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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period ended June 30, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NO.: 0-25244
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TRANS WORLD GAMING CORP.
(Exact name of registrant as specified in its charter)
NEVADA 13-3738518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE PENN PLAZA, SUITE 1503 10119-0002
NEW YORK , NY (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (212) 563-3355
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Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Shares of the Registrant's Common Stock, par value $.001, outstanding
as of August 14, 1998: 3,044,286
Transitional Small Business Disclosure Format
(check one; YES NO X )
--- ---
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<PAGE>
TRANS WORLD GAMING CORP.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998
(UNAUDITED) AND DECEMBER 31, 1997. 2
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
FOR THE THREEAND SIX MONTHS ENDED JUNE 30, 1998 AND 1997. 3
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997. 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL
CONDITION OR PLAN OF OPERATION 6
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 11
ITEM 2. CHANGES IN SECURITIES 11
ITEM 3. DEFAULT UPON SENIOR SECURITIES 12
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
</TABLE>
1
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FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED STATEMENTS
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30,
ASSETS 1998
-----------
(unaudited)
<S> <C>
CURRENT ASSETS
Cash & equivalents $ 3,766
Accounts/Notes receivable 1121
Inventories 65
Other current assets 197
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Total current assets 5,149
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PROPERTY AND EQUIPMENT - net 2,744
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OTHER ASSETS
Investment at equity 75
Goodwill 17,636
Deferred debt issuance costs, net 464
Deposits and deferred costs on investments 979
Deferred costs and other assets 224
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Total other assets 19,378
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TOTAL ASSETS $ 27,271
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LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)
CURRENT LIABILITIES
Current portion of long term debt $ 1,497
Accounts payable and accrued expenses 3,390
--------
Total current liabilities 4,887
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LONG TERM DEBT, net of current portion 27,505
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STOCKHOLDERS EQUITY/(DEFICIT)
Capital stock 3
Additional paid-in-capital 8,896
Stock warrants outstanding 537
Accumulated deficit (14,557)
--------
Total stockholders equity/(deficit) (5,121)
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT) $ 27,271
--------
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</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
2
<PAGE>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
REVENUES $6,358 $3,396 $4,789 $1,725
COSTS AND EXPENSES
Cost of revenue 4,845 2,107 3,857 1,114
Administrative 979 595 769 267
Depreciation and Amortization 903 182 802 99
------- ------ ------- ------
TOTAL COSTS AND EXPENSES 6,727 2,884 5,428 1,480
------- ------ ------- ------
EARNINGS/(LOSS) FROM OPERATIONS (369) 512 (639) 245
Interest expense 925 354 670 182
------- ------ ------- ------
EARNINGS/(LOSS) BEFORE TAXES (1,294) 158 (1,309) 63
Provision for tax 101 30 101 12
------- ------ ------- ------
NET EARNINGS/(LOSS) ($1,395) $128 ($1,410) $51
------- ------ ------- ------
------- ------ ------- ------
Earnings/(loss) per share - basic ($0.46) $0.04 ($0.46) $0.02
Weighted Average of Common
shares used in computing basic
earnings/(loss) per share 3,044 3,044 3,044 2,794
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
3
<PAGE>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
June 30,
---------------------
1998 1997
------- ----
<S> <C> <C>
Cash flows provided by operating activities $1,274 $291
Cash flows used by investing activities (14,953) (314)
Cash flows provided/(used) by financing activities 17,247 (211)
------- ----
Net increase/(decrease) in cash 3,568 (234)
Cash - beginning of period 198 489
------- ----
Cash - end of period $3,766 $255
------- ----
------- ----
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
4
<PAGE>
TRANS WORLD GAMING CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Unaudited Statements.
The accompanying condensed as of June 30, 1998 and consolidated financial
statements of Trans World Gaming Corp. (the "Company" or "TWG") for the
three and six months ended June 30, 1998 and June 30, 1997 are unaudited
and reflect all adjustments of a normal and recurring nature to present
fairly the financial position and results of operation and cash flows for
the interim periods. These unaudited statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Pursuant to such rules and regulations, certain
financial information and footnote disclosures normally included in such
financial statements have been condensed or omitted.
These financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Annual Report on Form 10-KSB/A for the year
ended December 31, 1997. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of the results for the
entire year ending December 31, 1998.
2. Basic earnings (loss) per share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per share incorporates the dilutive
effect of common stock equivalents on an average basis during the
period. The Company's common stock equivalents currently include stock
options and warrants. Dilutive earnings per share has not been
presented for the quarters ended June 30, 1998 and 1997 since the
inclusion of common stock equivalents either did not have an effect on
basic earnings per share or would have been antidilutive.
3. During the six months ended June 30, 1998, the Company incurred $17
million in long term debt which was used to finance the acquisition of
21st Century Resorts in the Czech Republic, and retire short-term debt.
The Company also acquired 90% of the shares of Casino de Zaragoza, in
Spain and assumed $4.8 million of long term debt of the casino.
4. The Company is involved in a legal proceeding with Monarch Casinos in
Louisiana over an alleged breach of contract by TWG, has negotiated a
settlement by and among TWG, National Auto/Truckstops and Prime
Properties in Lafayette, Louisiana regarding a franchise dispute between
National and Prime.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's operations resulted in net loss of $1.4 million for the three
months ended June 30, 1998, representing a $1.5 million decrease from the net
income of $51,000 for the three months ended June 30, 1997. The Company's
earnings before interest, taxes, depreciation and amortization ("EBITDA")
totaled $163,000 for the three months ended June 30, 1998 a decrease of
$181,000 for the three months ended June 30, 1997.
Revenues totaled $4.8 million for the three months ended June 30, 1998,
compared to $1.7 million for the same period in 1997, an increase of $3.1
million. Of such amount, $3.2 million represented revenues from new
businesses acquired in the second quarter of 1998, as described below. Video
poker revenues at the Gold Coin decreased 7%, from $948,000 to $883,000, for
the three months ended June 30, 1997 and 1998, respectively. Revenues from
the Toledo Palace increased 112% from $58,000 to $122,000, for the respective
quarters due to the increase in the number of video poker devices from 15 to
33 which occurred in June 1997.
Revenues from retail operations at the Woodlands truck stop in Louisiana
decreased 28% from $717,000 for the three months ended June 30, 1997 to
$518,000 for the three months ended June 30, 1998, primarily due to lower
than expected fuel sales.
On March 31,1998, the Company acquired 21st Century Resorts a.s., a Czech
Republic joint stock company ("Resorts"), (see - " Liquidity and Capital
Resources") which operates two casinos in the Czech Republic and has the
right to build a third. Revenues from Resorts for the three months ended
June 30, 1998 totaled $2.0 million. On April 17, 1998, TWG acquired Casino
de Zaragoza, S.A., a company incorporated in Zaragoza, Spain that holds an
exclusive gaming license in the Region of Aragon ("Casino de Zaragoza" or
"CDZ"). Revenues from CDZ for the three months ended June 30, 1998 were $1.2
million. Neither Resorts nor CDZ generated revenues for the Company in the
comparable three month period in 1997.
Costs incurred in the operation of the recently acquired casinos for the
three months ended June 30, 1998 in the Czech Republic were $1.5 million and
in Spain totaled $1.6 million. These costs were not incurred in the
comparable quarter in 1997.
Total costs and expenses increased from $1.5 million for the three months
ended June 30, 1997 to $5.4 million for the three months ended June 30, 1998,
an increase of $3.9 million of which $3.1 million related directly to the
operation of Resorts and CDZ. Video poker operations in Louisiana recorded
direct costs of $319,000 for the three months ended June 30, 1998, which
increased by 14% from the costs of $279,000 during the comparable 1997
quarter, due primarily to the costs associated with the increase in the
number of video poker devices at the Toledo Palace.
Retail expenses at the Woodlands truck stop decreased approximately $165,000,
or 23%, from $726,000 for the three months ended June 30, 1997 to $561,000
for the comparable quarter of 1998, due primarily to a decrease in direct
costs associated with decreased fuel sales.
MATS expenses, consisting primarily of labor and travel-related costs,
amounted to $61,000 for the three months ended June 30, 1998 an increase of
$27,000 over the comparable quarter in 1997.
Administrative costs increased $502,000, to $769,000, for the three months
ended June 30, 1998 as compared to $267,000 in the comparable quarter in
1997. Costs incurred to support the Resorts and CDZ acquisitions totaled
$350,000 for the three months ended June 30, 1998, consisting primarily of
legal ($132,000), audit ($44,000), advertising ($33,000), consulting fees
($30,000) and travel and administrative support costs ($111,000).
Depreciation and amortization for the three month periods ending June 30,
1998 and June 30, 1997 were $802,000 and $99,000 respectively. The increase
was due primarily to the amortization of goodwill from the investments in the
Czech Republic ($152,000), Spain ($94,000), Bishkek ($46,000) and the
amortization of deferred debt issuance costs ($55,000)
6
<PAGE>
relating to the Private Placement (see -"Liquidity and Capital Resources").
In addition, in January, 1998, the President of Azerbaijan ordered the
closing of all of the casinos in Azerbaijan which included the Boxer Casino
for which the Company had a management agreement. Management cannot predict
when, or if, the Boxer Casino will reopen for business. The shutdown
resulted in a write-off of the balance of the investment of $303,000 in the
quarter ended June 30, 1998.
Interest expense increased by $488,000 from $182,000 for the three months
ended June 30,1997 to $670,000 for the comparable quarter in 1998. Interest
expense in connection with the Private Placement (see - "Liquidity and
Capital Resources") amounted to $510,000 for the quarter ended June 30, 1998
accounting for a majority of the increase over the comparable three month
period in 1997.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company's operations resulted in net loss of $1.4 million for the six
months ended June 30, 1998, representing a $1.3 million decrease from the net
income of $128,000 for the six months ended June 30, 1997. The Company's
EBITDA totaled $534,000 for the six months ended June 30, 1998, a decrease of
$160,000 compared to the six months ended June 30, 1997.
Revenues totaled $6.4 million for the six months ended June 30, 1998,
compared to $3.4 million for the same period in 1997, an increase of $3.0
million. Such amount, $3.2 million represented revenue from the Resorts and
CDZ acquisitions. Video poker revenues at the Gold Coin decreased 5%, from
$1.9 million to $1.8 million, for the six months ended June 30, 1997 and
1998, respectively. Revenues from the Toledo Palace increased 97% from
$120,000 to $236,000, for the respective six month periods due to the
increase in the number of video poker devices.
Revenues from retail operations at the Woodlands truck stop decreased 28%
from $1.4 million for the six months ended June 30, 1997 to $1.0 million for
the six months ended June 30, 1998, primarily due to lower than expected fuel
sales.
On March 31,1998, the Company acquired Resorts which operates two operating
casinos in the Czech Republic. Revenues from Resorts for the six months
ended June 30, 1998 totaled $2.0 million. On April 17, 1998, TWG acquired
CDZ, which operates a casino in Zaragoza, Spain. Revenues from CDZ for the
six months ended June 30, 1998 were $1.2 million. Neither Resorts nor CDZ
generated revenues for the Company in the comparable six month period in 1997.
Costs incurred in the operation of the recently acquired casinos for the six
months ended June 30, 1998 in the Czech Republic were $1.5 million and in
Spain totaled $1.6 million. Those costs were not incurred in the comparable
period in 1997.
Total costs and expenses increased from $2.9 million for the six months ended
June 30, 1997 to $6.7 million for the six months ended June 30, 1998, an
increase of $3.8 million of which $3.1 million related directly to the
operation of Resorts and CDZ. Video poker operations in Louisiana recorded
direct costs of $619,000 for the six months ended June 30, 1998, an increase
of 12% from the costs of $555,000 during the comparable 1997 period, due
primarily to the costs associated with the increase in the number of video
poker devices at the Toledo Palace.
Retail expenses at the Woodlands truck stop decreased approximately $300,000,
or 21%, from $1.4 million for the six months ended June 30, 1997 to $1.1
million for the comparable 1998 period, due primarily to direct costs
associated with decreased fuel sales.
Consulting and business development costs incurred by the Tottenham & Co.
subsidiary increased $189,000, from $148,000 for the six months ended June
30,1997 to $337,000 for the comparable six month period of 1998, due to
increased travel and related costs incurred in support of the Company's new
business activities in Spain and the Czech Republic.
MATS expenses, consisting primarily of labor and travel-related costs,
amounted to $111,000 for the six months ended June 30, 1998, an increase of
$77,000 over the comparable period in 1997.
7
<PAGE>
Administrative costs increased $502,000, to $979,000, for the six months
ended June 30, 1998 as compared to $595,000 for the comparable period in
1997. Costs incurred to support the new business acquisitions totaled
$350,000 for the six months ended June 30, 1998, consisting primarily of
legal ($132,000), audit ($44,000), advertising ($33,000), consulting fees
($30,000) and travel and administrative support costs ($111,000).
Depreciation and amortization for the six month periods ending June 30, 1997
and June 30, 1998 were $182,000 and $903,000 respectively. The increase was
due primarily to the amortization of goodwill from the investments in the
Czech Republic ($152,000), Spain ($94,000), Bishkek ($46,000) and the
amortization of deferred debt issuance costs ($55,000) relating to the
Private Placement (see -"Liquidity and Capital Resources"). In addition, in
January 1998, the President of Azerbaijan ordered the closing of all of the
casinos in Azerbaijan which included the Boxer Casino for which the Company
had a management contract. The shutdown resulted in a write-off of the
balance of the investment of $303,000 in the quarter ended June 30, 1998.
Management cannot predict when, or if, the Boxer Casino will reopen for
business.
Interest expense increased by $571,000, from $354,000 for the six months
ended June 30,1997 to $925,000 for the comparable period in 1998. Interest
expense in connection with the Private Placement amounted to $589,000 for the
six months ended June 30, 1998 accounting for the majority of increase over
the comparable six month period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital, defined as current assets minus current
liabilities, increased $2.0 million to $1.1 million for the six months ended
June 30, 1998 from a working capital deficit of $900,000 at December 31,
1997. As described below, the Company used the proceeds of certain short term
and long term financings to acquire 21st Century Resorts a.s., a Czech
Republic joint stock company (see - the Form 10KSB/A for the year ended
December 31, 1997, Item 1. "Description of Business") and to repay
interest-bearing debt. The net proceeds of the financings, offset by the
investments and debt repayments, resulted in an increase of $3.2 million in
cash and equivalents to a balance of $3.4 million at June 30, 1998.
On October 29, 1997, the Company and Value Partners, Ltd., a Texas limited
partnership, ("Value Partners") executed a loan which was amended on December
19, 1997, under which TWG had the ability to borrow up to $2,538,000 (the
"First Amended Loan Agreement"). As of June 30, 1998, the Company had
borrowed $2,338,000 under this loan, including the Bishkek Note described
below, of which $1,288,000 was repaid on March 31, 1998 from the proceeds of
the Private Placement (as described below) (see - the Form 10KSB/A for the
year ended December 31, 1997, Item 6. "Management's Discussion and Analysis
of Financial Condition or Plan of Operation - Liquidity and Capital
Resources").
On March 19, 1998, the Company and Value Partners executed a Lender's Waiver
and Option Agreement (the "Waiver") under which the Company borrowed $250,000
(the "Bishkek Note") to fund the Bishkek Casino transaction. The Bishkek
Casino is located in Krygyz, a former member of the Soviet Union. The
Company will repay the principal and accrued interest in nine monthly
installments starting June 1, 1998 from the Company's 60% share of the
operating profits from the Bishkek Casino. The Company has repaid $27,777 in
principal payments through June 30, 1998. As of June 30, 1998 and as of the
date hereof, the Company was and is current on its payments under the Bishkek
Note.
On March 31, 1998, the Company, with the assistance of Libra Investments,
Inc., Los Angeles, California ("Libra") acting as placement agent, borrowed
$17.0 million from fourteen sophisticated, accredited investors (the
"Investors") in a private placement (the "Private Placement"). 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 ("TWGI"), TWG
Finance Corp. ("TFC") (both wholly-owned subsidiaries of TWG) and U.S. Trust
Company of Texas, N.A. acting as indenture trustee. The Notes require
mandatory prepayments based upon excess cash flow generated by TWGI from the
operation of the Czech casinos acquired in the Resorts acquisition and bear
interest at the rate of 12% per annum. (See - the Form 8-K and Form 8-K/A
filed with the Securities and Exchange Commission on April 14, 1998 and June
15, 1998, respectively.) The proceeds of the Notes were used for the net
acquisition costs of, and improvements to, Resorts totaling $12.6 million, to
repay the First Amended Loan Agreement in the amount of $1.3 million, for
costs and expenses of $1.4 million relating to the Private Placement and
working capital of $1.7 million. The initial payment under the terms of the
Note is due in September 1998. As of June 30, 1998 and as of the date
hereof, the Company was and is current on its payments under the Note.
8
<PAGE>
On May 19, 1998, the Company and Value Partners executed a Loan Agreement
(the "Loan Agreement") under which the Company borrowed $1,000,000 to fund
the purchase of the stock of the Casino de Zaragoza (see - "Plan of
Operations"). The loan is payable in full on September 15, 1998 together with
accrued interest at the rates of 12% per annum.
The Company is currently negotiating to raise approximately $4 million from
private investors (the "Capital Raise") in order to recapitalize the Casino
de Zaragoza, provide working capital to cover the projected operating losses
and to repay the Loan Agreement to Value Partners described in the paragraph
above.
The Company believes, although there can be no assurance, that assuming the
Capital Raise is successful, existing cash and anticipated cash flows from
current operations will be sufficient to satisfy its on-going operational,
liquidity and capital requirements for the next twelve months. However, the
Company will require additional debt and/or equity financing in order to
consummate certain planned expansion and acquisitions as described under
"Plan of Operations", below.
PLAN OF OPERATIONS
The Company intends to continue operating the Gold Coin and the Toledo Palace
as they are presently being operated; however, the Company has made available
for sale its Woodlands property, where the Toledo Palace is located.
On December 22, 1994, the Company acquired from Chrysolith LLC, a Louisiana
limited liability company of which the Company owns 49% ("Chrysolith"), and
Prime Properties, Inc., a Louisiana corporation ("Prime"), which leased the
76 Plaza, a truckstop in which the Gold Coin is located from National
Auto/Truckstops, Inc. ("National"), certain rights including an 18 year
sub-leasehold interest (the "Sub-Lease"), subject to the terms of an
Over-lease on the 76 Plaza between Prime, as lessee and National, as lessor.
Should the Over-Lease be terminated, the Company could have lost all of its
rights under the Sub-lease and Prime would have lost its establishment
license for video poker in the State of Louisiana. At that time, the Company
acquired from Prime the right to a 50% interest in the profits of the Gold
Coin under the terms of an agreement (the "Prime Agreement") under which the
Company agreed to pay a total of $6.0 million for such profit interest in the
form of a promissory note (the "Prime Note"). On November 10, 1997, the
Company was advised that on October 16, 1997, National placed Prime on notice
that its rights to occupy the 76 Plaza would terminate on January 23, 1998,
due to an alleged breach of the Over-Lease by Prime. The Company believed
that the default by Prime was due, in part, to the failure of Prime to pay
certain sums due to National pursuant to the Over-Lease. Consequently, on
December 23, 1997, the Company filed a Petition for Concursus in the 15th
Judicial District Court, Lafayette Parish, Louisiana, Case No. 976174-D, and
paid the final payment of $292,000 under the Prime Note into the registry of
the court, protesting that such sum was actually due and owing based on the
alleged breach of the Over-Lease by Prime. On or about December 30, 1997, the
Company received notice from Prime that Prime (which was not aware of the
Petition for Concursus) considered the Company in default of the Sub-lease
for the Gold Coin premises and demanded that the Company pay to Prime an
amount equal to approximately $299,513 on or before January 7, 1998 to cure
this alleged default. Upon receipt of this correspondence, the Company
contacted counsel for Prime and notified him of the Company's prior filing.
On or about January 19, 1998, Prime filed in United States District Court,
Western District of Louisiana, Case No. CV98-0076L-0, a Complaint for Damages
and Violation of the Petroleum Marketing Practices Act against National
alleging breaches by National in the franchise agreement between Prime and
National and seeking to enjoin National from terminating the Over-Lease. On
or about January 21, 1998, Prime filed a Voluntary Petition in Bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for
the Western District of Louisiana, Case No. 98BK-50087, listing National as
the holder of an unsecured claim of $925,000 (the "National Claim"). (See
the Form 10KSB/A for the year ended December 31, 1997, Item 6, "Management's
Discussion and Analysis and Results of Operations - Important Factors to
Consider".)
On March 20, 1998, National filed various motions, as permitted under section
362(d) of the Bankruptcy Code, to lift the automatic stay to permit certain
actions by Prime. On April 13, 1998 the United States Bankruptcy Court
granted National's motions and dismissed Prime's bankruptcy case. Following
that decision, on April 17, 1998, National filed a "Motion for Expedited
Hearing on Motion to Return Possession of Premises to National Auto" in the
United States District Court, Western District of Louisiana, Case No. 98-0076.
9
<PAGE>
On May 22, 1998, the owners of Prime sold their interests to Mr. Lee Young,
the 51% member of Chrysolith, LLC. At the same time, National and Prime
(under the new ownership) executed an Amended and Restated Lease Agreement
which expires on December 31, 1999 (the "Lease"). Under the terms of the
Lease, National has the right to terminate the Lease under certain
circumstances, including default or non-renewal of the franchise by Prime.
The termination of the Lease upon the expiration of its term, or as a result
of a breach by Prime or otherwise, if prior to June 30, 1999 will result in
the termination of the Company's Video Poker Placement and Operating
Agreement for the Gold Coin gaming facility premises, and any such
termination would have a materially adverse effect on the U.S. operations of
the Company.
On May 22, 1998, the Company negotiated settlements by and among its
wholly-owned subsidiary, Trans World Gaming of Louisiana, Inc. ("TWGLa"),
Chrysolith, Prime and National (the "Settlement"). The terms of the
Settlement were as follows: (i) TWGLa and the former owners of Prime agreed
that TWGLa would make a final settlement payment to said former owners of
$450,000, subject to certain deductions, noted below, (the "Settlement
Payment"), (ii) the claim of National against Prime will be satisfied by
liquidating the assets of Prime, the payment to National of the funds in the
registry of the court (Petition for Concursus file number 976174-D), the
payment to National of available cash in Prime, the sale of Prime's truckstop
inventory to National (the "Prime Assets") and a promissory note from Prime
(guaranteed by TWGLa and TWG) in the principal amount of $239,597 bearing
interest at the rate of 10% per annum payable in four equal monthly
installments beginning on June 22, 1998 (the "National Promissory Note");
(iii) to the extent that the Prime Assets are insufficient to satisfy the
National Claim, TWGLa will reduce the Settlement Payment by the amount of
such deficiency and remit such amount to National; (iv) the remaining funds
of the Settlement Payment first will be used to pay trade creditors and to
reimburse TWGLa for payments made under the National Promissory Note and any
funds remaining after such payments and reimbursements will be paid to the
former owners of Prime; (v) all of the litigation among the parties was
dismissed (see - Part II , Item 1, "Legal Proceedings"); and (vi) all parties
agreed to mutually acceptable releases of all claims and liabilities against
the other.
On April 1, 1998, the Company issued a press release announcing the
acquisition of Resorts. In connection with the announcement, TWG stated that
a third casino in Znojmo, Czech Republic is planned to open by the third
quarter of 1999 assuming that all required permissions and approvals are
received prior to December 31, 1998. The Company will require financing of
approximately $8.0 million to build and equip the Znojmo facility. The
Company believes, although there can be no assurance, that financing should
be available at terms favorable to the Company and TWGI.
On April 17, 1998, the Company issued a press release announcing the
acquisition of 90% of the Casino de Zaragoza, SA, a company incorporated in
Zaragoza, Spain that holds an exclusive casino license in the region of
Aragon. TWG acquired 90% of the outstanding stock of CDZ for approximately
$780,000 and assumed outstanding debt obligations of approximately $4.9
million. TWG currently is negotiating to raise approximately $4.0 million to
repay the Loan Agreement, fund the remaining purchase price, recapitalize CDZ
and provide working capital to cover the projected operating losses. (See -
"Liquidity and Capital Resources".) The Company anticipates that permission
will be granted by the appropriate Spanish government authorities that will
enable TWG to move CDZ to a more favorable location. If the Company decides
to buy, build and equip its own facility, it is anticipated that it may
require financing of approximately $7.0 million. The Company expects,
although there can be no assurance, that financing will be available at terms
favorable to TWG.
In the event that financing is not available for the casino in Znojmo, the
acquisition and recapitalization of CDZ and the new casino in Zaragoza, it
would have a material adverse effect on the future profitability of TWG.
Management of the Company continues to seek other opportunities both within
and outside of the United States. There can be no assurance that management
will be successful in identifying such opportunities, financing such
acquisitions or investments or implementing such transactions. The failure
to so do may have a material adverse effect upon the Company's financial
condition and results of operation.
YEAR 2000 CONVERSION
The Company does not believe that the Year 2000 conversion as it relates to
computer applications that perform data intensive calculations beyond
December 31, 1999 will have a material adverse effect on the Company's
operations.
10
<PAGE>
NOTE ON FORWARD-LOOKING INFORMATION
This Form 10-QSB contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-QSB that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipates," "estimates," or "continue" or comparable terminology or the
negative thereof are intended to identify certain forward-looking statements.
These statements by their nature involve substantial risks and uncertainties,
both known and unknown, and actual results may differ materially from any
future results expressed or implied by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements whether as a result of new information, future
events or otherwise.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about November 6, 1997, the Company was sued for breach of contract by
Monarch Casinos, Inc. of Louisiana and Michael A. Edwards in the 15th
Judicial District Court, Lafayette Parish, Louisiana, Case No. 97-5037B.
This litigation was filed pro se, but Mr. Edwards has since engaged counsel.
Mr. Edwards claims compensation charges of approximately $2.2 million and
punitive charges of $11.1 million and has alleged that the Company breached a
management contract dated September 21, 1994. On May 6, 1998, Mr. Edwards
filed a First Supplemental and Amending Petition for Breach of Contract and
for Declaratory Relief against the Company. The Company has hired local
litigation counsel and believes that these claims are wholly without merit
and intends to defend this action vigorously.
The May 22, 1998 Settlement (see - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Plan of Operation") provided
that the existing lawsuits between the parties were resolved as follows:
1. Prime Properties, Inc. vs. National Auto/Truckstops, Inc. No. 98-0076
in the United States District Court for the Western District of Louisiana
dismissed with prejudice, each party to bear its own cost.
2. Trans World Gaming of Louisiana, Inc. vs. Prime Properties and National
Auto/Truckstops, Inc. No. 97-6174 in the Fifteenth Judicial Court for
the Parish of Lafayette, dismissed pursuant to a consent judgment
following the release to National of the funds deposited in the Registry
of the Court.
3. In Re: Prime Properties, Inc., d/b/a Lafayette 76 Auto/Truck Plaza, No.
98-50087 in the United States Bankruptcy Court for the Western District
of Louisiana, dismissed with prejudice.
(See the Form 10QSB for the quarter ended March 31, 1998, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Plan of Operation").
The Company, through Chrysolith, has joined with two other video poker
operators in the State of Louisiana in challenging the Voter Mandate (which
prohibits gaming in approximately 35 parishes after June 30, 1999) in the
courts. On January 30, 1998, the Louisiana Supreme Court unanimously denied
without comment a writ application filed by Chrysolith and the other
operators which alleged, among other things, violations of the Louisiana
election code. The writ denial effectively ended the election code challenge
to the video poker referenda. The suit will proceed to federal court on a
charge of federal civil rights violations under Title 42 of the United States
Code Section 1983. The Company cannot, as of the date, hereof predict the
outcome of this litigation or when a decision relating hereto will be
rendered.
The Company is not currently involved in any other material legal proceeding.
ITEM 2. CHANGES IN SECURITIES
(a) None
11
<PAGE>
(b) None
(c) In connection with the recently completed financing including
the restructure of the Company's long-term debt (see the Form
10-KSB/A for the year ended December 31, 1997, Item 6.
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Liquidity and Capital
Resources"), the Company issued the following series of
warrants to purchase the Company's common stock:
Series A Warrants: Warrant to purchase 960,000 shares of TWG
common stock with an exercise price of $1.00 per share which
expire on December 31, 2005 issued to replace existing warrants
in connection with the issuance of TWG's Senior Bonds dated
July 1, 1996. (see the Form 10-QSB for the quarter ended June
30, 1996, Item 6. " Management's Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity and
Capital Resources").
Series B Warrants: Warrant to purchase 3,200,000 shares of TWG
common stock with an exercise price of $1.50 per share which
expire on December 31, 2005 issued to replace the conversion
rights in connection with the Senior Bonds described above.
Series C Warrants: Warrant to purchase 7,087,452 shares of TWG
common stock with an exercise price of $.01 per share which
expire on March 31, 2008 issued pursuant to the Private
Placement dated March 16, 1998 (see - "Management's Discussion
and Analysis of Financial Condition and Results of Operations
-Liquidity and Capital Resources" above).
Series D Warrants: Warrant to purchase 2,051,912 shares of TWG
common stock with an exercise price of $.01 per share which
expire on March 31, 2008 which replace the warrants issued in
connection with the June 1996 Baker Bridge Loan (see the Form
10-QSB for the quarter ended June 30, 1996, Item 6.
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources").
Series E Warrants: Warrant to purchase 354,374 shares of TWG
common stock with an exercise price of $.01 per share which
expire on March 31, 2008 issued pursuant to the Private
Placement dated March 16, 1998 (see "Management's Discussion
and Analysis of Financial Condition and Results of Operations
-Liquidity and Capital Resources").
ITEM 3. DEFAULT UPON SENIOR SECURITIES
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO VOTING SECURITY HOLDERS
On May 26, 1998, the Company held its annual meeting of shareholders
for the following purposes, all of which were approved by the
requisite shareholder vote:
1. The election of six directors:
<TABLE>
<CAPTION>
For Withhold
--- --------
<S> <C> <C>
Julio Heurtematte, Jr. 2,678,570 206,120
Stanley Kohlenberg 2,847,070 37,620
Malcomb M.B. Sterrett 2,678,570 206,120
Richard R. Taft 2,847,070 37,620
Andrew Tottenham 2,847,070 37,620
Dominick J. Valenzano 2,847,070 37,620
</TABLE>
12
<PAGE>
2. Adoption of the Company's 1998 Incentive Stock Option Plan to
provide a total of 2 million shares of common stock of the Company:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
<S> <C> <C> <C>
1,450,280 401,721 22,650 1,010,039
3. The adjournment of the Annual Meeting to solicit additional
proxies, if necessary:
For Against Abstain
--- ------- -------
2,640,274 222,616 21,800
</TABLE>
ITEM 5. OTHER INFORMATION
IMPORTANT DATES RELATING TO STOCKHOLDER PROPOSALS FOR THE 1999
ANNUAL MEETING OF SHAREHOLDERS
As noted in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held May 26, 1998 under the caption "Proposals
for the Next Annual Meeting", any proposal which a stockholder of the Company
wishes to have included in the Company's proxy solicitation materials to be
used in connection with the Company's 1999 Annual Meeting of Shareholders,
must be received at the principal executive offices of the Company, One Penn
Plaza, Suite 1503, New York, New York 10119-0002, Attention: Secretary, no
later than December 21, 1998.
If the notice of such proposal is received after December 21, 1998,
it will not be considered timely pursuant to Proxy Rule 14a-8 and such
proposal will not be included in the Company's proxy soliciting materials.
In addition, if a stockholder fails to notify the Company in
writing of a proposal which the stockholder desires to introduce at the 1999
Annual Meeting of Shareholders on or before March 6, 1998, the proxy utilized
by the Company may confer discretionary authority on the proxies appointed by
the Company to vote with respect to such proposal, without a description of
the matter in the Company's proxy statement and without specific direction
from the stockholders granting such proxies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-QSB
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
27.1 Financial Data Schedule
</TABLE>
b. Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
quarter ended June 30, 1998:
On April 14, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of 21st Century Resorts in the Czech
Republic. The Form 8-K was amended and filed on Current Report
8-K/A on June 15, 1998, together with the audited financial
statements and pro-forma financials of the Company and 21st
Century Resorts.
13
<PAGE>
On May 4, 1998, the Company filed a Current Report on Form 8-K
reporting the acquisition of the Casino de Zaragoza in Zaragoza,
Spain. The Form 8-K was amended and filed on Current Report
Form 8-K/A on July 1, 1998, together with the audited financial
statements and pro-forma financials of the Company and Casino de
Zaragoza.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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: August 14, 1998 By: /s/ Dominick J. Valenzano
-------------------------
Dominick J. Valenzano
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND
ON PAGE F-3 AND F-4 OF THE COMPANY'S 10KSB/A FOR THE YEAR ENDED DECEMBER
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,766
<SECURITIES> 0
<RECEIVABLES> 1,153
<ALLOWANCES> 32
<INVENTORY> 65
<CURRENT-ASSETS> 5,149
<PP&E> 4,433
<DEPRECIATION> 1,689
<TOTAL-ASSETS> 27,271
<CURRENT-LIABILITIES> 4,887
<BONDS> 27,505
0
0
<COMMON> 3
<OTHER-SE> (5,124)
<TOTAL-LIABILITY-AND-EQUITY> 27,271
<SALES> 1,000
<TOTAL-REVENUES> 6,358
<CGS> 1,070
<TOTAL-COSTS> 5,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 925
<INCOME-PRETAX> (1,294)
<INCOME-TAX> 101
<INCOME-CONTINUING> (1,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,395)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
