District
Court, St. Landry Parish, Louisiana.  The preliminary question to be decided by
the court was whether the option to renew the term of the contract of lease on
King's Lucky Lady Truck Stop was in compliance with the requirements of the
Louisiana Civil Code governing the validity of such options.  The validity of
the option was assailed on grounds that the alleged failure of the option to
stipulate a price rendered it invalid.  On March 3, 1998, the court rendered
judgment against the Company and Operator on the grounds that the failure to
stipulate a price rendered the option invalid, and the Company and Operator were
ordered to vacate the premises effective April 30, 1997.  The Company and
Operator have filed an appeal of this judgment, which appeal is pending.  The
Company and Operator intend to vigorously pursue this appeal, but there can be
no assurance that the Company and Operator will prevail.  If the judgment is not
set aside, the Company and Operator will lose the right to operate King's Lucky
Lady effective April 30, 1997, unless some other arrangement can be arranged
with Guillory. During the course of the litigation, Operator was ordered by the
court to escrow 50% of the monthly operating profit generated by King's Lucky
Lady, and effective from the date of the judgment on March 3, 1998 Operator will
be required to escrow 100% of the operating profit, unless Operator and the
Company are able to negotiate a different arrangement with Guillory or convince
the court to modify such arrangement.  As of May 1, 1998, Operator had placed in
escrow $259,204 for the period from May 1997 through March 1998.  Operator and
the Company  plan to petition the court in June 1998 to grant a management fee
for services from April 30, 1997 through the date the appeal is completely
concluded.  Presently, the Company and Operator plan to also assert a claim for
damages for unjust enrichment against Guillory if they do not prevail on the
appeal.  There can be no assurance whether the Company will prevail on appeal or
otherwise be able to negotiate a different arrangement with Guillory or be
granted relief from the court to modify any relief granted.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Simultaneously with the acquisition of GalaxSea and I.T. Cruise, the Company
also restructured its existing, outstanding Class A Preferred Stock by redeeming
313,000 of the 1,600,000 outstanding shares for a $939,000 subordinated
debenture, placing an agreed moratorium on the accrual of dividends for two
years and obtaining from the holders of Class A Preferred stock the right to
force conversion of the remaining 1,287,000 shares of Class A Preferred Stock
into 8,240,000 shares of Common Stock at any time within the next two years.  In
the event of any such forced conversion, as part of the merger transaction,
International was granted anti-dilution protection and will, upon the issuance
of such shares of Common Stock to the former holders of Class A Preferred Stock,
be entitled to an additional 5,452,854 shares of Common Stock without further
consideration, in order to maintain its percentage ownership of voting stock at
44%.  On May 4, 1998, the Company delivered notice to all holders of Class A
Preferred Stock that the Class A Preferred Stock would be converted into Common
Stock, subject to approval at the annual meeting of stockholders to be held on
June 4, 1998 of an amendment to the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock to 100 million shares.
The $780,000 of dividends on the Class A Preferred Stock accumulated and accrued
through May 31, 1996 continues to exist as accrued dividends payable, and will
continue to exist as accrued dividends payable after conversion of the Class A
Preferred Stock into Common Stock.

See, also, the discussion of the Company's default under certain debt
instruments described in Item 2 - "Management's Discussion and Analysis or Plan
of Operation - Liquidity and Capital Resources - Present Cash Shortfall."

                                       16
<PAGE>
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this Quarterly Report on Form
    10-QSB:


Exhibit
Number  Description of Exhibits
------  -----------------------


3.1.1   Certificate of Incorporation of the Company, as amended, filed as
        Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal
        year ended December 31, 1986 (the "1986 Form 10-K"), and incorporated
        herein by reference.

3.1.2   Certificate of Amendment of Certificate of Incorporation of the Company
        dated April 18, 1994, filed as Exhibit 3.1.8 to the Company's Annual
        Report on Form 10-K for the fiscal year ended December 31, 1993 (the
        "1993 Form 10-K"), and incorporated herein by reference.

3.1.3   Certificate of Amendment of Certificate of Incorporation of the Company
        effecting one-for-three reverse stock split filed as Exhibit 3.1 to the
        Company's Current Report on Form 8-K dated October 17, 1994, and
        incorporated herein by reference.

3.1.4   Certificate of Amendment of Certificate of Incorporation of the Company
        effecting name change, increase of authorized shares, authorization of
        Class A preferred stock and stock ownership limitations filed as Exhibit
        3.2 to the Company's Current Report on Form 8-K dated October 17, 1994,
        and incorporated herein by reference.

3.1.5   Form of "Certificate of Designation, Preferences and Rights of Series B
        Convertible Preferred Stock" creating the Series B Preferred Stock filed
        as Exhibit 10.1.4 to the Company's Current Report on Form 8-K dated June
        10, 1996, and incorporated herein by reference.

3.2     Amended and Restated Bylaws of the Company filed as Exhibit 3.3 to the
        Company's Current Report on Form 8-K dated October 17, 1994, and
        incorporated herein by reference.

*27.1   Financial Data Schedule required by Item 601 of Regulation S-B.

______________________

* Filed herewith.


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                                       17
<PAGE>
 
In accordance with the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                    NORTH AMERICAN GAMING AND
                                    -------------------------
                                    ENTERTAINMENT CORPORATION
                                    -------------------------
                                    (Registrant)


                                    By:  /s/ George J. Akmon
                                         ----------------------------------
                                         Executive Vice-President &
                                         Chief Financial Officer (Principal
                                         Financial and Chief Accounting
                                         Officer)

Date: May 14, 1998

                                       18