<PAGE>
 
                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 FORM 10-KSB/A
                              (AMENDMENT NO. ONE)

(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                  For the fiscal year ended December 31, 1997
                                      OR
[  ] 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
                (Name of small business issuer in its charter)

         DELAWARE                                        75-2571032
(State or other jurisdiction of                       (I.R.S. Employer
incorporation or organization)                        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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock, par
value $.01 per share

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer 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 herein, and none 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.  [X]

The issuer's revenues for its most recent fiscal year were: $23,806,042.

The aggregate market value of the voting common and non-voting stock held by
non-affiliates of the issuer, based on the average bid and asked price of such
stock, was $941,986 as of March 31, 1998.

At March 31, 1998, the registrant had outstanding 20,095,698 shares of par value
$.01 common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE
     None.

Transitional Small Business Disclosure Format (check one):

               Yes                   No   X 
                   -----                ------
<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                   PART III
 
<S>      <C>                                                                   <C>
ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
         PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.........    1
ITEM 10. EXECUTIVE COMPENSATION.............................................    3
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....    4
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................    7
</TABLE>

                                      -i-
<PAGE>
 
                           NORTH AMERICAN GAMING AND
                           ENTERTAINMENT CORPORATION


                                   PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

       The following table provides information as of April 30, 1998, with
respect to each of the Company's directors and each executive officer, and
certain officers of certain of the Company's subsidiaries:

<TABLE>
<CAPTION>
                                                                 Served as Executive
                                                                     Officer or
          Name                  Age        Position                Director Since
       <S>                      <C>     <C>                      <C>        

                           DIRECTORS AND EXECUTIVE OFFICERS
       
       E.H. Hawes, II            59     Director (Chairman)               1998
       Daryl N. Snadon/(1)/      53     Director                          1994
       Richard P. Crane, Jr.     58     Director and Secretary            1994
       George J. Akmon           54     Executive Vice                    1994
                                        President,
                                        Chief Operating Officer,
                                        Treasurer and Chief
                                        Financial Officer

                    CERTAIN OFFICERS OF CERTAIN SUBSIDIARIES

       Ron Blaylock              58     Chairman of I.T. Cruise,          1992
                                        Inc. and GalaxSea Cruises
                                        and Tours, Inc.
       Ted C. Parker             43     President of I.T. Cruise,         1997
                                        Inc. and GalaxSea Cruises
                                        and Tours, Inc.
</TABLE>

----------------------
(1)  Member of Audit and Compliance Review Committee.


       E. H. HAWES, II.  Mr. Hawes has been the Chairman of the Board, President
and Chief Executive Officer of the Company since January 7, 1998.  He has been
the Chairman of the Board of IT Financial Corporation ("ITFC"), which is the
holding company for International Tours, Inc. ("International"), since 1969, and
has been the Chairman of the Board of International since 1969.  ITFC and
International are privately owned corporations engaged in the business of travel
agency franchising and travel agency training and schools.  Mr. Hawes has also
been President of Glacier Petroleum, Inc., a privately owned oil and gas
exploration company, since 1971.

       DARYL N. SNADON.  Mr. Snadon has been a Director of the Company since
January 1994.  He has been sole proprietor of Beltway Development Company, a
real estate development company, in Dallas, Texas since 1973. Mr. Snadon has
also been the Chief Executive Officer of Beltway Construction Incorporated, a
general contractor, in Dallas, Texas since 1975, and President of Beltway
Management Corporation, a real estate leasing and management company, since
1988.  Mr. Snadon holds an undergraduate degree from the University of Missouri
and is a graduate of the University of Missouri School of Law.

                                      -1-
<PAGE>
 
       RICHARD P. CRANE, JR.  Mr. Crane has been a partner in the law firm of
Musick, Peeler and Garrett, Santa Monica, California, since February 1997, and
prior to that time was a partner in the laws firms of Crane & McCann, Santa
Monica, California, for approximately three years, Crane, Rayle & Lennemann,
Santa Monica, California, for approximately two years, and Girardi, Keese &
Crane, Los Angeles, California, for 14 years.  Mr. Crane has practiced law for
over 33 years, seven of which were with the U.S. Attorney General's Office where
for five years he was the Attorney in Charge and Chief Trial Counsel of the
Organized Crime and Racketeering Section of the Western Regional Office. He has
served as a Director and as Secretary of the Company since October 1994. Mr.
Crane is also a director of Service Merchandise, Inc. and Bullet Sports
International, Inc. both of which are publicly traded companies.  He is a
graduate of Vanderbilt University and holds a law degree from Vanderbilt
University Law School.

       GEORGE J. AKMON.  Mr. Akmon has served as Executive Vice President, Chief
Financial Officer and Chief Operating Officer of the Company since November 1,
1994, as Treasurer since March 2, 1995, and served as a Director from November
1, 1994 until January 1, 1998.  He also served as President and a Director of OM
Investors, Inc. ("OM") from October 17, 1994 until December 15, 1995.  He was
also appointed as the Manager of OM Operating, L.L.C. ("Operator") on April 15,
1998.  Mr. Akmon has been involved in the gaming and resort industries for
approximately 25 years.  Prior to his affiliation with the Company, Mr. Akmon
owned his own consulting firm for approximately 14 months and provided
consulting services in the gaming industry and general business area.  Prior to
that he was Chief Financial Officer of the Dunes Hotel & Country Club in Las
Vegas, Nevada, for nine months, Chief Financial Officer and Director of
Operations for Windmill Harbour Co., a resort community in Hilton Head, South
Carolina, for two and one-half years, Vice President/General Manager of Harbour
Town Resorts, a resort in Hilton Head, South Carolina, for two and one-half
years, and Chief Financial Officer of Sea Pines Resorts in Hilton Head, South
Carolina, for one year.  He also served as Controller of Harrah's Resort in
Reno/Lake Tahoe from February 1972 through November 1983.  Mr. Akmon is a
graduate of California State University with a B.A. in Economics.

       RON BLAYLOCK.  Mr. Blaylock served as the President of I.T. Cruise, Inc.
("I.T. Cruise") from June 1993 until October 1997 and has served as Chairman
since June 1993.  He has also served as Chairman of GalaxSea Cruises and Tours,
Inc. ("GalaxSea") since October 1995, and served as President of GalaxSea from
October 1995 until September 1996.  He has been the President of International
since 1970 and the President of ITFC since 1986.

       TED C. PARKER, JR.  Mr. Parker has served as President of both GalaxSea
and I.T. Cruise since October 1997 and as Vice President of International since
November 1995.  He was Vice President and a Director of both GalaxSea and I.T.
Cruise from November 1995 until October 1997.  He was a consultant for
International and the Company from October 1994 until October 1995, and served
as President of Western Natural Gas Company (the Company's predecessor) from
January 1986 until October 1994.  Mr. Parker holds an undergraduate degree from
Vanderbilt University and is a graduate of the Southern Methodist University
School of Law.

       During 1997, the Board of Directors held two meetings.  The Company has
an Audit and Compliance Review Committee, but does not have a nominating or
compensation committee or any committee performing similar functions.

       The Audit and Compliance Review Committee presently consists of Daryl N.
Snadon.  This Committee is responsible for serving in an oversight and
supervisory capacity in the areas of accounting, auditing, licensing and
statutory and regulatory compliance.  The Committee was appointed in November
1994 but did not hold a meeting in 1997.

       Non-officer directors of the Company were paid a fee of $1,250 during
1997 for serving as a director, plus $500 for each meeting of the Board
attended.  In addition, the Company reimburses the directors for their expenses
(if any) incurred in connection with their duties as directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

       Based solely upon a review of Forms 3, 4 and 5 furnished to the Company
pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934
(the "Exchange Act"), or upon written representations received by the Company,
the Company is not aware of any failure by any officer, director or beneficial
owner of 

                                      -2-
<PAGE>
 
more than 10% of the Company's Common Stock to timely file with the Securities
and Exchange Commission any Form 3, 4 or 5 relating to 1997.

ITEM 10.  EXECUTIVE COMPENSATION

       The following table sets forth the compensation paid by the Company for
services rendered during the fiscal years ended December 31, 1997, 1996 and
1995, and the number of options granted, to the Chief Executive Officer of the
Company and the other executive officer named below, and the value of the
unexercised options held by such Chief Executive Officer and the other executive
officer named below on December 31, 1997:

<TABLE> 
<CAPTION> 
                              SUMMARY COMPENSATION TABLE
                                                                  Long Term
                                           Annual                Compensation-
   Name and                              Compensation             Securities             All
   Principal                         --------------------         Underlying            Other
   Position                   Year   Salary         Bonus     Options or Warrants    Compensation
--------------------          ----   ------        ------     -------------------    ------------ 
<S>                           <C>    <C>           <C>        <C>                    <C>
Lamar E. Ozley, Jr.,          1997  $ 78,125       $  -          $   -                   $   -
 Chief Executive              1996    75,000          -              -                       -
  Officer/(1)/                1995    78,606          -              -                       -
 
George J. Akmon               1997   145,000          -              -                      472/(2)/
 Executive Vice               1996   130,000        5,000         500,000                 2,606/(2)/
 President,                   1995   131,250          -              -                    1,706/(2)/
 Chief Operating
 Officer, Secretary,
 Treasurer and Chief
 Financial Officer
</TABLE>

------------------

(1)  Mr. Ozley resigned as the Chief Execute Officer of the Company effective
     January 1, 1998.

(2)  Includes $2,100 and $1,200 in rent subsidy in 1996 and 1995, respectively,
     and $472 in 1997 and $506 in 1996 and 1995 for life insurance premiums on
     the 20% portion of a key-man life insurance policy for which Mr. Akmon's
     estate is the beneficiary.

--------------------

                                      -3-
<PAGE>
 
                            OPTION/SAR GRANT TABLE
                (OPTION/WARRANT/SAR GRANTS IN LAST FISCAL YEAR)


<TABLE>
<CAPTION>
                       Number of
                       Securities    Percent of
                       Underlying      Total
                       Options or  Option/Warrant                Market Price
                        Warrants     Granted to    Exercise or      on Date
                        Granted     Employees in    Base Price     of Grant     Expiration
        Name               #        Fiscal Year       ($/Sh)        ($/Sh)         Date
---------------------  ----------  --------------  ------------  -------------  ----------
<S>                    <C>         <C>             <C>           <C>            <C> 
Lamar E. Ozley, Jr.        -             -            $ -           $  -            -
George J. Akmon            -             -              -              -            -
</TABLE>

             AGGREGATED OPTION/WARRANT/SAR EXERCISES IN LAST FISCAL
                       YEAR AND FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                        Value of
                                                                      Unexercised
                        Shares               Number of Securities     In-the-Money
                       Acquired             Underlying Unexercised  Options/Warrants/
                          on       Value    Options/Warrants/SARs     SARs at 1997
                       Exercise   Realized    at 1997 FY-End(1)          FY-End
        Name               #         $                #                     $
---------------------  ---------  --------  ----------------------  -----------------
<S>                    <C>        <C>       <C>                     <C> 
Lamar E. Ozley, Jr.      None       None                  -                $ -

George J. Akmon          None       None            710,000/(1)/             -/(1)/
</TABLE>

----------------------

(1)  All options are vested.  Value is based on the closing bid price of
     $0.03125 per share on December 31, 1997.  None of the options were in-the-
     money on December 31, 1997.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       The following table sets forth certain information regarding the
ownership of Common Stock, Class A Preferred Stock and Series B Preferred Stock
as of April 30, 1998, by each stockholder known to the Company to own
beneficially more than five percent of the outstanding Common Stock or Class A
or Series B Preferred Stock, each current director, and all executive officers
and directors of the Company as a group, based on information provided to the
Company by such persons.  Except as otherwise stated, each such person has sole
investment and voting power with respect to the shares set forth in the table:

                                      -4-
<PAGE>
 
<TABLE>
<CAPTION>
                                      Class A and Series B
                                        Preferred Stock                                   Common Stock
                                     ---------------------------  -----------------------------------------------------------  
                                                                                           Number of Shares-
                                                                                              Assuming Full
                                                        Percent                               Conversion of
                                          Number           of         Number               Class A and Series B
    Name and Address                        of          Class or        of                   Preferred Stock
    of Beneficial Owner                   Shares         Series       Shares      Percent  by All Holders/(1)/   Percent/(1)/
-----------------------------------  -----------------  --------  --------------  -------  --------------------  ------------
                                      Series B Preferred Stock/(2)/
                                     ------------------------------
<S>                                  <C>                <C>       <C>             <C>      <C>                   <C>
International Tours, Inc. /(3)/           3,096,000      100.0       8,838,106      35.4            17,386,960          41.6     
  13150 Coit Road                                                                                                              
  Suite 125                                                                                                                    
  Dallas, Texas 75240                                                                                                          
I.T. Financial Corporation/(3)/           3,096,000      100.0       9,030,432      36.1            17,579,286          42.1     
 13150 Coit Road                                                                                                               
 Suite 125                                                                                                                     
 Dallas, Texas 75240                                                                                                           
Hawes Partners/(3)/                       3,096,000      100.0       9,030,432      36.1            17,578,716          42.1     
 Shangri-La Vista Tower                                                                                                        
 Route 3                                                                                                                       
 Afton, Oklahoma 74331                                                                                                          
E.H. Hawes, II/(3)/                       3,096,000      100.0       9,032,776      36.1            17,581,620          42.1     
  Shangri-La Vista Tower                                                                                                       
  Route 3                                                                                                                      
  Afton, Oklahoma 74331                                                                                                        
A. Keith Weber/(3)/                       3,096,000      100.0       9,124,161      36.5            17,673,015          42.3     
  2411 W. 59th Street                                                                                                          
  Mission Hills, Kansas 66208                                                                                                  
Ron Blaylock/(3)/                         3,096,000      100.0       9,036,266      36.1            17,585,120          42.1     
  13150 Coit Road                                                                                                              
  Suite 125                                                                                                                    
  Dallas, Texas 75240                                                                                                          
                                      Class A Preferred Stock/(4)/
                                      ----------------------------
Lamar E. Ozley, Jr.                         249,356       19.4      1,136,494/(5)/   4.5             2,732,992/(5)/      6.5     
  6306 Mill Point Circle                                                                                                       
  Dallas, Texas  75248                                                                                                         
Donald I. Williams                          128,700/(6)/  10.0      1,729,000/(6)/   8.6             2,553,000/(6)/      6.1     
P. & J. Williams, L.L.C.                                                                                                       
  903 East Main                                                                                                                
  New Roads, Louisiana  70760                                                                                                  
J. Larry Jordan                             127,928        9.9        776,000        3.9             1,595,057           3.8     
  206 Woodlawn                                                                                                                 
  Haynesville, Louisiana  71038                                                                                                
D.W. Morton, Ltd./(7)/                      178,893       13.9      1,355,439        6.7             2,497,909           6.0     
Delwin W. Morton                                                                                                               
Brevely G. Morton                                                                                                              
  777 #. 15th Street                                                                                                           
  Plano, Texas 75074                                                                                                          
Loy F. Weaver                               152,510       11.9        839,945        4.2             1,816,388           4.3     
  c/o Homer National Bank                                                                                                      
  P. O. Box 689                                                                                                                
  Homer, Louisiana 71040                                                                                                       
Daryl N. Snadon/(8)/                              -         -         535,673        2.7               535,673           1.3     
  15280 Addison Rd., Ste 300                                                                                                   
  Dallas, Texas  75248                                                                                                         
</TABLE> 

                                      -5-
<PAGE>
 
<TABLE>
<CAPTION>
                                      Class A and Series B
                                        Preferred Stock                                   Common Stock
                                     ---------------------------  -----------------------------------------------------------  
                                                                                           Number of Shares-
                                                                                              Assuming Full
                                                        Percent                               Conversion of
                                          Number           of         Number               Class A and Series B
    Name and Address                        of          Class or        of                   Preferred Stock
    of Beneficial Owner                   Shares         Series       Shares      Percent  by All Holders/(1)/   Percent/(1)/
-----------------------------------  -----------------  --------  --------------  -------  --------------------  ------------
<S>                                  <C>                <C>       <C>             <C>      <C>                   <C>
Richard P. Crane, Jr./(9)/                    -              -        785,556        3.8          785,556           1.9       
  530 Wilshire Blvd., Ste. 400                                                                                                 
  Santa Monica, California  90401                                                                                              
George J. Akmon/(10)/                         -              -        710,000        3.4          710,000           1.7        
  7308 Vineyard Dr.                                                                                                       
  Plano, Texas  75025                                                                                                     
All Executive Officers and            3,096,000/(2)(3)/  100.0     11,064,005       42.2       19,612,849          45.6   
  Directors as a Group
  (4 persons)/(8)(9)(10)/
</TABLE>

-----------------------
(1)  The Company has the right prior to June 10, 1998 to force conversion of the
     1,287,000 outstanding shares of Class A Preferred Stock.  The Company plans
     to exercise this right, but will be required to hold a stockholders'
     meeting to amend the Certificate of Incorporation to increase the number of
     authorized shares prior to such conversion.  Upon the Company's exercise of
     this right, the 1,287,000 shares of Class A Preferred Stock are convertible
     into 8,240,000 shares of Common Stock and International will receive an
     additional 5,452,854 shares of Common Stock pursuant to an anti-dilution
     agreement with the Company. See Item 12 - "Certain Relationships and
     Related Transactions -- Acquisition of GalaxSea and I.T. Cruise". For
     purposes of this column and the percentage ownership after conversion, the
     full 8,240,000 shares of Common Stock to be issued to the holders of Class
     A Preferred Stock upon conversion and the full 5,452,854 shares of Common
     Stock to be issued to International in accordance with its anti-dilution
     agreement are considered to be issued and outstanding.

(2)  Represents Series B Preferred Stock which votes with Common Stock and Class
     A Preferred Stock as one class.  Series B Preferred Stock is convertible
     into Common Stock at a rate of one share of Common Stock for one share of
     Series B Preferred Stock.

(3)  International Tours, Inc. ("International") owns 8,838,106 shares of Common
     Stock and 3,096,000 shares of Series B Preferred Stock of record and
     beneficially, and has the right to receive an additional 5,452,854 shares
     of Common Stock pursuant to an anti-dilution agreement with the Company if
     the Class A Preferred Stock is called for mandatory conversion.  I.T.
     Financial Corporation ("ITFC"), Edwin Hugh Hawes II, A. Keith Weber and Ron
     Blaylock own of record and beneficially 192,326, 2,334, 93,729 and 5,834
     shares of Common Stock, respectively.  Hawes Partners is a partnership one-
     third owned by each of Messrs. Hawes, Weber and Blaylock.  ITFC and Hawes
     Partners beneficially own approximately 49.38% and 48.14%, respectively, of
     the outstanding capital stock of International, and Hawes Partners
     beneficially owns approximately 65% of the outstanding capital stock of
     ITFC.  Consequently, the 8,838,106 shares of Common Stock and 3,096,000
     shares of Series B Preferred Stock owned of record and beneficially by
     International, and the 5,452,854 shares of Common Stock issuable to
     International under its anti-dilution agreement with the Company, may also
     be deemed to be beneficially owned by each of ITFC, Hawes Partners and
     Messrs. Hawes, Weber and Blaylock, and are reflected accordingly in the
     table above for their respective ownership positions.  Each of ITFC, Hawes
     Partners and Messrs. Hawes, Weber and Blaylock disclaim beneficial
     ownership of any of the other shares of the Company referenced in this note
     not owned of record by that person or entity.  Ted C. Parker, Jr., an
     officer of International and the President of GalaxSea and I.T. Cruise,
     owns 1,243,335 shares of Common Stock of record and beneficially.  Mr.
     Parker's shares are not included in the table above for the ownership
     positions of International, ITFC, Hawes Partners or Messrs. Hawes, Weber
     and Blaylock, and each of such persons and entities disclaims beneficial

                                      -6-
<PAGE>
 
     ownership of Mr. Parker's shares, and Mr. Parker disclaims beneficial
     ownership of any of the shares owned by any of such persons or entities.

(4)  Represents Class A Preferred Stock which votes with Common Stock and Series
     B Preferred Stock as one class.  The 1,287,000 outstanding shares of Class
     A Preferred Stock are convertible into 8,240,000 shares of Common Stock if
     called for mandatory conversion by the Company prior to June 10, 1998.  As
     noted in Note (1) above, the Company plans to exercise its right to force
     conversion prior to June 10, 1998.

(5)  Includes 12,000 shares owned of record and beneficially by Mr. Ozley's
     spouse, and 100,000 shares owned of record by his spouse as custodian for
     their minor son under the Uniform Transfer to Minors Act.  Mr. Ozley
     disclaims beneficial ownership of these 112,000 shares.

(6)  The Class A Preferred Stock is owned of record and beneficially by Mr.
     Williams and the Common Stock is owned of record and beneficially by P. &
     J. Williams, L.L.C., a limited liability company for which Mr. Williams
     serve as sole manager and owns 1% and his two adult daughters own 49% each
     and his wife owns 1%.  Mr. Williams may direct the voting, or share in the
     direction of the voting, of these shares and, therefore, is deemed to
     beneficially own these shares.  Also includes 450,000 shares of Common
     Stock owned of record by New Orleans Video Poker, Inc., a corporation 50.1%
     owned by Mr. Williams and his wife, and for which they serve as the sole
     directors and Mr. Williams serves as President and Secretary.

(7)  D. W. Morton, Ltd. is a Texas limited partnership for which Delwin W.
     Morton and his wife, Brevely G. Morton, serve as general partners.  D.W.
     Morton, Ltd. owns of record and beneficially 115,830 shares of Class A
     Preferred Stock and 868,500 shares of Common Stock.  Mr. and Mrs. Morton
     may direct the voting, or share in the direction of the voting, of these
     shares and, therefore, are deemed to beneficially own these shares with D.
     W. Morton, Ltd.   Mrs. Morton owns of record and beneficially 63,063 shares
     of Class A Preferred Stock and 485,494 shares of Common Stock.  Mr. Morton
     and D.W. Morton, Ltd. disclaim beneficial ownership of the shares owned by
     Mrs. Morton.

(8)  These shares are pledged as collateral on a note payable to Mr. Snadon's
     former wife.

(9)  Includes a vested option to acquire 500,000 shares.

(10) Constitutes vested options to acquire 710,000 shares.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Restructure of OM Operating, L.L.C.  Louisiana law requires a device
operator's license in order to own and operate truck stop video poker devices,
and further requires that a licensed device owner and operator be at least
majority owned by Louisiana residents.  Following the merger ("Merger") of the
Company and OM, there could be no assurance that the Company would be majority
owned by Louisiana residents, and if not, then OM would not be deemed majority
owned by Louisiana residents and would lose its device operator's license to
operate and manage its truck stop video poker casinos.  Consequently, on the
effective date of the Merger, OM contributed and assigned to OM Operating,
L.L.C. ("Operator") all of its rights, duties and obligations to operate OM's
existing video poker casinos and its tavern route, and Operator became the
licensed device operator.  Operator is a Louisiana limited liability company
organized by OM and Donald I. Williams ("Williams"), a former director and Vice
President of OM until the effective date of the Merger.  Operator is owned 51%
by Williams and 49% by the Company, as successor in merger to OM, and will exist
until the earlier of December 31, 2050 or the date that Operator no longer owns
or operates any video poker devices.

     In addition to contributing and assigning the right to operate the video
poker casino and tavern route operations to Operator, the Company, as successor
in merger to OM, also contributed and assigned all of its interest in 259 video
poker devices and related operating assets, subject to approximately $861,098 of
debt (as of the effective date of the Merger) which Operator agreed to pay.  In
each of 1995 and 1996, the Company contributed and assigned an additional 50
devices and related operating assets subject to approximately $91,100 and
$96,050 of debt, respectively, with respect to the Company's acquisition of
Ozdon Investments, Inc. and the sublease with New Orleans

                                      -7-
<PAGE>
 
Video Poker, Inc., and funded approximately $7,400 in leasehold improvements
during 1997. In exchange for its contributions and assignments, the Company was
entitled to a 49% net profits interest in Operator and a special gross income
allocation and distribution equal to 20% of the net revenues generated from
operation of the video poker devices. For this purpose, net revenues means total
money played in all devices, less all payout of winnings and less all gaming and
device taxes and fees payable to the State of Louisiana. Operator is responsible
for all operational costs and expenses of the video poker casinos and the tavern
route, including labor, maintenance, repair and its share of the rental or other
percentage fees payable to the owners of the truck stop facilities in which the
casinos are located pursuant to the contracts between the Company and such
owners, the casino operations portion of which were assigned by the Company to
Operator.

     Effective April 15, 1998, the Company and 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.  See Item 1 - "Description of Business -- License Renewal Process".
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.

                                      -8-
<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 her 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, 

                                      -9-
<PAGE>
 
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.

     Acquisition of Ozdon Investments, Inc.  On December 15, 1995 ("Closing"),
but to be effective November 1, 1995, the Company acquired 100% of the issued
and outstanding capital stock of Ozdon Investments, Inc. ("Ozdon") in exchange
for 600,000 shares of the Company's Common Stock and $1 million in principal
amount of Notes (the "Notes") payable by the Company to the shareholders of
Ozdon ("Shareholders"), which Notes bear interest at 9% per annum, are payable
in 36 equal monthly payments of principal and interest, and are secured by a
pledge of the net cash flow generated from the Gold Rush truck stop video poker
casino.  The acquisition price was based on a third party appraisal, utilizing a
discounted cash flow for a two year holding period.  Lamar E. Ozley, Jr., the
former President, Chief Executive Officer and Chairman of the Board of the
Company, owned 46.5% of the outstanding shares of Ozdon and his wife owned 2% of
such outstanding shares.  Donald I. Williams also owned 46.5% of the outstanding
shares of Ozdon, but transferred such shares to an affiliated limited liability
company prior to the Closing.  The Company agreed to dissolve and liquidate
Ozdon into the Company following Closing, and to distribute the assets used in
the gaming operations of Ozdon (including 50 gaming devices), subject to
liabilities of approximately $91,100, to Operator.  This distribution was made
effective as of the date of Closing, but the Company subsequently decided to
retain Ozdon as a wholly owned operating subsidiary and did not consummate the
dissolution. The Company also entered into a license with Operator pursuant to
which the Company gave Operator the right to operate the casino and lounge, and
the right to handle all sales of alcoholic beverages at the convenience store
and restaurant.  This license may be terminated by either the Company or
Operator upon 120 days' prior written notice to the other party.  Ozdon was the
original owner of The Gold Rush Truck Stop facility and video poker casino,
which opened for business on February 17, 1993.  Ozdon expended approximately
$411,640 to construct and equip the facility.

     In addition to licensing Operator to handle the sale of alcoholic beverages
at The Gold Rush, the Company has also licensed Operator to handle the sales of
alcoholic beverages in the convenience stores and restaurants of two other truck
stop facilities operated by the Company, both of which licenses may be
terminated by either the Company or Operator upon 120 days' prior written notice
to the other party.

     Sublease of the Diamond Jubilee.  Operator entered into a Sublease
Agreement (the "Casino Sublease") dated July 1, 1996 with New Orleans Video
Poker, Inc. ("NOVP"), a Louisiana corporation 50.1% owned by Donald I. Williams
and his spouse and 29.5% owned by nine other stockholders of the Company,
pursuant to which Operator operates The Diamond Jubilee truck stop video poker
casino in New Orleans, Louisiana.  NOVP, through various agreement with third
parties, manages the truck stop and related fuel operations and the restaurant.
NOVP leases the truck stop operations and the video poker casino from Stanley
Doussan ("Doussan") pursuant to a Lease Agreement, Addendum to Lease and
Sublease and Operator's Agreement dated July 10, 1992, as amended by an
Amendment to Lease and Addendum to Lease dated December 15, 1992 (collectively,
the "Operator's Agreements").  The Operator's Agreements give NOVP the right to
lease and operate the truck stop and video poker casino for a period of 10 years
(commencing January 1, 1993).  NOVP is required to pay rent to Doussan equal to
50% of the net receipts from the video poker devices (except for the first three
years Doussan agreed to reduce it to 40% unless NOVP recouped $300,000 of its
constructions costs prior to the end of such three year period).  Net receipts
are defined to mean all money played in the devices less winnings paid out and
any tax or franchise fee payable to the state.  NOVP is also required to pay an
escalating fixed monthly rental, which is currently $3,962 per month and
escalates to $4,837 per month for the last year of the term of the Operator's
Agreements.  Under the terms of the Casino Sublease, which was consented to by
Doussan, Operator leases the video poker casino, bar, related parking area and
one gasoline pump for a term of one year, subject to automatic renewal for
successive one year periods at Operator's sole discretion, with a maximum of 30
one year renewals, provided NOVP can terminate the Casino Sublease at any time
if the sublease payments to it fall below $5,000 per month after payment by
Operator of various indebtedness assumed by it. Operator agreed to pay rent to
NOVP during the term of the Casino Sublease equal to 50% of the net operating
cash flow of Operator from operations of the casino, after deducting all costs
and expenses of operations, interest and principal on indebtedness for
furniture, fixtures or equipment, and a reasonable reserve.  Operator assumed

                                      -10-
<PAGE>
 
approximately $53,000 of indebtedness of NOVP as the purchase price for 50 video
poker devices and an automated teller machine.  Operator also has an option to
sublease the truck stock and fuel operations and restaurant and purchase NOVP's
50% share of net operating cash flow.  The Company also issued 450,000 shares of
Common Stock to NOVP as partial consideration for NOVP entering into the Casino
Sublease, and granted piggy-back and demand registration rights to NOVP expiring
July 1, 1998.

     Acquisition of GalaxSea and I.T. Cruise.  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 to
International 4,934,106 shares of Common Stock and 8,000,000 shares of 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 where mandated by law).  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%.  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.

     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.  As of December 31,
1997, the Company was 14 principal payments in arrears (a total of $470,673 in
principal is past due; interest has not been paid since November 1, 1997, and an
aggregate of $17,398 in interest is past due), and 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 avaiable
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 subordinanted debentures issued by the Company in connection with the
redemption of 313,000 shares of Class A Preferred Stock.  As of April 1, 1998,
12 monthly payments, for a total of $313,776, have not been made pursuant to the
subordinated debendtures.  The subordinated debentures and the amounts unpaid
are expressly made suborinate to the International note as well as other senior
debt of the Company.

     Lamar E. Ozley, Jr. is a Class A Preferred Stockholder and was issued a
subordinated debenture in the original principal amount of $181,931.25 for the
redemption of 60,644 shares of Class A Preferred Stock owned by him.

     Overhead Sharing Agreement.  The Company and International have agreed to
an overhead sharing arrangement pursuant to which the Company subleases
approximately 2,015 square feet of office space to International in the
Company's principal executive offices for a monthly rental of $1,595, and
reimburses International for the portion of the salaries of International's
employees attributable to services performed by them for GalaxSea and I.T.
Cruise. During 1997 and 1996, the Company paid $111,000 and $105,000,
respectively, in salary and employee reimbursements to International, and
International paid $19,140 in rent to the Company.  In 1997, the Company
performed certain accounting services for International and was paid $13,000.

                                      -11-
<PAGE>
 
     Guarantees of Certain Stockholders.  Eight stockholders of OM agreed to
guarantee repayment of certain bank indebtedness of OM in varying amounts.
Lamar E. Ozley, Jr., J. Larry Jordan and Loy F. Weaver have jointly and
severally guaranteed repayment of $1,350,000 of OM's bank debt, which was
assumed by Operator at the effective date of the Merger, and which had an
outstanding principal balance of $828,625 as of December 31, 1997. None of the
shareholders receives compensation from the Company for such guarantees, and the
guarantees are not secured by a pledge of any assets of the Company.

     Consulting Agreement.  On May 16, 1997 (but to be retroactive to January 1,
1997), the Company entered into a Consulting Agreement with E.H. Hawes, II,
pursuant to which the Company paid Mr. Hawes $6,250 per month for providing
various consulting services to the Company.  This Consulting Agreement was
terminated effective January 14, 1998 after Mr. Hawes was appointed Chairman of
the Board, President and Chief Executive Officer of the Company.

                                      -12-
<PAGE>
 
                                  SIGNATURES


In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Act"), and Rule 12b-15 promulgated thereunder, the Company has duly caused
this Amendment No. One to its Annual Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                    NORTH AMERICAN GAMING
                                    AND ENTERTAINMENT CORPORATION


April 30, 1998                      By:      /s/ George J. Akmon
                                        -------------------------------

                                        George J. Akmon,
                                        Executive Vice President,
                                        Chief Financial Officer and Treasurer
                                        (Principal Financial and
                                        Accounting Officer)

                                      -13-