<PAGE>
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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 September 30, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________TO ___________________.
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 November 13, 1998: 3,044,286
Transitional Small Business Disclosure Format (check one; YES / / NO /X/)
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TRANS WORLD GAMING CORP.
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART 1 - FINANCIAL INFORMATION
Page
----
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
(UNAUDITED). 2
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997. 3
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR
THE NINE MONTHS ENDED SEPTEMBER 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 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
<PAGE>
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED STATEMENTS
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
ASSETS 1998
-------------
(unaudited)
<S> <C>
CURRENT ASSETS
Cash & equivalents $ 1,778
Accounts/Notes receivable 1,120
Inventories 62
Other current assets 183
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Total current assets 3,143
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PROPERTY AND EQUIPMENT - net 3,496
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OTHER ASSETS
Investment at equity 75
Goodwill 17,375
Deferred debt issuance costs, net 338
Deposits and deferred costs on investments 585
Deferred costs and other assets 882
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Total other assets 19,255
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TOTAL ASSETS $ 25,894
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LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT)
CURRENT LIABILITIES
Current portion of long term debt $ 1,717
Accounts payable and accrued expenses 2,926
--------
Total current liabilities 4,643
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LONG TERM DEBT, net of current portion 27,342
--------
STOCKHOLDERS EQUITY/(DEFICIT)
Capital stock 3
Additional paid-in-capital 8,896
Stock warrants outstanding 537
Accumulated deficit (15,527)
--------
Total stockholders equity/(deficit) (6,091)
--------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY/(DEFICIT) $ 25,894
--------
--------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
2
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TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------ -------------------
1998 1997 1998 1997
------- ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES $10,220 $5,170 $ 3,862 $1,774
COSTS AND EXPENSES
Cost of revenue 8,090 3,216 3,245 1,109
Administrative 1,598 877 619 281
Depreciation and Amortization 1,535 283 632 101
------- ------ ------- ------
TOTAL COSTS AND EXPENSES 11,223 4,376 4,496 1,491
------- ------ ------- ------
EARNINGS/(LOSS) FROM OPERATIONS (1,003) 794 (634) 283
Interest expense 1,635 539 710 185
------- ------ ------- ------
EARNINGS/(LOSS) BEFORE TAXES (2,638) 255 (1,344) 98
Provision for tax 82 41 (19) 11
------- ------ ------- ------
NET EARNINGS/(LOSS) $(2,720) $ 214 $(1,325) $ 87
------- ------ ------- ------
------- ------ ------- ------
Earnings/(loss) per share - basic $ (0.89) $ 0.07 $ (0.44) $ 0.03
Weighted Average of Common
shares used in computing basic
earnings/(loss) per share 3,044 2,878 3,044 2,878
</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>
Nine months ended September 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows provided by operating activities $ 4,366 $ 545
Cash flows used by investing activities (20,657) (314)
Cash flows provided/(used) by financing activities 17,871 (483)
-------- -----
Net increase/(decrease) in cash 1,580 (252)
Cash - beginning of period 198 489
-------- -----
Cash - end of period $ 1,778 $ 237
-------- -----
-------- -----
</TABLE>
4
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TRANS WORLD GAMING CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Unaudited Statements.
The accompanying condensed as of September 30, 1998 and consolidated
financial statements of Trans World Gaming Corp. (the "Company" or
"TWG") for the three and nine months ended September 30, 1998 and
September 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 interim 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
nine months ended September 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 September 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 nine months ended September 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 to retire short-term
debt. The Company also acquired 90% of the shares of Casino de
Zaragoza, in Spain and the Company's Casino de Zaragoza subsidiary
assumed $4.8 million of Casino de Zaragoza's long term debt.
4. The Company is involved in a legal proceeding with Monarch Casinos in
Louisiana over an alleged breach of contract by TWG. In addition, the
Comany has negotiated a settlement by and among TWG, National
Auto/Truckstops, Inc. ("National") and Prime Properties, Inc. ("Prime")
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 SEPTEMBER 30, 1998 AND 1997
The Company's operations resulted in net loss of $1.3 million for the three
months ended September 30, 1998, representing a $1.4 million decrease from
the net income of $87,000 for the three months ended September 30, 1997. The
Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") totaled ($2,000) for the three months ended September 30, 1998 a
decrease of $386,000 from the three months ended September 30, 1997.
Revenues totaled $3.9 million for the three months ended September 30, 1998,
compared to $1.8 million for the same period in 1997, an increase of $2.1
million. Approximately $2.4 million of the increase represents revenues from
new businesses acquired in the second quarter of 1998, as described below. In
Louisiana, revenues from retail operations at the Woodlands truck stop in
Louisiana decreased 27% from $617,000 for the three months ended September
30, 1997 to $492,000 for the three months ended September 30, 1998, primarily
due to lower than expected fuel sales. Also, video poker revenues at the Gold
Coin decreased 13%, from $994,000 to $870,000, and revenues from the Toledo
Palace increased 15% from $89,000 to $102,000, for the respective quarters
ended September 30, 1997 and 1998 respectively.
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
September 30, 1998 totaled $1.6 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 September
30, 1998 were $.8 million. Neither Resorts nor CDZ generated revenues for the
Company in the comparable three month period in 1997.
Total costs and expenses increased from $1.1 million for the three months
ended September 30, 1997 to $3.2 million for the three months ended September
30, 1998, an increase of $2.1. Costs incurred in the operation of the
recently acquired casinos for the three months ended September 30, 1998 which
were not incurred over the same period in 1997 in the Czech Republic were
$1.1 million and in Spain totaled $1.0 million. In Louisiana, video poker
operations recorded direct costs of $331,000 for the three months ended
September 30, 1998, which increased by 19% 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 $196,000, or
28%, from $696,000 for the three months ended September 30, 1997 to $500,000
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 $63,000 for the three months ended September 30, 1998 which is
equal to the costs incurred by MATS during the comparable quarter of 1997.
Administrative costs increased $338,000, to $619,000, for the three months
ended September 30, 1998 as compared to $281,000 in the comparable quarter in
1997. Costs incurred in the three months ended September 30, 1998 to support
the Resorts and CDZ acquisitions totaled $221,000 consisting primarily of
legal ($105,000) and travel and administrative support costs ($82,000).
Depreciation and amortization for the three month periods ended September 30,
1998 and September 30, 1997 were $632,000 and $101,000 respectively. The
increase was due primarily to the amortization of goodwill from the
investments in the Czech Republic ($126,000), Spain ($85,000), Bishkek
($46,000), the amortization of deferred debt issuance costs relating to the
Private Placement ($54,000) and amortization of the Gold Coin Settlement
($112,500) (See -"Liquidity and Capital Resources".)
Interest expense increased by $545,000 from $185,000 for the three months
ended September 30,1997 to $730,000 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 September
30, 1998 accounting for a majority of the increase over the comparable three
month period in 1997.
6
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company's operations resulted in net loss of $2.7 million for the nine
months ended September 30, 1998, representing a $2.9 million decrease from
the net income of $214,000 for the nine months ended September 30, 1997. The
Company's EBITDA totaled $532,000 for the nine months ended September 30,
1998, a decrease of $545,000 compared to the nine months ended September 30,
1997.
Revenues totaled $10.2 million for the nine months ended September 30, 1998,
compared to $5.2 million for the same period in 1997, an increase of $5.0
million. Approximately $5.7 million of the increase represents revenues from
the Resorts and CDZ acquisitions as described below. In Louisiana, revenues
from retail operations at the Woodlands truck stop decreased 27% from $2.0
million for the nine months ended September 30, 1997 to $1.5 million for the
nine months ended September 30, 1998, primarily due to lower than expected
fuel sales. Also, video poker revenues at the Gold Coin decreased 6%, from
$2.9 million to $2.7 million, and revenues from the Toledo Palace increased
62% from $209,000 to $338,000, for the respective nine month periods ending
September 30, 1997 and 1998.
On March 31,1998, the Company acquired Resorts and the two operating casinos
owned by Resorts in the Czech Republic which generated revenues for the nine
months ended September 30, 1998 totaling $3.6 million. On April 17, 1998, TWG
acquired CDZ, which generated revenues for the nine months ended September
30, 1998 of $2.1 million. Neither Resorts nor CDZ generated revenues for the
Company in the comparable nine month period in 1997.
Total costs and expenses increased from $3.2 million for the nine months
ended September 30, 1997 to $8.1 million for the nine months ended September
30, 1998, an increase of $4.9 million. For the nine months ended September
30, 1998, costs incurred in the operation of the recently acquired casinos
for the nine months ended September 30, 1998 in the Czech Republic were $2.3
million, and in Spain, costs totaled $2.6 million. Those costs were not
incurred in the comparable 1997 period. In Louisiana, video poker operations
in Louisiana recorded direct costs of $950,000 for the nine months ended
September 30, 1998, an increase of 14% from the $834,000 of costs incurred
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 $496,000,
or 24%, from $2.1 million for the nine months ended September 30, 1997 to
$1.6 million for the comparable 1998 period, due primarily to direct costs
associated with decreased fuel sales.
MATS expenses, consisting primarily of labor and travel-related costs,
amounted to $174,000 for the nine months ended September 30, 1998, an
increase of $76,000 over the comparable period in 1997. Since MATS was
acquired in April 1997, the nine months ended September 30, 1997 represents
only six months of actual costs.
Administrative costs increased $721,000, to $1,598,000, for the nine months
ended September 30, 1998 as compared to $877,000 for the comparable period in
1997. Costs incurred to support the new business acquisitions totaled
$576,000 for the nine months ended September 30, 1998, consisting primarily
of legal ($239,000), audit ($44,000), advertising ($33,000), consulting fees
($30,000) and travel and administrative support costs ($193,000).
Depreciation and amortization for the nine month periods ending September 30,
1997 and September 30, 1998 were $283,000 and $1,535,000 respectively. The
increase was due primarily to the amortization of goodwill from the
investments in the Czech Republic ($278,000), Spain ($179,000), Bishkek
($92,000), the amortization of deferred debt issuance costs ($109,000)
relating to the Private Placement and the Gold Coin Settlement ($112,500)
(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 whether, the Boxer Casino will reopen for business.
Interest expense increased by $1,096,000, from $539,000 for the nine months
ended September 30,1997 to $1,635,000 for the comparable period in 1998.
Interest expense in connection with the Private Placement amounted to
$1,099,000 for the nine months ended September 30, 1998 accounting for the
majority of increase over the comparable nine month period in 1997.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital, defined as current assets minus current
liabilities, decreased $.6 million to a deficit of $1.5 million for the nine
months ended September 30, 1998 from a working capital deficit at December
31, 1997, of $0.9 million. 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 $1.6 million
in cash and equivalents to a balance of $1.8 million at September 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 September 30, 1998, the Company had
borrowed $1,538,000 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 equal monthly
installments starting June 1, 1998 from available cash flow, excluding cash
flow from the European casinos. The Company has repaid $111,108 in principal
payments through September 30, 1998. As of September 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 interest payment under the terms
of the Note was paid on September 17, 1998. As of September 30, 1998 and as
of the date hereof, the Company was and is current on its payments under the
Note.
On May 19, 1998, the Company and Value Partners executed a Loan Agreement
(the "Loan Agreement") under which the Company borrowed $1,000,000 at 12%
interest per annum to fund the purchase of the stock of the Casino de
Zaragoza (see - "Plan of Operations"), which was payable in full on September
15, 1998. The Company is currently negotiating with Value Partners to extend
the maturity of the loan to June 30, 1999 at the rate of 17% per annum. There
can be no assurance that the terms of Loan Agreement can be renegotiated at
terms favorable to the Company, if at all. Value Partners has the option to
declare the unpaid principal and accrued interest immediately due and payable
which would have a material adverse effect on the Company's financial
condition and results of operation. The Company is currently attempting 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.
8
<PAGE>
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.
If the Over-Lease had been 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 had 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 Prime's legal counsel 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.
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 Device 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 "May 22, 1998 Settlement"). The terms of
the May 22, 1998 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 would 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
9
<PAGE>
the rate of 10% per annum payable in four equal monthly installments
beginning on June 22, 1998 which was paid in full on September 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
it planned to open a third casino in Znojmo, Czech Republic 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 $10.0 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 outstanding stock of CDZ for approximately $780,000
and CDZ assumed outstanding debt obligations of approximately $4.8 million.
TWG currently is attempting 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 lease, build and equip a facility in the new location, it is anticipated
that it may require financing of approximately $5.0 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.
The Company uses non-customized, "off-the-shelf" accounting software
programs, subscribes to a payroll processing service and maintains banking
relationships with a major banking institution, all of which have indicated
that the Year 2000 Conversion issue as it relates to the Company has been
resolved or that they are Year 2000 compliant with minor adjustments in
process. The Company's contingency plan is to acquire new accounting
software, change payroll service companies and change banking institutions in
advance of the Year 2000 if the current suppliers do not demonstrate Y2K
compliance.
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 was 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, was 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, was 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 September 30, 1999) in
the courts. (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").
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.
11
<PAGE>
ITEM 2. CHANGES IN SECURITIES
(a) None
(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 September 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 September 1996 Baker Bridge
Loan (see the Form 10-QSB for the quarter ended September
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 6. EXHIBITS AND REPORTS ON FORM 10-QSB
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
27.1 Financial Data Schedule
b. Reports on Form 8-K
The Company filed the following report on Form 8-K during
the quarter ended September 30, 1998.
On September 3, 1998 the Company filed a Current Report on
Form 8-K reporting the resignation of Mr. Richard R. Taft
from the Company's Board of Directors.
12
<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: November 16, 1998 By: /s/ Dominick J. Valenzano
-------------------------
Dominick J. Valenzano
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,778
<SECURITIES> 0
<RECEIVABLES> 1,157
<ALLOWANCES> (37)
<INVENTORY> 62
<CURRENT-ASSETS> 183
<PP&E> 5,331
<DEPRECIATION> (1,835)
<TOTAL-ASSETS> 25,894
<CURRENT-LIABILITIES> 4,643
<BONDS> 27,342
0
0
<COMMON> 3
<OTHER-SE> (6094)
<TOTAL-LIABILITY-AND-EQUITY> 25,894
<SALES> 1,492
<TOTAL-REVENUES> 10,220
<CGS> 1,570
<TOTAL-COSTS> 8,090
<OTHER-EXPENSES> 3,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,635
<INCOME-PRETAX> 0
<INCOME-TAX> 82
<INCOME-CONTINUING> (2,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,720)
<EPS-PRIMARY> ($0.89)
<EPS-DILUTED> ($0.89)
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