<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
March 31, 1998
(Date of earliest event reported)
Trans World Gaming Corp.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 0-25244 13-3738518
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
One Penn Plaza, Suite 1503 New York, New York 10119-0002
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 563-3355
--------------
(Registrant's telephone number, including area code)
Not Applicable
---------------
(Former name, former address and former fiscal year, if changed
since last report)
Page 1 of 33 Pages
Exhibit Index appears on Page 5
<PAGE>
ITEM 2. ACQUISITION AND DISPOSITION OF ASSETS
On March 31, 1998, Trans World Gaming Corp. ("TWG" or the "Company"),
acquired substantially all of the voting and non-voting ownership interests of
21st Century Resorts a.s., a Czech Republic joint stock company ("Resorts") and
Resorts' subsidiaries, LMJ Casino Rozvadov a.s., a Czech Republic joint stock
company ("LMJCR"), LMJ Slots s.r.o., a Czech Republic limited liability company
("LMJS") and Atlantic Properties s.r.o., a Czech Republic limited liability
company ("Atlantic") and certain assets of Gameway Leasing Limited, a Gibraltar
company limited by shares ("Gameway") and Monarch Leasing Limited, a Gibraltar
company limited by shares ("Monarch"). The underlying assets acquired primarily
included the voting and non-voting shares of Resorts, LMJCR, LMJS and Atlantic,
contract rights, land, furniture, fixtures, gaming equipment and inventories,
while the primary liabilities assumed included accounts payable and accrued
liabilities related to the ongoing business. The net purchase price for the
acquisition was U.S.$10,340,685.59. The Company obtained the funds for the
acquisition through various financial arrangements, described below.
Prior to the date of the acquisition and subsequent thereto, Resorts,
LMJCR, LMJS and Atlantic were, and continue to be, engaged in the business of
casino gaming in Ceska Kubice and Rozvadov, Czech Republic, and Resorts owns the
land and rights to build a third casino thereon in Znojmo, Czech Republic.
Gameway and Monarch were engaged in the leasing of casino equipment and
providing certain management services to Resorts, LMJCR, LMJS and Atlantic. The
Company has taken over all such operations of Resorts, LMJCR, LMJS and Atlantic
and the assets of Gameway and Monarch.
On March 31, 1998, the Company, with the assistance of Libra Investments,
Inc., Los Angeles, California, acting as placement agent ("Libra"), borrowed
$17.0 million from fourteen sophisticated, accredited investors (the
"Investors") in a private placement. (See Exhibits 2(ii) and 2(iii)). The loan
is represented by 12% Senior Secured Notes (the "Notes") issued pursuant to an
indenture by and among TWG, TWG International U.S. Corporation ("TIUC"), TWG
Finance Corp. ("TFC") (both wholly owned subsidiaries of TWG) and U.S. Trust
Company of Texas, N.A., acting as indenture trustee (the "Indenture Trustee")
(See Exhibit 4(i)). TIUC was recently organized by the Company to hold the
equity interests of Resorts and its subsidiaries and TFC was recently organized
to act as a financing and collateral vehicle for the Investors in order to
facilitate the collateralization of the loan under Czech law (a separate
indenture was entered into between TIUC and the Indenture Trustee pursuant to
which TFC holds a $17.0 million note which represents the same, and not
additional, debt as represented by the Notes. The Notes are secured directly by
a pledge of all of the stock of TIUC and TFC and indirectly by a pledge of 66%
of the stock of certain of TIUC's subsidiaries, including Resorts. See Exhibit
4(iii)). The Notes accrue interest and are payable semi-annually, mature on
March 17, 2005 and rank PARI PASSU with the Company's other outstanding
unsecured and unsubordinated indebtedness. The Notes also require mandatory
prepayments based upon excess cash flow generated by TIUC from the operation of
the Czech casinos.
In addition to the Notes, each Investor received a proportionate share of
warrants to purchase approximately 7.1 million shares of TWG common stock (the
"Warrants"), representing 40% of the Company's fully diluted outstanding common
stock. The Warrants have an exercise price of $.01 per share and expire on
March 31, 2008 (See Exhibit 4(ii)). The proceeds of the private placement were
used to acquire the equity interests described above and will be used to fund
improvements in the existing casinos and fund plans for the development of a
casino on the Znojmo property (together, $12.6 million), retire a promissory
note ($1.3 million), pay the fees and expenses of the private placement ($1.4
million, including $703,088 to Libra in cash plus warrants to acquire 354,374
shares at $.01 per share to expire on March 31, 2008; see Exhibit 4(x)); and for
working capital ($2.0 million). The indenture contains significant financial
and other restrictive covenants relating to the business of TWG and TIUC.
As a condition to the private placement, TWG was required to renegotiate
the terms and conditions of the $4.8 million Secured Convertible Senior Bonds
(the "Senior Bonds") due June 30, 1999. On March 25, 1998, the Company and the
holders of the Senior Bonds agreed to amend such indebtedness to provide: (i)
the principal and interest obligations will be payable only from excess cash
flow generated primarily from the
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<PAGE>
Louisiana operations and secondarily from the Bishkek operations; (ii) the
maturity date was extended to December 31, 2005; (iii) the ability to convert
the Senior Bonds into TWG common stock at $2.50 per share through June 30, 1998
and at $3.125 per share from July 1, 1998 to June 30, 1999 was terminated; and
(iv) the holders of the Senior Bonds received warrants replacing the outstanding
warrants and warrants issued in consideration of the termination of the
conversion rights to purchase, in the aggregate, 4,160,000 shares of TWG common
stock at an exercise price of $1.00 and $1.50 per share, respectively, to expire
on December 31, 2005 (See Exhibits 4(v), 4(vi) and 4(vii)).
On March 25, 1998, the Company also renegotiated the terms of certain
warrants to purchase 499,895 shares of TWG common stock owned by Mr. Christopher
P. Baker and certain of his affiliates ("Baker"). In consideration of the
elimination of certain anti-dilution provisions in said warrants, the Company
issued to Baker amended warrants to purchase 2,051,912 shares of TWG common
stock at $.01 per share (such warrants include, and are not in addition to, the
original warrants to purchase 499,895 shares of TWG common stock) which warrants
expire on June 30, 2002 (See Exhibits 4(viii) and 4(ix)).
Other than this transaction, prior to the closing thereof, there was no
material relationship between the Company and Resorts or any of the Company's or
Resorts' affiliates.
(The descriptions of the agreements set forth above are, by necessity, only
summaries thereof and do not purport to be complete. Reference is made to the
full texts of such agreements attached hereto as Exhibits.)
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The following financial statements, pro forma financial information and exhibits
are filed as part of this report.
(a) Financial Statements of the business acquired, prepared pursuant to
Regulation S-B and provided to Trans World Gaming Corp. by 21st
Century Resorts Group.
Item Page
---- ----
Report of Lubbick File, Certified Public Accountants 9
Consolidated Balance Sheets for the years ended December 31, 11
1997 and 1996 and unaudited for the interim three-month
period ended March 31, 1998
Consolidated Statement of Operations for the years ended 12
December 31, 1997 and 1996 and unaudited for the interim
three-month period ended March 31, 1998
Consolidated Statement of Shareholders' equity for the years 13
ended December 31, 1997 and 1996 and unaudited for the three
month period ended March 31, 1998
Consolidated Statement of Cash Flows for the years ended 14
December 31, 1997 and 1996 and unaudited for the interim three-
month period ended March 31, 1998
Notes to the Consolidated Financial Statements 15-29
(b) Pro forma financial statements required pursuant to
Regulation S-B
Item
----
Trans World Gaming Corp. and 21st Century Resorts Group 30
Pro Forma Condensed Combined Financial Statements (Unaudited)
Pro Forma Condensed Combined Statement of Operations - Year 31
Ended December 31, 1997 (Unaudited)
Pro Forma Condensed Combined Statement of Operations - Three- 32
Months ended March 31, 1998 (Unaudited)
Notes to Pro Forma Condensed Combined Financial Statements 33
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<PAGE>
Exhibits:
Exhibit Number Description
-------------- -----------
2(i) Stock Purchase Agreement by and among Trans World
Gaming Corp., 21st Century Resorts a.s., Gameway
Leasing Limited, Monarch Leasing Limited and the Named
Individuals dated January 20, 1998 (incorporated by
reference to Exhibit 10.30 of the Company's Form 10-KSB
filed with the Securities and Exchange Commission on
March 31, 1998).
2(ii) Form of Subscription Agreement by and among Trans World
Gaming Corp., TWG International U.S. Corporation, TWG
Finance Corp. and a named investor dated March 16, 1998
(incorporated by reference to Exhibit 10.31 of the
Company's Form 10-KSB filed with the Securities and
Exchange Commission on March 31, 1998).
2(iii) Escrow Agreement by and among U.S. Trust Company of
Texas, N.A., Trans World Gaming Corp., TWG Finance
Corp. and TWG International U.S. Corporation dated
March 17, 1998 (incorporated by reference to Exhibit
10.32 of the Company's Form 10-KSB filed with the
Securities and Exchange Commission on March 31, 1998).
4(i) Indenture by and among Trans World Gaming Corp., TWG
International U.S. Corporation, TWG Finance Corp. and
U.S. Trust Company of Texas, N.A. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(ii) Form of Series C Warrant to Purchase Common Stock of
Trans World Gaming dated March 31, 1998. (Incorporated
by reference to the Company's Current Report Form 8-K
filed with the Securities and Exchange Commission on
April 14, 1998.)
4(iii) Indenture by and between TWG International U.S.
Corporation and U.S. Trust Company of Texas, N.A. dated
March 31, 1998. (Incorporated by reference to the
Company's Current Report Form 8-K filed with the
Securities and Exchange Commission on April 14, 1998.)
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
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<PAGE>
Exhibit Number Description
-------------- -----------
4(iv) Form of Consent to Amend Indenture, Bonds and Warrants
by and among Trans World Gaming Corp., Trans World
Gaming of Louisiana, Inc., U.S. Trust Company of Texas,
N.A. and a named holder dated March 25, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(v) First Amended Indenture by and among Trans World Gaming
Corp., Trans World Gaming of Louisiana, Inc. and U.S.
Trust Company of Texas, N.A. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(vi) Form of Series A Warrant to Purchase Common Stock of
Trans World Gaming Corp. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(vii) Form of Series B Warrant to Purchase Commons Stock of
Trans World Gaming Corp. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(viii) Form of Agreement to Amend Warrants by and between
Trans World Gaming Corp. and a named holder dated March
25, 1998. (Incorporated by reference to the Company's
Current Report Form 8-K filed with the Securities and
Exchange Commission on April 14, 1998.)
4(ix) Form of Series D Warrant to Purchase Common Stock of
Trans World Gaming Corp. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
4(x) Form of Series E Warrant to Purchase Common Stock of
Trans World Gaming Corp. dated March 31, 1998.
(Incorporated by reference to the Company's Current
Report Form 8-K filed with the Securities and Exchange
Commission on April 14, 1998.)
20(i) Press Release issued by the Company on January 20, 1998
with respect to the Agreement. (Incorporated by
reference to the Company's Current Report Form 8-K
filed with the Securities and Exchange Commission on
April 14, 1998.)
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<PAGE>
Exhibit Number Description
-------------- -----------
20(ii) Press Release issued by the Company on April 1, 1998
with respect to the Closing. (Incorporated by reference
to the Company's Current Report Form 8-K filed with the
Securities and Exchange Commission on April 14, 1998.)
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANS WORLD GAMING CORP.
Date: June 14, 1998 By: /s/ Dominick J. Valenzano
-------------------------
Dominick J. Valenzano
Chief Financial Officer
-8-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of 21st Century Resorts a.s.:
We have audited the accompanying consolidated balance sheets of 21st Century
Resorts a. s., (a Czech joint stock company) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of 21st
Century Resorts a.s. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles in the United
States (Note 2).
LUBBOCK FINE s.r.o.
Prague, Czech Republic
Date of their last report
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<PAGE>
21ST CENTURY RESORTS GROUP
CONSOLIDATED FINANCIAL STATEMENTS
PREPARED IN ACCORDANCE WITH US GAAP
AS OF MARCH 30, 1998, DECEMBER 31, 1997 AND 1996
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<PAGE>
21st CENTURY RESORTS GROUP
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 30, 1998 AND DECEMBER 31, 1997 AND 1996
(Czech Crowns - CZK Thousands)
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents 8,305 19,991 23,806
Accounts receivable 1,485 2,153 5,333
Allowance for doubtful accounts (1,007) (1,007) (1,007)
Inventories, net 570 722 438
Prepaid expenses and other current assets 1,574 2,615 5,917
-------------- ---------- ----------
TOTAL CURRENT ASSETS 10,927 24,474 34,487
Property, plant and equipment, net 63,520 58,889 32,716
Goodwill and intangible assets, net 754 836 47
Other financial investments 5,932 7,055 6,163
-------------- ---------- ----------
TOTAL ASSETS 81,133 91,254 73,413
-------------- ---------- ----------
-------------- ---------- ----------
CURRENT LIABILITIES:
Accounts payable 20,784 31,715 15,216
Short term debt 10,738 13,683 10,776
Accrued expenses - 1,382 1,785
Short-term portion of capital lease obligation 6,090 7,115 5,372
Other current liabilities 5,273 264 7,500
Taxes payable 10,878 11,543 6,309
-------------- ---------- ----------
TOTAL CURRENT LIABILITIES 53,763 65,702 46,958
Long-term debt - - 7,516
Long-term portion of capital lease obligation 6,061 7,527 14,199
-------------- ---------- ----------
TOTAL LIABILITIES 59,824 73,229 68,673
STOCKHOLDERS' EQUITY:
Share capital 23,533 23,533 23,533
Accumulated deficit (2,224) (5,508) (18,793)
-------------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 21,309 18,025 4,740
-------------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 81,133 91,254 73,413
-------------- ---------- ----------
-------------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
21st CENTURY RESORTS GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 1998 AND THE
YEARS ENDED DECEMBER 31, 1997 AND 1996
(Czech Crowns - CZK Thousands)
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Casino revenues 50,862 172,340 124,845
COSTS AND EXPENSES:
Casino (31,855) (111,175) (91,548)
Repair and maintenance (314) (828) (352)
Provisions, net 152 - -
General and administrative (3,644) (9,637) (1,446)
Depreciation and amortization (3,296) (14,351) (7,730)
Other operational expense (1,379) (3,008) (2,439)
-------------- ---------- ----------
Total Cost and Expenses (40,336) (138,999) (103,515)
-------------- ---------- ----------
OPERATING INCOME 10,526 33,341 21,330
OTHER INCOME AND (EXPENSE):
Interest expense, net (1,039) (7,480) (9,749)
FX losses realized, net (2,734) (4,401) (371)
Other expense (522) 544 (23,493)
-------------- ---------- ----------
Total Other Income and (Expense) (4,295) (11,337) (33,613)
-------------- ---------- ----------
INCOME (LOSS) BEFORE TAXES 6,231 22,004 (12,283)
Provision for income taxes (2,947) (8,719) (5,045)
-------------- ---------- ----------
NET INCOME (LOSS) 3,284 13,285 (17,328)
-------------- ---------- ----------
-------------- ---------- ----------
Net income (loss) per share 0,140 0,565 (0,736)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
21st CENTURY RESORTS GROUP
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 30, 1998 AND THE
YEARS ENDED DECEMBER 31, 1997 AND 1996
(Czech Crowns - CZK Thousands)
BALANCE, JANUARY 1, 1996 22,068
Net Loss (17,328)
------------
BALANCE, DECEMBER 31, 1996 4,740
Net Income 13,285
------------
BALANCE, DECEMBER 31, 1997 18,025
Net Income 3,284
------------
BALANCE, MARCH 30, 1998 21,309
------------
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
21st CENTURY RESORTS GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 1998 AND THE
YEARS ENDED DECEMBER 31, 1997 AND 1996
(Czech Crowns - CZK Thousands)
<TABLE>
<CAPTION>
March 30, 1998
(Unaudited) 1997 1996
--------------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 3,284 13,285 (17,328)
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,296 14,351 7,730
Decrease in receivables 668 3,181 16,362
Increase (decrease) in other current assets 1,193 3,019 292
Increase (decrease) in accounts payable and accrued
expenses (11,940) 18,744 (34,708)
--------------- ---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES (3,499) 52,580 (27,652)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,844) (41,315) (1,138)
Proceeds from sales of other equity investments 1,123 (892) 14,562
--------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES (6,721) (42,207) 13,424
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease in long-term liabilities) (1,466) (14,188) 13,277
--------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES (1,466) (14,188) 13,277
CASH AND CASH EQUIVALENTS
Increase (decrease) for the year (11,686) (3,815) (951)
Balance, beginning of year 19,991 23,806 24,757
Balance, end of year 8,305 19,991 23,806
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest, net of amounts capitalized - (2,977) (2,235)
Income taxes (2,420) (3,087) (309)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
21st CENTURY RESORTS GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN CZK THOUSANDS)
1 ORGANIZATION AND PRINCIPAL ACTIVITIES
21st Century Resorts a. s., is a Czech Republic joint stock company, which was
established as of 22 September 1995 with the legal site in Ceska Kubice, Czech
Republic. The Company and its subsidiaries (the Company) operate two casinos in
the Czech Republic. The Group is also engaged in the operation of slot machines
and other entertainment.
The principal activities of individual subsidiaries and associates are disclosed
in note 7.
At March 30, 1998 the Company was acquired by Trans World Gaming Corp., a United
States corporation.
2 SIGNIFICANT ACCOUNTING POLICIES
a) Basis of accounting
The consolidated financial statements have been prepared from the records
originating and maintained in the Czech Republic. The accounting principles
followed in these records are those required by Czech law. The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America (US
GAAP). They have been prepared by restating the Company's local consolidated
financial statements, as of and for the three months ended March 30, 1998 and
the years ended December 31, 1997 and 1996. A reconciliation between Czech
accounting principles US GAAP is shown at note 12.
b) Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All material intercompany balances and transactions have
been eliminated. Investments in 50% or less owned entities over which the
Company has the ability to exercise significant influence are accounted for
using the equity method.
c) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in its consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
d) Revenue recognition
The Company recognizes as casino revenues the net win from gaming activities,
which is the difference between gaming wins and losses. Revenues include the
estimated retail value of food and beverage and other goods and services
provided to customers on a complimentary basis.
e) Cash and Cash Equivalents
Cash and Cash Equivalents consists of cash in banks and on hand. The Company
classifies as cash equivalents all highly liquid debt instruments with a
maturity of three months or less when purchased. Cash equivalents are carried
at cost, which approximates fair value.
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<PAGE>
f) Inventories
Inventories are stated at the lower of cost or market value. Cost is determined
on the weighted average method.
g) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes and accelerated methods for income tax purposes.
Useful lives used were as follows (in years):
Buildings and improvements 50
Casinos gaming equipment 4
Fixtures and fittings 8
The costs of significant improvements are capitalized. Costs of normal repairs
are charged to expense as incurred. The cost and accumulated depreciation of
property and equipment retired or otherwise disposed of are eliminated from the
respective accounts and any resulting gain or loss is included in income.
h) Leases
Assets held under finance leases, which confer rights and obligations similar to
those attached to owned assets, are capitalized as property, plant and equipment
and are depreciated over the shorter of the lease terms and their useful lives.
The capital element of each future lease obligation is recorded as a liability,
while the interest elements are charged to expense over the period of the leases
to produce a constant rate of charge on the balance of capital payments
outstanding.
Rentals under operating leases are charged on a straight-line basis over the
lease term.
i) Goodwill and other intangibles
Goodwill is the excess of the purchase price paid over the value of net assets
of business acquired. Amortization expense is calculated on a straight-line
basis over twenty years.
Intangibles are stated at cost. Amortization is provided over the estimated
useful lives of the assets using the straight-line method. Useful lives used
range from 4 to 5 years.
j) Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consists principally of receivables.
The Company maintains an allowance for doubtful accounts to reduce its
receivables to their carrying amount, which approximates fair value. Management
believes that as of the financial statement date, no significant concentrations
of credit risk existed for which an allowance had not already been determined
and recorded.
k) Capitalization of interest
Interest cost associated with major construction projects is capitalized. When
no debt is incurred specifically for a project, interest is capitalized on
amounts expended on the project using the weighted average cost of the Company's
outstanding borrowings. The amount of interest capitalized in any accounting
period cannot exceed the Company's total interest cost in such period.
Capitalization of interest ceases when the project is substantially complete.
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<PAGE>
l) Taxation
Corporate income tax is calculated in accordance with Czech tax regulations at a
rate of 35%, 39% and 39%, respectively.
The Company follows the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and for the expected future tax benefits to be
derived from tax loss carryforwards. Deferred tax assets and liabilities are
measured using the enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled or when a benefit
is derived. Deferred tax assets are reflected at their likely realizable
amount.
m) Income per share
Income per share is computed based on the weighted average number of shares
during the period. The number of shares used in the computation of income per
share is 23,533.
n) Foreign currency translation
Foreign currency transactions are recorded at the exchange rate in effect on the
date of the transaction. Assets and liabilities denominated in foreign
currencies at period end are translated to Czech Crowns (CZK) at the exchange
rate in effect on that date.
Exchange rate differences arising on settlement of transactions or on reporting
foreign currency transactions at rates different from those at which they were
originally recorded are included in the statement of income as they occur.
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<PAGE>
3 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
--------------- -------- ---------
<S> <C> <C> <C>
Cash 6,376 15,027 6,264
Bank accounts 1,929 4,964 17,542
--------------- -------- ---------
8,305 19,991 23,806
--------------- -------- ---------
--------------- -------- ---------
</TABLE>
4 ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
--------------- ---------- ---------
<S> <C> <C> <C>
Trade receivables - 6 265
Advance payments 88 1,027 383
Receivables from employees 13 68 3,646
Amounts due from former partners 1,007 1,007 1,007
Other receivables 377 45 32
--------------- ---------- ---------
1,485 2,153 5,333
Allowance for doubtful accounts (1,007) (1,007) (1,007)
--------------- ---------- ---------
478 1,146 4,326
--------------- ---------- ---------
--------------- ---------- ---------
</TABLE>
Concentrations of credit risk with respect to accounts receivable are limited
due to the nature of the Company's business and the diversity of the customers'
base.
The allowance for doubtful accounts in amount of 1,007 CZK was charged to
expense prior to 1996. The allowance was based on assessment of collectibility
and represents 100% of considered bad debts.
5 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses represent primarily slot machine licenses paid in advance every
year.
-18-
<PAGE>
6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Cost March 30,1998
(Unaudited) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Land 5,027 4,977 239
Buildings and improvements 25,623 25,477 14,476
Capital lease 32,237 29,181 25,610
Fixtures and fittings 23,780 19,437 2,472
Small tangibles 6,610 6,359 2,254
-------------- --------- ---------
93,277 85,431 45,051
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Accumulated depreciation March 30,1998
(Unaudited) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Land - - -
Buildings and improvements 2,308 2,041 951
Capital lease 15,851 14,334 8,492
Fixtures and fittings 4,988 3,808 638
Small tangibles 6,610 6,359 2,254
-------------- --------- ---------
29,757 26,542 12,335
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Net book value March 30,1998
(Unaudited) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Land 5,027 4,977 239
Buildings and improvements 23,315 23,436 13,525
Capital lease 16,386 14,847 17,118
Fixtures and fittings 18,792 15,629 1,834
Small tangibles - - -
-------------- --------- ---------
63,520 58,889 32,716
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
-19-
<PAGE>
7 OTHER FINANCIAL INVESTMENTS AND SUBSIDIARY UNDERTAKINGS
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
Subsidiary undertaking 100 100 100
Term deposit Gaming Bond 5,832 6,955 6,063
-------------- --------- ---------
5,932 7,055 6,163
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
The following company is a subsidiary undertaking but not consolidated in the
accompanying consolidated financial statements. It is included within other
financial investments in the accompanying consolidated financial statements:
<TABLE>
<CAPTION>
Company's name Direct Holding % Acquisition Date Principal activity Registered Office
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Czech Leisure Management, s.r.o. 100% 1 January 1996 Services Folmava
</TABLE>
THE SUBSIDIARY, WHICH REPRESENTS PARTICIPATION OF 100 CZK, WAS SOLD IN
1998. DUE TO INSIGNIFICANCE OF ITS TRANSACTIONS IN RELATION TO THE COMPANY,
IT WAS NOT SUBJECT TO CONSOLIDATION.
BELOW IS AN EXTRACT OF UNAUDITED FINANCIAL STATEMENTS PREPARED AS AT
DECEMBER 31, 1997 AND 1996, RESPECTIVELY.
Name: Czech Leisure Management, s.r.o.
Location: Folmava 66, Ceska Kubice 345 32
Type of business Services
<TABLE>
<CAPTION>
Percentage of ownership in share capital 100% 100%
1997 1996
<S> <C> <C>
Total assets 7 97
Stockholders equity: (8) 38
Share capital 100 100
Retained earnings (62) (18)
Profit (Loss) of current year (46) (44)
Share at cost 100 100
Share at nominal value 100 100
Value of share - 38
</TABLE>
Due to its insignificance, the Company did not create a provision for the
diminution in value of the investment in Czech Leisure Management, s.r.o.
The Company also maintains a term deposit "Gaming Bond" in the amount of CZK
5,832 (315 TDEM) at March 30, 1998, CZK 6,955 (360 TDEM) at December 31, 1997
and CZK 6,063 (345 TDEM) at 31 December 1996.
This term deposit (restricted cash) serves as a security for repayment of casino
wins. The amount is determined by the Ministry of Finance based on the Law on
Gaming and Lotteries.
-20-
<PAGE>
The following companies are subsidiary undertakings included in the consolidated
financial statements at March 30, 1998 (unaudited), December 31, 1997 and 1996,
respectively:
<TABLE>
<CAPTION>
Direct Group Acquisition Principal activity Registered
Company's name Holding % Holding % Date Office
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LMJ Casino Rozvadov a. s. 100% 100% 1 January 1996 Casino operator Ceska Kubice
LMJ Casino a. s. 99.99% 99.99% 1 January 1996 Casino operator Ceska Kubice
LMJ Slot, s.r.o. 100% 100% 1 January 1996 Slot machines operator Ceska Kubice
Atlantic Properties s.r.o. * 1.67% 100% 3 June 1997 Real Estate agency, services Ceska Kubice
</TABLE>
Note* the remaining 98.33% was purchased by LMJ Casino Rozvadov a. s. on
June 3, 1997
8 DEBT AND CAPITAL LEASE OBLIGATION
Short-term portion of debt and capital lease obligation consists of the
following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Loan from shareholders 9,997 10,785 10,776
Loan from Investicni a
postovni banka, a.s. 741 2,898 -
-------------- --------- --------
10,738 13,683 10,776
-------------- --------- --------
-------------- --------- --------
Short-term portion of capital lease
obligation 6,090 7,115 5,372
-------------- --------- --------
-------------- --------- --------
</TABLE>
Long-term portion of debt and capital lease obligation consists of the
following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Loan from shareholders - - 7,516
-------------- --------- --------
-------------- --------- --------
Long-term portion of capital lease
obligation 6,061 7,527 14,199
-------------- --------- --------
-------------- --------- --------
</TABLE>
The Company maintains an unsecured loan with shareholders with an undefined
maturity. The loan is denominated in DEM and bears interest at a rate of 9.5%.
Interest expense for the period ended March 30, 1998 and the years ended
December 31, 1997 and 1996 was CZK 179, CZK 1,260 and CZK 1,924, respectively.
The Company maintains a secured short-term loan with Investicni a postovni
banka, a.s., which expires on April 20, 1998. The short-term loan is denominated
in DEM and bears an interest rate of 6.4%. Interest expense was at March 30,
1998 CZK 30 and for 1997 and 1996 CZK 208. The Company is in compliance with
all its financial covenants.
-21-
<PAGE>
9 ACCOUNTS PAYABLE
Accounts payable consist of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Trade accounts payable, net 2,279 18,032 5,543
Payables to state 16,964 13,371 9,673
Advances received - 312 -
Net payables to related parties 1,541 - -
-------------- --------- --------
20,784 31,715 15,216
-------------- --------- --------
-------------- --------- --------
</TABLE>
Payables to state represent fees paid to the local financial authorities
according to the Law on Gaming and Lotteries which is based on gaming results of
casinos.
Net payables to related parties represent a settlement of payables and
receivables due to the Company (see also Note 18).
10 OTHER CURRENT LIABILITIES
At March 30, 1998 the balance of other current liabilities consists mainly of
CZK 2,796 VAT and custom duty payable for imported casino equipment, unbilled
deliveries of CZK 2,322 and CZK 445 of penalty declared by the financial
authority for delayed payment of withholding tax. The Group has filed a request
for excuse of the penalty.
11 ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Payroll - 26 52
Social security - 1,356 1,733
-------------- --------- --------
- 1,382 1,785
-------------- --------- --------
-------------- --------- --------
</TABLE>
Accrued liabilities in 1997 and 1996, respectively, represent primarily social
security payable. As at March 30, 1998 the payroll and social security was fully
paid at the end of the period.
-22-
<PAGE>
12 TAXES PAYABLE AND PROVISIONS FOR INCOME TAXES
Taxes payable consists of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Corporate income tax liability 10,456 9,425 1,878
Net deferred tax liability 419 940 2,952
Withholding tax 14 771 1
Other (11) 407 1,478
-------------- --------- --------
10,878 11,543 6,309
-------------- --------- --------
-------------- --------- --------
</TABLE>
The provision for taxes for financial reporting purposes consist of the
following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Corporate income tax 3,468 9,073 2,087
Deferred tax expense (benefit) (521) (2,012) 2,952
Supplementary income tax - 1,658 6
-------------- --------- --------
Provision for income taxes 2,947 8,719 5,045
-------------- --------- --------
-------------- --------- --------
</TABLE>
The following table summarizes the significant differences between the Czech
Corporate Income Tax rate and the Group's effective tax rate for financial
statement purposes:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Accounting income (loss)
before income tax 6,231 22,004 (12,283)
Statutory tax rate 35% 39% 39%
-------------- --------- --------
Income tax expense (benefit) at
statutory rate 2,181 8,582 (4,790)
Non taxable expenses (provisions,
gifts) 766 137 9,835
-------------- --------- --------
Provision for income taxes 2,947 8,719 5,045
-------------- --------- --------
-------------- --------- --------
Effective tax rate 47% 40% 41%
</TABLE>
-23-
<PAGE>
Deferred tax assets and liabilities as of March 30, 1998 and December 31, 1997
and 1996 were comprised of the following:
<TABLE>
<CAPTION>
March 30,1998
(Unaudited) 1997 1996
-------------- --------- --------
<S> <C> <C> <C>
Deferred tax assets:
Capital lease, net 4,756 5,197 6,677
Trade mark, write-off (773) (863) (1,603)
Goodwill, net 203 203 -
-------------- --------- --------
4,186 4,537 5,074
Deferred tax liabilities:
Allowance for doubtful accounts 352 352 393
Capital lease obligation 4,253 5,125 7,633
-------------- --------- --------
4,605 5,477 8,026
-------------- --------- --------
Net deferred tax liability 419 940 2,952
-------------- --------- --------
-------------- --------- --------
</TABLE>
13 STOCKHOLDERS EQUITY
The share capital of the Company is comprised of 23,533 ordinary shares with
a nominal value of CZK 1 at March 30, 1998, December 31, 1997 and 1996,
respectively.
14 RECONCILIATION OF ACCUMULATED DEFICIT AND INCOME (LOSS) UNDER CZECH
ACCOUNTING PRINCIPLES AND US GAAP
The accompanying consolidated financial statements are presented on the basis of
US GAAP. Certain accounting principles generally accepted in Czech Republic do
not conform to US GAAP standards used in preparing the accompanying consolidated
financial statements. A description of the adjustments required to conform the
Company's statutory balances to financial statements prepared in accordance with
US GAAP is set forth in the following table (amounts in thousands):
<TABLE>
<CAPTION>
March 30, 1998
(Unaudited) December 31, 1997 December 31, 1996
Net Accumulated Net Accumulated Net Income Accumulated
Income (loss) Deficit Income (loss) deficit (loss) Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance per Statutory Accounts 5,481 (11,112) 6,486 (17,597) (17,158) (439)
Leasing 1,190 3,635 2,275 1,360 2,386 (1,026)
Goodwill amortization 69 670 274 396 396 -
Deferred tax 522 (940) 2,012 (2,952) (2,952) -
Foreign exchange differences (3,978) 2,239 2,238 - - -
Balance per US GAAP 3,284 (5,508) 13,285 (18,793) (17,328) (1,465)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
15 COMMITMENTS AND CONTINGENCIES
Financial lease
The Company entered into financial lease agreements with Gameway, Monarch
(related parties) and Skofin leasing companies. The subject of the leasing is
gaming equipment (Gameway, Monarch) and cars (Skofin). The purchase price of the
leasing amounted to 29,441 CZK, 29,181 CZK and 25,610 CZK, respectively at March
30, 1998, December 31, 1997 and 1996. Leasing payments to Gameway and Monarch
are denominated in DEM and GBP. Total capital lease obligation remaining at 30
March 1998 amounts to 12,151 CZK of which 4,624 CZK is short-term. The latest
leasing agreement matures in May 2000.
Rent agreements
Below is a summary of Companys' significant rental agreements with related and
third parties:
<TABLE>
<CAPTION>
Related parties Description Amount
- ---------------------------- ------------------------- ----------------------
<S> <C> <C>
Eagle Leisure Management Agreement on security 6 DM monthly
Marketing 10-13% monthly from
Know-how services casino revenues
Other management 8.5% monthly from
contracts casino revenues
3% quarterly from
casino revenues
Third parties:
Ceska Kubice municipality Rent of land and 175 CZK monthly
Building for casino 50 CZK monthly
operation
SIB a.s. Rent of building for 519 CZK quarterly
accommodation
FEES SUMMARY
Below is a summary of Company's fee commitments to third parties:
Name Description Amount
- ---------------------------- -------------------------- ---------------------
Ceska Kubice municipality Fee based on Gaming Law 25 CZK monthly
Rozvadov municipality Fee based on Gaming Law 75 CZK monthly
Chvalovice municipality Fee based on Gaming Law 60 CZK monthly
Financial authorities Fee based on Gaming Law Annually 10% of
casino gaming
results
Quarterly 1% of
casino gaming
results
Annually 25 CZK of
license fee for
each slot machine
</TABLE>
-25-
<PAGE>
Trade marks
On April 1, 1995, LMJ Casino a. s. entered into an agreement with Eagle Leisure
Management Limited, a related party, to license the rights to use the "Casino
Club Europe" and "21st Century Resorts" trademarks. The purchase price for these
trademarks was CZK 5,136. The purchase agreement provides that the purchaser may
further transfer the rights to these trademarks. On January 1, 1996, LMJ Casino
a. s. transferred the right to the trademark "Casino Club Europe" to LMJ Casino
Rozvadov a. s. for CZK 2,568 and the right to the trademark 21st Century
Resorts"to 21st Century Resorts a. s. for CZK 2,568. Both of the trademarks'
revenues and expenses have been eliminated in consolidation.
Gaming fees
Gaming fees represent amounts paid to the financial authorities based on the
Czech Law on Gaming and Lotteries. The fee is payable by casino and slot
machines operators. The fee consists of license fee paid for each slot machine
in operation in amount of CZK 25 per annum and 10% and 1% of casino gaming
revenues (10% fee is paid annually, 1% fee is paid quarterly).
16 PENSION AND RETIREMENT PLANS
In compliance with Czech legal framework, the Company does not sponsor any
pension or retirement plan for its employees or directors.
17 FINANCIAL INSTRUMENTS
The Company, in the normal course of business, uses various types of financial
instruments, including items such as cash, cash equivalents, trade receivables,
and short-term debt, which expose the Company to market or credit risk. The
estimated fair values of these financial instruments approximate their carrying
amounts.
Credit risk
The Company's cash equivalents and short-term deposits are placed with reputable
Czech banks.
Trade receivables are presented net of the allowance for doubtful receivables
(see Note 4). Credit risk with respect to trade receivables is limited by using
tight credit controls.
Interest rate
The Company's debt bears a fixed interest rate. The interest rates are presented
in Note 8.
-26-
<PAGE>
Exchange rate exposure
The following table shows balance sheet items denominated in foreign currencies
in their original nominal value (in thousands):
<TABLE>
<CAPTION>
At December 31, 1996
DEM USD GBP
---------- ---------- ----------
<S> <C> <C> <C> <C>
Bank accounts 1,226 38 -
Trade receivables - - -
Investments - - -
Trade payables (329) (20) (1)
Loans - (669) -
Capital lease obligation (723) - (138)
---------- ---------- ----------
Net exposure 174 (651) (139)
---------- ---------- ----------
---------- ---------- ----------
At December 31, 1997
DEM USD GBP ITL
---------- ---------- ---------- -----------
Bank accounts 901 40 - 1,000
Trade receivables - - - -
Investments 360 - - -
Trade payables (513) - (77) -
Loans (150) (321) - -
Capital lease obligation (631) - (52) -
---------- ---------- ---------- -----------
Net exposure (33) (281) (129) 1,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
At March 30, 1998 (Unaudited)
DEM USD GBP
---------- ---------- ----------
Bank accounts 346 10 -
Trade receivables 10 - -
Investments 315 - -
Trade payables (103) - (5)
Loans (40) (322) -
Capital lease obligation (570) - (19)
---------- ---------- ----------
Net exposure (42) (312) (24)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
-27-
<PAGE>
18 RELATED PARTY TRANSACTIONS
The material transactions with related parties not consolidated in the
accompanying financial statements, and balances receivable from and payable to
them, were as follows:
<TABLE>
<CAPTION>
As at December 31, 1996
Eagle Leisure Gameway Monarch
Management, Ltd. Leasing, Ltd. Leasing, Ltd. Shareholders
---------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Payables
Trade payables 6,299 - - -
Loans - - - 18,292
Capital lease obligation - 18,906 523 -
Leasing expense - 3,217 132 -
Interest expense - 7,974 169 1,924
Other expense 28,996 - - -
As at December 31, 1997
Eagle Leisure Gameway Monarch
Management, Ltd. Leasing, Ltd. Leasing, Ltd. Shareholders
---------------- ------------- ------------- ------------
Payables
Trade payables 9,295 - - -
Loans - - - 10,785
Capital lease obligation - 13,545 348 -
Leasing expense - 7,665 175 -
Interest expense - 5,825 126 1,260
Other expense 39,739 - - -
As at March 30, 1998 (Unaudited)
Eagle Leisure Gameway Monarch
Management, Ltd. Leasing, Ltd. Leasing, Ltd. Shareholders
---------------- ------------- ------------- ------------
Receivables
Trade receivables - - - 4,295
Payables
Trade payables 5,087 - - -
Loans - - - 9,997
Capital lease obligation - 11,015 296 -
Leasing expense - 2,530 52 -
Interest expense - 842 23 179
Other expense 9,721 - - -
</TABLE>
An amount of CZK 1,541 is included within trade payables as of March 30, 1998 as
result of the settlement of receivables and payables to related parties.
Balances included in the settlement are shown in the table above as trade
payables to Eagle Leisure Management in amount of CZK 5,087, capital lease
obligation payables of CZK 749 (CZK 463 Monarch and CZK 286 Gameway) and trade
receivables from shareholders in amount of CZK 4,295.
-28-
<PAGE>
19 SUBSEQUENT EVENTS
The House of Representatives of the Czech Parliament is considering a new Law on
Gaming and Lotteries. The Law if agreed as currently drafted would restrict
foreign legal entities or Czech legal entities with foreign shareholders from
operating casinos, slot machines, lotteries and other related activities defined
in the Law. This Law may affect the shareholder's structure of the Company,
however, it is not expected have an impact on the ability of the Company to
continue as going concern.
At April 20, 1998 the Company repaid the last installment of short-term loan
with Investicni a postovni banka, a.s. in accordance with the repayment
schedule.
At March 30, 1998 the Company's shareholders sold their shares to Trans World
Gaming.
At March 31, 1998 21st Century Resorts a. s. has sold all shares held in LMJ
Casino a. s. to shareholders of 21st Century Resorts a. s.
-29-
<PAGE>
TRANS WORLD GAMING CORP.
PRO-FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations give effect to the acquisition of Resorts and the related financing.
See: Item 2 Acquisition and Disposition of Assets by Trans World Gaming as if
they had occurred on January 1, 1997. The acquisition is being accounted for in
accordance with the purchase method of accounting, and the results of Resorts
are consolidated with Trans World Gaming from the date of acquisition. These
pro forma statements of operations give effect, for the period presented to the
following pro forma adjustments: (a) the change in amortization and
depreciation expense resulting from the allocation of the purchase price, direct
acquisition costs and liabilities acquired net of current assets acquired to the
fixed and intangible assets of Resorts and, (b) the change in interest expense
resulting from the issuance of new debt and the repayment of existing debt.
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1997 and for the three months ended
March 31, 1998 should be read in conjunction with the notes thereto included
herewith, with TWG's audited and unaudited financial statements and notes
thereto for the periods presented with the Resorts audited and unaudited
financial statements thereto for the periods presented. The unaudited Pro Forma
Condensed Consolidated Statements of Operations are not necessarily indicative
of future operating results or of what would have occurred had the acquisition
been consummated at the time specified. The pro forma adjustments are based
upon available information and certain adjustments that management believes to
be reasonable. In the opinion of management, all material adjustments have been
made that are necessary to present fairly the pro forma information.
-30-
<PAGE>
TRANS WORLD GAMING CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------
HISTORICAL
--------------------- PRO FORMA
PRO FORMA FINANCIAL
TWG RESORTS ADJUSTMENTS STATEMENTS
------ ------- -------------------------------
<S> <C> <C> <C> <C>
REVENUES
Gaming $4,110 $5,860 $0 $9,970
Truckstop 2,707 0 0 2,707
Consulting 84 0 0 84
------ ------- ----------- -----------
TOTAL REVENUES 6,901 5,860 0 12,761
------ ------- ----------- -----------
TOTAL COSTS AND EXPENSES
Gaming 1,152 3,780 0 4,932
Truckstop 2,333 0 0 2,333
Selling, general and administrative 2,197 458 0 2,655
Amortization and depreciation 344 488 560(A) 1,392
Gaming development 39 0 0 39
Exchange loss/other expense 0 131 0 131
------ ------- ----------- -----------
TOTAL COSTS AND EXPENSES 6,065 4,857 560 11,482
------ ------- ----------- -----------
INCOME FROM OPERATIONS 836 1,002 (560) 1,278
INTEREST EXPENSE 756 254 2,227(B) 3,237
------ ------- ----------- -----------
INCOME (LOSS) BEFORE TAXES 80 748 (2,787) (1,959)
TAXES 0 296 0 296
------ ------- ----------- -----------
NET INCOME (LOSS) $80 $452 ($2,787) ($2,255)
------ ------- ----------- -----------
------ ------- ----------- -----------
NET INCOME (LOSS) PER
COMMON SHARE - BASIC (C) $0.03 ($0.74)
------ -----------
------ -----------
NET INCOME (LOSS) PER COMMON
SHARE ASSUMING DILUTION (D) $0.02 ($0.74)
------ -----------
------ -----------
COMMON SHARES OUTSTANDING (C) 3,044 3,044
FULLY DILUTED COMMON SHARES
OUTSTANDING (D) 3,831 3,044
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS PRO FORMA
FINANCIAL STATEMENT
-31-
<PAGE>
TRANS WORLD GAMING CORP.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,1998
----------------------------------------------------
HISTORICAL
--------------------- PRO FORMA
PRO FORMA FINANCIAL
TWG RESORTS ADJUSTMENTS STATEMENTS
------ ------- -------------------------------
<S> <C> <C> <C> <C>
REVENUES
Gaming $1,082 $1,729 $0 $2,811
Truckstop 482 0 0 482
Consulting 5 0 0 5
------ ------- ----------- -----------
TOTAL REVENUES 1,569 1,729 0 3,298
------ ------- ----------- -----------
TOTAL COSTS AND EXPENSES
Gaming 479 1,083 0 1,562
Truckstop 509 0 0 509
Selling, general and administrative 210 176 0 386
Amortization and depreciation 101 112 140(A) 353
Gaming development 0 0 0 0
Exchange loss/other expense 0 111 0 111
------ ------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,299 1,482 140 2,921
------ ------- ----------- -----------
INCOME FROM OPERATIONS 270 247 (140) 377
INTEREST EXPENSE 255 35 532(B) 822
------ ------- ----------- -----------
INCOME (LOSS) BEFORE TAXES 15 212 (672) (445)
TAXES 0 100 0 100
------ ------- ----------- -----------
NET INCOME (LOSS) $15 $112 ($672) ($545)
------ ------- ----------- -----------
------ ------- ----------- -----------
NET INCOME (LOSS) PER
COMMON SHARE - BASIC (C) $0.00 ($0.18)
------ -----------
------ -----------
NET INCOME (LOSS) PER COMMON
SHARE ASSUMING DILUTION (D) $0.00
------ -----------
------ -----------
COMMON SHARES OUTSTANDING (C) 3,044 3,044
FULLY DILUTED COMMON SHARES
OUTSTANDING (D) 4,331
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS PRO FORMA
FINANCIAL STATEMENT
-32-
<PAGE>
TRANS WORLD GAMING CORP.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
($ in thousands)
<TABLE>
<CAPTION>
<S><C>
(A) Adjustment to amortization and depreciation results from the goodwill
arising from the acquisition of 21st Century Resorts computed as follows:
Purchase price - net $10,300
Net assets 700
-------
Excess cost over net assets acquired 9,600
Allocation to write-up unimproved land to fair value 1,200
-------
Allocation to goodwill $ 8,400
-------
Goodwill is being amortized on a straight-line basis over 15 years
For Year Ended For Period
12/31/97 1/1/98-3/1/98
--------------------------
(B) Adjustment to interest expense consists of:
(i) Elimination of interest expense $ (20) $ (30)
resulting from repayment of long-
term debt from a portion of the
proceed received in $17,00,000 of
debt securities on March 31, 1998
(ii) Increase in interest expense as a 2,040 510
result of the issuance of $17,000,000
12% Senior Secured Notes, assuming
no principal payments
(iii) Increase in interest expense to amortize 207 52
deferred debt issuance costs in connection
with the 17,000,000 offering of debt
securities
Net increase to interest expense 2,227 532
----- ---
</TABLE>
(C) Basic earnings per share is computed using the weighted average number of
shares outstanding during the reporting period.
(D) Diluted earnings per share is computed using diluted common shares
outstanding includes any diluted effects of stock options, warrants, and
convertible securities. Diluted earnings (loss) per share and fully
diluted common shares outstanding are not presented for the three months
ended March 31, 1998 since the inclusion of stock options, warrants and
convertible debt is antidilutive.
-33-
