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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 March 31, 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
____________________
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.)
10119-0002
ONE PENN PLAZA, SUITE 1503 (Zip Code)
NEW YORK , NY
(Address of principal executive
offices)
Registrant's telephone number, including area code: (212) 563-3355
____________________
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 May 10, 1998: 3,044,286
Transitional Small Business Disclosure Format (check one; YES / / NO /X/)
<PAGE>
TRANS WORLD GAMING CORP.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART 1 - FINANCIAL INFORMATION
<TABLE>
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PAGE
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<S> <C>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED AND CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 1
(UNAUDITED) AND DECEMBER 31, 1997.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED) FOR THE
THREE MONTHS ENDED MARCH 31, 1998 AND 1997. 2
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR
THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997. 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICAL 5
CONDITION OR PLAN OF OPERATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 8
ITEM 2. CHANGES IN SECURITIES 9
ITEM 3. DEFAULT UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
</TABLE>
1
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FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED STATEMENTS
<TABLE>
<CAPTION>
TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
March 31, Dec 31,
1998 1997
ASSETS ---------- ----------
<S> <C> <C>
CURRENT ASSETS (unaudited)
Cash & equivalents $3,358 $198
Accounts/Notes receivable 421 422
Inventories 77 58
Other current assets 64 80
---------- ----------
Total current assets 3,920 758
---------- ----------
PROPERTY AND EQUIPMENT -net 422 426
---------- ----------
OTHER ASSETS
Investment at equity 75 75
Goodwill 642 654
Investment- 21st Century Resorts 11,825 0
Deferred debt issuance costs, net 1,856 484
Deposits and deferred costs on investments 389 363
Deferred costs and other assets 304 310
---------- ----------
Total other assets 15,091 1,886
---------- ----------
TOTAL ASSETS $19,433 $3,070
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Current portion of long term debt $2,125 $846
Accounts payable and accrued expenses 696 801
---------- ----------
Total current liabilities 2,821 1,647
---------- ----------
LONG TERM DEBT, net of current portion 20,323 5,149
---------- ----------
STOCKHOLDERS EQUITY
Capital stock 3 3
Additional paid-in-capital 8,896 8,896
Stock warrants outstanding 537 537
Accumulated deficit (13,147) (13,162)
---------- ----------
Total stockholders equity (3,711) (3,726)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $19,433 $3,070
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
1
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TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
1998 1997
---- ----
<S> <C> <C>
Revenues $1,569 $1,671
Costs and expenses
Cost of revenue 988 993
Administrative 210 328
Depreciation and Amortization 101 83
------ ------
Total costs and expenses 1,299 1,404
------ ------
Earnings from operations 270 267
Interest expense 255 172
------ ------
Earnings before taxes 15 95
Provision for tax 0 18
------ ------
Net earnings $15 $77
------ ------
------ ------
Earnings per share $0.00 $0.03
Weighted Average of Common shares
used in computing earnings per share 3,044 3,044
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
2
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TRANS WORLD GAMING CORP.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities $7 $217
Cash flows used by investing activities
Investment in 21st Century Resorts (11,680) 0
Deposits on Investments (170) 0
------- -------
Net cash from investing activities (11,850) 0
Cash flows from financing activities
Proceeds from long term debt 17,000 0
Proceeds from short term notes 775 0
Repayment of outstanding debt (1,320) 0
Deferred debt issuance costs (1,452) (277)
------- -------
Net cash from financing activities 15,003 (277)
Net increase/(decrease) in cash 3,160 (60)
Cash - beginning of period 198 489
------- -------
Cash - end of period $3,358 $429
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO THE FINANCIAL STATEMENTS
3
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TRANS WORLD GAMING CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Unaudited Statements.
The accompanying condensed consolidated statements of operations of Trans
World Gaming Corp. (the "Company" or "TWG") for the three months ended
March 31, 1998 and March 31, 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 in accordance with
generally accepted accounting principles, 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 three months
ended March 31, 1998 are not necessarily indicative of the results for
the entire year ending December 31, 1998.
2. Earnings per share were calculated based on a weighted average of
3,044,286 shares of common stock outstanding for the three months ended
March 31, 1998 and March 31, 1997.
3. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which encourages companies to recognize
compensation expense in the income statement based on the fair value of the
underlying common stock at the date the awards are granted. However, SFAS
No. 123 will permit continued accounting under APB Option 25, "Accounting
for Stock Issued to Employees," accompanied by disclosure of the pro forma
effects on net income and earnings per share had the new accounting rules
been applied. The statement is effective for calendar year 1996. The
Company has not yet determined which method it will follow for measuring
compensation cost attributed to stock based compensation or the impact of
the new standard on its consolidated financial statement.
4. In early 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share." The statement is effective for financial
statements for periods ending after December 15, 1997, and changes the
method in which earnings per share will be determined. Adoption of this
statement by the Company has not had a material impact on earnings per
share.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company's operations resulted in net income of $15,000 for the three months
ended March 31, 1998, representing a $62,000 decrease from the net income of
$77,000 for the three months ended March 31, 1997. The Company's earnings
before interest, taxes, depreciation and amortization ("EBITDA") totaled
$270,000 for the three months ended March 31, 1998, virtually unchanged from the
EBITDA of $267,000 for the three months ended March 31, 1997.
Revenues totaled $1,569,000 for the three months ended March 31, 1998, compared
to $1,671,000 for the same period in 1997, a decrease of 6%. Video Poker
revenues at the Gold Coin increased 3%, from $939,000 to $968,000, for the three
months ended March 31, 1997 and 1998, respectively. Revenues from the Toledo
Palace increased 84% from $62,000 to $114,000, 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 decreased 27% from
$662,000 for the three months ending March 31, 1997 to $482,000 for the three
months ending March 31, 1998, primarily due to lower than expected fuel sales.
Total costs and expenses decreased 7% from $1,404,000 for the three months ended
March 31, 1997 to $1,299,000 for the three months ended March 31, 1998. Video
Poker operations recorded direct costs of $300,000 for the three months ended
March 31, 1998, which increased by 9% from the costs of $275,000 during the
comparable 1997 quarter due primarily to the costs associated with the increase
in the number of machines at the Toledo Palace.
Retail expenses at the Woodlands truck stop decreased approximately $135,000, or
21%, from $644,000 for the three months ended March 31, 1997 to $509,000 for the
comparable quarter of 1998, due primarily to direct costs associated with
decreased fuel sales.
Consulting and business development costs incurred by the Tottenham & Co.
subsidiary increased $54,000, or 73%, from $74,000 for the three months ended
March 31,1997 to $128,000 for the comparable quarter of 1998, due to increased
travel and related costs incurred in the Company's new business development
activity in Eastern Europe.
MATS expenses, consisting primarily of labor and travel-related costs, amounted
to $55,000 for the three months ended March 31, 1998. The Company did not incur
such costs during the same period in 1997.
Administrative costs decreased 36%, or $118,000, to $210,000 for the three
months ended March 31, 1998 as compared to $328,000 in the comparable quarter in
1997. In the three months in the last fiscal quarter ended March 31, 1997, the
Company recorded approximately $120,000 in expenses in support of its business
development efforts in Eastern Europe, expenses the Company did not incur during
the current three month period ending March 31, 1998.
Depreciation and Amortization for the three month periods ending March 31, 1997
and March 31, 1998, totaled $83,000 and $101,000, respectively. The increase of
$18,000 or 22% was due primarily to the three months of amortization of the
goodwill portion of the Tottenham & Co. acquisition in 1998 as compared to one
month in 1997.
Interest expense increased by $83,000 from $172,000 for the three months ended
March 31, 1997 to $255,000 for the comparable quarter of 1998 due to $80,000 in
interest on the $17 million Notes (as defined below) dated March 17, 1998 in
connection with the acquisition of 21st Century Resorts. (See "Liquidity and
Capital Resources" below).
5
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital, defined as current assets minus current
liabilities, increased $2.0 million to $1.1 million for the three months
ended March 31, 1998 from a working capital balance of ($.9 million) 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
("Resorts") (See: 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 in cash and equivalents of $3.2 million to a balance
of $3.4 million at March 31, 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, (the "First Amended Loan Agreement") under which TWG has
the ability to borrow up to $4,125,000. As of March 30, 1998, the Company
borrowed $1,288,000 under this loan which was repaid in full on
March 31, 1998 from the proceeds of the Private Placement (as described
below) (See: 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 Lenders Waiver and
Option Agreement (the "Waiver") under which the Company borrowed $250,000 to
fund the acquisition of the Bishkek Casino, in Krygyz, a former member of the
Soviet Union (the "Bishkek Note"). The Company will repay the principal and
accrued interest payable in twelve monthly installments starting May 1, 1998
from the Company's 60% share of the operating profits from the Bishkek Casino.
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: Form 8-K filed with the Securities and Exchange Commission on
April 14, 1998). The proceeds of the Notes were used for improvements to and
the net acquisition costs of Resorts of $12.6 million, to repay the First
Amended Loan Agreement of $1.3 million, for costs and expenses of the private
placement of $1.4 million and working capital of $1.7 million.
The Company believes, although there can be no assurance, that 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 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 and Prime, which
leases a truckstop in which the Gold Coin is located from National, certain
rights including an 18 year sub-leasehold interest, subject to the terms of
an Over-lease between Prime, as lessee and National, as lessor. Should this
Over-Lease be terminated, the Company could lose all of its rights under the
Sub-lease and Prime would lose its establishment license for video poker in
the State of Louisiana. The Company acquired from Prime the right to a 50%
interest in the profits of the Gold Coin under the terms of the Prime
Agreement under which the Company agreed to pay a total of $6.0 million for
such profit interest. The Company's obligation under the Prime Agreement due
to Prime is evidenced by the Prime Note, the final installment of which was
paid in full on December 23, 1997. 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 (where the Gold Coin is located) was to
terminate on January 23, 1998, due to an alleged breach by Prime of the
Over-Lease. The Company believes that the alleged default by Prime may be
due, in part, to the failure of Prime to pay certain sums due to National
under the Over-
6
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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
into the registry of the court, protesting that such sum is 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 made him aware 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 between
$925,000 and $1,000,000 (the "National Claim"). The Company has engaged
counsel and intends to intervene in this action in order to protect its
rights under the Prime Agreement and Sub-lease. (See: Form 10KSB-A for the
year ended December 31, 1997, Item 6, "Management's Discussion and Analysis
or Plan of Operations, Important Factors to Consider".)
As noted above, the Sub-lease for the Gold Coin is subject to the terms and
conditions of the Over-Lease between Prime and National. Although National
is aware of the Company's use of the Gold Coin facilities, National has not
yet granted its written consent to the Sub-lease, as required by the
Over-Lease. The Over-Lease expires September 30, 1999, subject to the right
of Prime to extend the term for up to five successive three-year periods.
Prime is not contractually obligated to the Company to exercise its right to
extend the Over-Lease at the end of its term or any renewal term. In
addition, National has the right to terminate the Over-Lease under certain
circumstances, including if Prime defaults, under the terms of the
Over-Lease, or if Prime does not renew a franchise relationship between
National and Prime. The termination of the Over-Lease upon the expiration of
its terms (or any renewal term), or as a result of a breach by Prime or
otherwise, will result in the termination of the Company's sub-lease 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 March 20, 1998 National filed various motions, as permitted under section
362 (a) of the Bankruptcy Code, to lift the automatic stay of 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. As of May 11, 1998 the courts
have not yet ruled on Case No. 98-0076.
Counsel for the Company has been negotiating a settlement between and among
Trans World Gaming of Louisiana, Inc., ("TWGLa"), Chrysolith, Prime and
National (the "Settlement"). The proposed terms of the Settlement are as
follows: (i) TWGLa and Prime will agree to a settlement of $450,000 (the
"Prime Payment"), (ii) the National Claim will be satisfied by liquidating
the assets of Prime, consenting to a release of the funds in the registry of
the court (Petition for Concursus file number 976174-D), available cash in
Prime and the sale of Prime's truckstop inventory to National (the "Prime
Assets"); (iii) to the extent that the Prime Assets are insufficient to
satisfy the National Claim, TWGLa will reduce the Prime Payment equal to such
deficiency and remit such payment to National; (iv) the remaining funds of
the Prime Payment will be used first to pay trade creditors and then Prime;
(v) the capital stock of Prime will be transferred to a third party; and (vi)
all parties will then agree to mutually acceptable releases of all claims and
liabilities. If all parties agree to the Settlement, and subject to a due
diligence review including a limited audit by the Company's independent
certified accountants and the execution of all of the necessary documents,
the transaction is expected to close by the end of May 1998. There can be no
assurance that the transaction will be closed on that date, if at all. If the
parties cannot conclude an agreement, or if the Louisiana gaming authorities
do not approve the transaction, the establishment license for the Gold Coin
will be revoked which will mandate the closing of the Gold Coin which will
have a material adverse effect on the Company's profitability.
7
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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 scheduled to be opened by the 3rd quarter, 1999.
The Company will require financing of approximately $8.0 million to build and
equip the facility. The Company believes, although there can be no assurance,
that financing should be available at terms favorable to 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 (the "CDZ"). TWG
acquired 90% of the outstanding stock of CDZ for approximately $780,000, $50,000
of which was paid on deposit, and assumed outstanding debt obligations of
approximately $4.9 million. TWG is currently negotiating to raise approximately
$4.0 million to fund the remaining purchase price, recapitalize CDZ and provide
working capital to cover the projected operating losses. The Company
anticipates that permission will be granted that will enable TWG to move CDZ to
a more favorable location which will require an investment of approximately $7.0
million to build and equip a new facility. 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.
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.
See Exhibit 99 for a discussion of factors that could cause the Company's actual
results to differ materially from those expressed in the forward-looking
statement.
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.
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 (where the Gold
Coin is located) was to terminate on January 23, 1998, due to an alleged breach
by Prime of the Over-Lease. The Company believes that the alleged default by
Prime may be due, in part, to the failure of Prime to pay certain sums due to
National under 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 the Prime
Note of $292,000 into the registry of the court, protesting that such sum is
8
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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 made him aware 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 approximately $925,000.
On March 20, 1998 National filed various motions, as permitted under section 362
(a) of the Bankruptcy Code, to lift the automatic stay of 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. As of May 11, 1998 the courts
have not yet ruled on Case No. 98-0076. The Company has engaged counsel and
intends to intervene in this action in order to protect its rights under the
Prime Agreement and Sub-lease.
Counsel for the Company has been negotiating a settlement between and among
Trans World Gaming of Louisiana, Inc., ("TWGLa"), Chrysolith, Prime and
National (the "Settlement"). The proposed terms of the Settlement are as
follows: (i) TWGLa and Prime will agree to a settlement of $450,000 (the "Prime
Payment"), (ii) the National Claim will be satisfied by liquidating the assets
of Prime, consenting to a release of the funds in the registry of the court
(Petition for Concursus file number 976174-D), available cash in Prime and the
sale of Prime's truckstop inventory to National (the "Prime Assets"); (iii) to
the extent that the Prime Assets are insufficient to satisfy the National Claim,
TWGLa will reduce the Prime Payment equal to such deficiency and remit such
payment to National; (iv) the remaining funds of the Prime Payment will be used
first to pay trade creditors and then Prime; (v) the capital stock of Prime
will be transferred to a third party; and (vi) all parties will then agree to
mutually acceptable releases of all claims and liabilities. If all parties
agree to the Settlement, and subject to a due diligence review including a
limited audit by the Company's independent certified accountants and the
execution of all of the necessary documents, the transaction is expected to
close by the end of May 1998. There can be no assurance that the transaction
will be closed on that date, if at all. If the parties cannot conclude an
agreement, or if the Louisiana gaming authorities do not approve the
transaction, the establishment license for the Gold Coin will be revoked which
will mandate the closing of the Gold Coin which will have a material adverse
effect on the Company's profitability.
The Company, through its Chrysolith affiliate, has joined with two other video
poker operators in the State in challenging the Voter Mandate in the courts. On
January 30, 1998 the Louisiana Supreme Court unanimously denied without comment
a writ application filed by Chrysolith, among others, alleging Election Code
violations, effectively ending the Election Code challenge to the video poker
referenda. The suit will proceed to federal court on a federal civil rights
violation 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 proceedings.
ITEM 2. CHANGES IN SECURITIES
None
(a) None
(a) In connection with the recently completed financing including the
restructure of the Company's long term debt (See: Form 10-KSB/A
for the year ended December 31, 1997 Item 6. "Management's
Discussion and Analysis of Financial Condition or Plan of
Operations, Liquidity and Capital Resources"), the Company issued
the following series of warrants to purchase the Company's common
stock:
9
<PAGE>
Series A Warrants: 960,000 warrants 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: Form 10-QSB for the
quarter ended June 30, 1996 Item 6. " Management's Discussion and
Analysis of Financial Condition or Plan of Operation, Liquidity
and Capital Resources").
Series B Warrants: 3,200,000 warrants 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: 7,087,452 warrants 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: Liquidity and
Capital Resources").
Series D Warrants: 2,051,912 warrants 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
(See: Form 10-QSB for the quarter ended June 30, 1996 Item 6.
"Management's Discussion and Analysis of Financial Condition or
Plan of Operation, Liquidity and Capital Resources").
Series E Warrants: 354,374 warrants 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: Liquidity and
Capital Resources").
ITEM 3. DEFAULT UPON SENIOR SECURITIES
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO VOTING SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-QSB
a. Exhibits
EXHIBIT NUMBER DESCRIPTION
27.1 Financial Data Schedule
99.0 Safe Harbor Under the Private
Securities Litigation Reform Act
b. Reports on Form 8-K
The Company filed no reports on Form 8-K during the last quarter
ended March 31, 1998
10
<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: May 14, 1998 By: /s/ Dominick J. Valenzano
----------------------------------------
Dominick J. Valenzano
Chief Financial Officer
1
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3358
<SECURITIES> 0
<RECEIVABLES> 458
<ALLOWANCES> (37)
<INVENTORY> 77
<CURRENT-ASSETS> 3920
<PP&E> 539
<DEPRECIATION> (117)
<TOTAL-ASSETS> 19,433
<CURRENT-LIABILITIES> 2821
<BONDS> 20,323
0
0
<COMMON> 3
<OTHER-SE> (3714)
<TOTAL-LIABILITY-AND-EQUITY> 19,433
<SALES> 484
<TOTAL-REVENUES> 1569
<CGS> 509
<TOTAL-COSTS> 988
<OTHER-EXPENSES> 311
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 255
<INCOME-PRETAX> 15
<INCOME-TAX> 0
<INCOME-CONTINUING> 15
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15
<EPS-PRIMARY> $0.00
<EPS-DILUTED> $0.00
</TABLE>
