**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C.  20549**

 

**FORM 10-KSB**

 

**ý****  ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Year Ended December 31, 2002**

 

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                 to                 .**

 

**CommissionFile No.:  0-25244**

 

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| **TRANS  WORLD CORPORATION**                            |
|---------------------------------------------------------|
| (Exact name of registrant as specified in  its charter) |
|                                                    |

 

| **Nevada**                                                      |   | **13-3738518**                        |
|-----------------------------------------------------------------|--------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                            |   |                                  |
| **545 Fifth Avenue, Suite 940  New York, New York**             |   | **10017**                             |
| (Address of principal executive offices)                        |   | (Zip Code)                            |

 

| Registrant’s telephone number, including  area code:  **(212) 983-3355** |
|------------------------------------------------------------------------------------|
|                                                                               |   |   |
| Securities registered pursuant to Section  12(b) of the Act: **None**              |
| Securities registered pursuant to Section  12(g) of the Act:                       |
|                                                                               |   |   |
| **Common Stock, $.001 par value**                                                  |
| **Warrants to Purchase Common Stock**                                              |

 

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Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actof 1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES   ý   NO   o

 

Indicate by check mark if disclosure of delinquent filers pursuant toItem 405 of Regulation S-B is not contained herein, and will not be contained,to the best of Registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB orany amendment to this Form 10-KSB.      o

 

The issuer’s revenues for the year ended December 31, 2002 wereapproximately $14,237,000.

 

As of March 20, 2003, 50,328,175 shares of Common Stock of theRegistrant were deemed outstanding, and the aggregate market value of theCommon Stock of the Registrant as of that date (based upon the $0.15 closingprice of the Common Stock at that date as reported by the OTC Bulletin Board),excluding outstanding shares beneficially owned by directors and executiveofficers, was approximately $7.549 million.

 

Transitional Small Business Disclosure Format (check one:   YES  o            NO   ý)

 

 

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**TRANS WORLD CORPORATION**

**FORM IO-KSB**

 

**TABLEOF CONTENTS**

** **
| PART I. |    |                                                         |
|---------|---------|--------------------------------------------------------------|
|    | Item 1. | Description of Business                                      |
|    |    | General Development of Business                              |
|    |    | Current Operations                                           |
|    |    | Terminated Ventures                                          |
|    |    | Accounting and Financial Issues                              |
|    |    | Corporate Information                                        |
|    |    | OTC Bulletin Board                                           |
|    |    | Description of Business                                      |
|    |    | Industry Overview                                            |
|    |    | The Company’s Facilities                                |
|    |    | Future Operations                                            |
|    |    | Long Range Objective                                         |
|    |    | Marketing                                                    |
|    |    | Regulations and Licensing                                    |
|    |    | Application of Future or Additional  Regulatory Requirements |
|    |    | Gaming  Taxes                                                |
|    |    | Competition                                                  |
|    |    | Employees                                                    |
|    | Item 2. | Description of Property                                      |
|    |    | Corporate Offices                                            |
|    |    | Czech  Republic                                              |
|    | Item 3. | Legal Proceedings                                            |
|    |    | Former President and Chief Operating  Officer                |
|    |    | Choice Capital Corporation                                   |
|    | Item 4. | Submission of Matters to a Vote of Security  Holders         |

 

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| PART  II. |    |                                                                                  |
|-----------|---------|---------------------------------------------------------------------------------------|
|      | Item 5. | Market for Common Equity and Related  Stockholder Matters                             |
|      | Item 6. | Management’s Discussion and Analysis or  Plan of Operations                      |
|      |    | Forward-Looking Statements                                                            |
|      |    | Exchange  Rates                                                                       |
|      |    | Critical Accounting Policy                                                            |
|      |    | Results of Operations                                                                 |
|      |    | Business  Units                                                                       |
|      |    | Ceska,  Czech Republic                                                                |
|      |    | Rozvadov,  Czech Republic                                                             |
|      |    | Znojmo,  Czech Republic                                                               |
|      |    | Liquidity and Capital Resources                                                       |
|      |    | Plan of Operations and Important Factors to  Consider                                 |
|      |    | Accumulated Deficit; Operating Losses                                                 |
|      |    | Need to Diversify                                                                     |
|      |    | Taxation of Gaming Operations                                                         |
|      |    | Dependence upon Key Personnel                                                         |
|      |    | Need for Additional Financing                                                         |
|      |    | International Activities                                                              |
|      |    | Licensing and Regulation                                                              |
|      |    | Liability Insurance                                                                   |
|      |    | No  Dividends                                                                         |
|      |    | Possible Adverse Effect of Issuance of  Preferred Stock                               |
|      |    | Dilutive Effect of Warrants                                                           |
|      | Item 7. | Financial Statements                                                                  |
|      | Item 8. | Changes  In and Disagreements with Accountants on Accounting and Financial Disclosure |

 

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| PART III.                                  |      |                                                                                                                 |
|--------------------------------------------|-----------|----------------------------------------------------------------------------------------------------------------------|
|                                       | Item 9.   | Directors and Executive Officers, Promoters and Control Persons:  Compliance with Section 16(A) of the Exchange Act. |
|                                       |      | Information about the Board and its  Committees                                                                      |
|                                       |      | Audit Committee                                                                                                      |
|                                       |      | Compensation Committee                                                                                               |
|                                       |      | Section 16 (A) Beneficial Ownership  Reporting Compliance                                                            |
|                                       | Item  10. | Executive  Compensation                                                                                              |
|                                       |      | Summary of Cash and Certain Other  Compensation                                                                      |
|                                       |      | Option Grants and Exercises                                                                                          |
|                                       |      | Directors’ Compensation                                                                                         |
|                                       |      | Employment/Severance Agreements                                                                                      |
|                                       | Item  11. | Security  Ownership of Certain Beneficial Owners and Management                                                      |
|                                       | Item  12. | Certain  Relationships and Related Transactions                                                                      |
|                                       | Item  l3. | Exhibits  and Reports on Form 8-K                                                                                    |
|                                       |      | (a)Exhibits                                                                                                          |
|                                       |      | (b)Reports on Form 8-K                                                                                               |
| EXHIBITS  INDEX                            |
| SIGNATURES  AND CERTIFICATIONS             |
| INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |

 

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**Item 1. Description of Business.**

** **

**General Development of Business**

 

Trans World Corporation (herein referred to as the “Company” or “TWC”)owns and operates three casinos, which are located in Ceska Kubice (“Ceska”),Rozvadov (“Rozvadov”), and Hate (near Znojmo) (“Znojmo”) in the Czech Republic.  The casinos, which operate under the brandname American Chance Casinos (“ACC”) and showcase themes portrayingrecognizable eras of American history, are located at border locations and drawthe majority of their clients from Germany and Austria.  One of the Company’s casinos has a Chicago1920’s era theme, another casino has a Southern Antebellum theme, and the thirdcasino has a Pacific South Seas theme. ACC’s operating strategy centers on differentiation of its products fromthe alternative German and Austrian casinos, which have very formalatmospheres.  Management has endeavoredto create gaming environments with casual and exciting atmospheres thatemphasize relaxed entertainment. Further, as part of its ACC operating formula, management has striven tohighlight the integrity and professionalism of its American owned operations asa means of allaying any concerns that German and Austrian clients might haveabout gambling abroad.

 

TWC was organized as a Nevada corporation in October 1993 to acquire,develop and manage, to the extent permitted by applicable local laws, gamingestablishments featuring live and mechanized gaming, including video gamingdevices such as video poker machines. With the 1994 acquisition of several Louisiana-based entities, TWCconducted operations under these guidelines. In 1998, faced with a closing date of June 30, 1999 for its Louisianaoperations as a result of changes in laws governing the legality of operatingvideo gaming devices in the State of Louisiana, TWC amended its operatingstrategy by shifting its focus to the casino market in Europe and acquiredthree casinos, one located in Spain, Casino de Zaragoza, S.A. (“CDZ”), whichincludes a hotel, and two casinos located in the Czech Republic, as well as aparcel of land also located in the Czech Republic.  The Company also entered into a joint activity agreement relativeto a fourth casino located in the Azerbaijan Republic and signed a managementcontract with regard to a fifth casino located in the Kyrgyz Republic.  TWC has since closed two of those casinosdue to gaming law changes in Azerbaijan Republic and Kyrgyz Republic, opened anadditional casino on the parcel of land that was purchased in 1998, and soldits interest in CDZ, the casino/hotel in Spain.

 

The Company, which is headquartered in New York City, has no operatingpresence in the United States.

## ** **

## **Current Operations**

 

On March 31, 1998, the Company consummated a Stock Purchase Agreement(“Stock Purchase Agreement”) with 21st Century Resorts a.s., an owner-operatorof two casinos, and the owner of property to build a third casino, in the CzechRepublic (“Resorts”), and Gameway Leasing Limited and Monarch Leasing Limited,two off-shore affiliates of Resorts which leased equipment to Resorts and thestockholders of Resorts (the “Selling Stockholders”).  Pursuant to the Stock Purchase Agreement, the Company acquired100% of the equity interests of Resorts, its two operating subsidiaries and allof the assets of Gameway Leasing Limited and Monarch Leasing Limited for thepurchase price of $12.6 million, including the cost of initial improvements tothe acquired assets. On March 31, 1998, the Company, with the assistance ofLibra Investments, Inc., Los Angeles, California (“Libra”) acting as placementagent, borrowed $17.0 million from 14 sophisticated, accredited lenders in aprivate placement (the “March 1998 Private Placement”). The loan is representedby 12% Senior Secured Notes (the “Senior Notes”) issued pursuant to indentures(the “Indentures”) by and among TWC, TWG International U.S. Corporation(“TWGI”), TWG Finance Corp. (“TWGF”), wholly-owned subsidiaries of TWC), andU.S. Trust Company of Texas, N.A., which has since been replaced by the Bank ofNew York Company of Florida, N.A., acting as indenture trustee. The SeniorNotes require mandatory prepayments based upon excess cash flow generated byTWGI from the operation of Resorts and bear interest at the rate of 12% perannum. (See Periodic Reports Form 8-K and the Amended Periodic Report on Form8-K/A filed with the Securities and Exchange Commission (“SEC”) on April 14,1998 and June 15, 1998, respectively.) The proceeds of the Senior Notes wereused to pay the net acquisition costs of, and improvements to, Resorts totalingapproximately $12.6 million, to repay the First Amended Loan Agreement in theamount of $1.3 million, to cover costs and expenses of $1.4 million relating tothe March 1998 Private Placement

 

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and to provide working capital of $1.7 million.  See Item 6. “Management’s Discussion andAnalysis or Plan of Operations – Liquidity and Capital Resources.”

 

The assets acquired with the purchase of Resorts consist of the Ceskacasino, which is located near the border with Germany.  Ceska is patronized primarily by Germans andcurrently has 15 gaming tables and 48 slot machines as well as a bar/restaurantarea and features a Chicago 1920’s era theme. The purchase also included the Rozvadov casino, which is locatedapproximately four miles from the region’s main highway, not far from theGerman border and caters, as in Ceska, to a predominantly Germanclientele.  This casino, which has aPacific South Seas theme, currently has 11 gaming tables and 30 slot machines,and includes a bar/restaurant area.  Thefinal piece of the purchase was a parcel of land near Znojmo upon which a thirdCzech Republic casino was constructed. The Znojmo casino opened in December 1999 with 11 gaming tables and 42slot machines.  It has a SouthernAntebellum theme and draws the bulk of its customers from the northern suburbsof Vienna, Austria.  Pursuant toexpansion projects in May and October of 2001 and July of 2002, the casinocurrently has 21 gaming tables and 56 slot machines, and includes abar/restaurant area.

 

On October 15, 1999, the Company borrowed $3.0 in a private placement(“October 1999 Private Placement”). That loan is also represented by 12% Senior Secured Notes (“October 1999Senior Notes”) issued pursuant to indentures by and among the Company and anindependent indenture trustee, the terms of which are identical to those in thenotes issued in the March 1998 Private Placement.  The October 1999 Senior Notes, which are due March 2005, requiremandatory prepayments based on excess cash flow generated from Resorts.  The March 1998 Senior Notes and the October1999 Senior Notes are collateralized, primarily, by all of Resort’s gamingequipment and a majority interest in the capital stock of all of the Company’ssubsidiaries.  In addition to theOctober 1999 Senior Notes, each investor received a proportionate share ofwarrants to purchase 1,250,728 shares of the Company’s common stock, $.001 parvalue per share (“Common Stock”) at an exercise price of $0.01 per share.  The proceeds of the October 1999 SeniorNotes were used to retire a $1.0 million short-term debt obligation related tothe acquisition of CDZ, to make an interest payment of approximately $250,000on said debt, and to finance the equipping, working capital, and pre-openingcosts associated with the opening of the Znojmo casino.

## ** **

## **Terminated Ventures**

 

On April 17, 1998, the Company acquired 90% of CDZ, which is a companyincorporated in Zaragoza, Spain that holds the exclusive casino license in theregion of Aragon, for approximately $780,000, excluding related acquisitioncosts of approximately $678,000, and assumed its outstanding debt obligationsof approximately $4.9 million.  The debtobligations consisted of taxes payable to the Diputacion de Aragon (“DGA”), theSpanish social security authorities and the City Council of Alfajarin(collectively, the “Spanish Taxing Authorities”) for which continuation ofdeferrals were granted as part of the terms of acquisition.  Further, as part of the terms of the April1998 acquisition of CDZ, the Company also negotiated an agreement with thelocal representatives of the DGA to allow the casino to relocate from itspresent location in the mountains outside of town to the center of downtownZaragoza, subject to a decree.  Insteadof a decree, the DGA introduced a law in February 2000, which would allow thecasino to relocate upon issuance of a formal approval by the DGA.  This law was passed by the local parliamentin June 2000, and the Company petitioned the DGA for permission to relocate thecasino.

 

In December 2001, as a result of excessive delays by the local Spanishauthorities in granting CDZ final permission to relocate, together with thebusiness unit’s mounting losses, the Company divested itself of the casino byselling its interest in CDZ to a local Spanish casino operator, for a net gainof $8.5 million.  At the time of thissale, CDZ operated nine gaming tables and 24 slot machines.  In addition to its gaming area, CDZ’sfacilities included a 37-room hotel, a bar/restaurant, banquet space, andextensive recreational facilities, including four shooting ranges.

 

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**Accountingand Financial Issues**

 

The Company has, from time to time, been in technical default of theAmended Indentures and continues to be so as of December 31, 2002.  TWC has relied upon the forbearance andwaivers from a majority interest of the holders of the Senior Notes. ValuePartners, Ltd., a Texas limited partnership (“Value Partners) represents thismajority in interest of the holders of the Senior Notes.  On February 23, 2001, Value Partnersexercised 5,657,453 of the $0.01 warrants that it held.  On May 20, 2002, it received an additional23,270,833 shares as part of its participation in the private exchange of  $4.8 million of the Company’s 12%Senior Secured Bonds relating to the Company’s discontinued Louisianaoperations, together with approximately $1.9 million in unpaid interest,to Common Stock (collectively referred to herein as “the LA BondExchange”).  With this exchange, ValuePartners holds a controlling 57.5% of the Company’s issued and outstandingCommon Stock.  At December 31, 2002,Value Partners owned 66.6% of the Company’s existing long-term debt and ownedwarrants to purchase 2,600,000 shares of Common Stock which, upon exercise,would result in Value Partner’s beneficial ownership of Common Stock equaling59.6% of the Company’s issued and outstanding shares.

 

At December 31, 2002, the Company had a working capital surplus of only$4,000 and a stockholders’ deficit of $14.8 million.  Further,****inspite of the recent LA Bond Exchange, the Company is highly leveragedand, from time to time, has been unable to pay its interest and accountspayable obligations when they become due. The Company has failed topay the interest due under its Notes on September 2000, March 2001, September2001, March 2002, September 2002 and March 2003 in full and has incurred otherevents of default under its Indentures to date. The Company has receivedwaivers from Value Partners, the holder of a majority in principal amount ofthe Notes, for these and future defaults through January 1, 2004. The terms ofthis waiver require the payment of all defaulted interest payments plus allaccrued and unpaid interest thereon within 10 business days following: thereceipt by TWC or any subsidiary of $6.0 million or more from any borrowing orsale of equity; the payment of interest to another Noteholder; or thecommencement of a voluntary or involuntary insolvency proceeding against theCompany or any subsidiary Note issuer. *(see Note 4 of the Notes to Consolidated FinancialStatements and “Management Discussion and Analysis or Plan of Operations – Planof Operations and Important Factors to Consider - Need for AdditionalFinancing”)*

 

The Company has taken several steps toimprove its consolidated financial position, including (i) the December 2001sale of its under-performing Spanish casino ($1.3 million of the net proceedshave been earmarked for potential investment in a hotel or casino project); (ii)the LA Bond Exchange, which reduced liabilities by $6.7 million; (iii)expansion of its facility in Znojmo, Czech Republic (from 11 to 21 gamingtables);  (iv) the renovation of itsCeska Kubice and Rozvadov casinos, which were completed in May 2002 andNovember 2002, respectively; (v) the March 2002 purchase of the Znojmo casinobuilding lease; (vi) filing of a pre-effective prospectus with the SEC wherebythe Company seeks to exchange  a minimumof 92% of its 12% Senior Secured Notes due March 17, 2005 for Common Stock (the“Exchange Agreement)” (see Note 12); and (vii) the signing of the heads ofterms, which equates to a memorandum of understanding, for the lease of spacein a designer outlet mall near Znojmo, Czech Republic, in which the Company intendsto open a slot room and bar in the fall of 2003.

 

While steps taken by management (discussed in the preceding paragraph)that have been completed have enhanced the Company’s balance sheet and improvedits operating results somewhat, completion of the Exchange Agreement is aprerequisite for the Company to be in a position to secure additionalfinancing, the proceeds from which would be used to (i) provide the Companywith supplementary working capital to preserve and enhance the Company’sexisting assets and (ii) acquire new business units.

 

Further, the Company is studying several development projects inaddition to the slot room and bar discussed above, including the potentialdevelopment of a hotel in Hate, Czech Republic, the possible development of afourth full-service casino in Europe, and the potential acquisition of existinghotels in Europe.  There can be noassurances that management’s plans will be realized.

 

Assuming its successful consummation of the Exchange Agreement, theCompany believes that its cash resources at December 31, 2002, together withthe anticipated cash projected to be provided by 2003 operations, would be

 

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sufficient to fund its activities for the year ending December 31, 2003.  However, long-term liquidity is dependent onthe Company’s ability to consummate the Exchange Agreement, to attainprofitable operations and to secure additional financing.

 

**Corporate Information**

 

The Company’s corporate offices are located at 545 Fifth Avenue, Suite940, New York, New York 10017, and its telephone number is (212) 983-3355.

** **

**OTC Bulletin Board**

 

The Company’s Common Stock is currently quoted on the OTC BulletinBoard under the symbol TWCP.OB.

** **

**Description of Business**

 

The Company is engaged in the acquisition, development and managementof niche casino operations in Europe, which feature gaming tables andmechanized gaming devices, such as slot and video poker machines, as well asthe development and management of small to midsize hotels, which may includecasino facilities.  In anticipation ofits diversification into the hotel industry, in July 2000, the shareholdersvoted to amend the Company’s Articles of Incorporation by changing its name fromTrans World Gaming Corp. to “Trans World Corporation”.  The Company’s name change was based on theimportance of the Company’s name accurately conveying its desired identity asnot solely an owner/operator of gaming operations.  TWC’s planned expansion into the hotel industry is founded onmanagement’s belief that hotels in the small to midsize boutique class arecomplementary to the Company’s brand of niche casinos, that opportunities inone of these two industries often lead to, or are tied to, opportunities in theother industry, and that a more diversified portfolio of assets will give theCompany greater stability and make it more attractive to potentialinvestors.  Further, some of theCompany’s top management has significant experience in the hotel industry.

** **

**Industry Overview**

 

Prior to the amendments to the Czech gaming regulations in December1998, local municipalities were empowered to grant casino licenses in theirregions. The amendments to the gaming legislation removed that right from thelocal governments and effectively eliminated exclusivity. Since this licensingchange, four casinos have opened in Folmava, Czech Republic, one of which hassince closed, which operate in direct competition with the Company’s Ceskacasino due to their proximity.  TheZnojmo casino currently has four local competitors, none of which are locatedin the duty free zone between the border posts, as is the case with TWC’scasino.  In addition to the currentcompetitors, two casinos are in the development stages, one of which is plannedto be located in the duty free zone.  Inearly 2000, in response to increased competition from casinos located in theCzech Republic, the German government issued 12 new gaming licenses in theBavarian region of Germany.  Since beingopened in the spring of 2000, two of the Bavarian casinos that went intooperation as a result of issuance of the additional licenses have operated indirect competition with TWC’s casinos in Ceska and Rozvadov.  Further, in late 2002, construction of a newcompetitor casino began across the street from the Company’s casino inRozvadov, and is scheduled to open in May 2003.

 

The casinos in Germany and Austria have formal atmospheres and an airof exclusivity.  ACC’s brand of casinosoffers a relaxed but exciting, informal atmosphere, which has proven to be adesirable alternative to the local German and Austrian casinos.  Further, ACC has established itself as areputable casino company in the Czech Republic through its consistent policies,professional service, and strict adherence to all local gaming regulations.

 

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**The Company’s Facilities**

 

The Ceska casino currently has 15 gaming tables, including seven cardtables, seven roulette tables, and one electro-mechanical, eight-positionroulette machine.  It also has 48 slotmachines, including 38 newer-style Novomatic machines; and parking forapproximately 60 cars. In Rozvadov, there are 11 gaming tables, including fivecard tables, five roulette tables, and one electro-mechanical roulette game; 30Novomatic slot machines; and parking for 40 cars.  In Znojmo, there are 21 gaming tables, which consist of 12 cardtables, eight roulette tables, and one electro-mechanical roulette machine; 56slot machines, 55 of which are newer-style Novomatic machines; and parking forapproximately 120 cars.

** **

**FutureOperations**

 

In an effort to improve the product and further differentiate the Ceskacasino from its competition, the facility underwent an extensive renovation ofthe entire facility, which was completed in May 2002.  In conjunction with the renovation, a Chicago 1920’s era themewas introduced at the casino, which gives the property an identity that isconsistent with its ACC branding.

 

One of the biggest challenges for Rozvadov remains its limitedsize.  To maximize the full use of itsmain floor, where the live game tables are currently situated, the internalwalls were reconfigured to allow for the relocation of the slot room from thecasino’s lower level to its main floor, whereby improved visibility and accessare expected to boost playtime and revenue. In conjunction with the slot room relocation, the staff room, which hadpreviously occupied a portion of the main floor, was moved to the lower level,further increasing the available space for the slot room.  The renovation, which also includedreplacement of the main floor carpet and introduction of a Pacific South Seastheme, was completed in November 2002. Management has postponed its plan to expand the casino’s parking lot by20 spaces to mid-2003.

 

In May 2001, the Znojmo facility expanded from 11 to 16 gaming tablesand an electro-mechanical roulette table was added in the fall of 2001.  In July 2002, four more card tables wereadded, bringing the total gaming tables to 21. Due to the success of the electro-mechanical roulette table, managementplans to introduce a second such table in the spring of 2003.

 

In January 2003, the Company completed negotiation of the memorandum ofunderstanding for a pending lease agreement for an approximately 6,500 feet ofspace in a designer outlet mall that is currently under construction on a plotof land adjacent to the Company’s Znojmo casino, where the Company intends toopen a slot room and bar, which will have a Hollywood theme.  The mall is scheduled to open in Septemberof 2003.

 

The Company is also pursuing construction of a three-star hotel, whichwould be connected to the Znojmo casino and be built on Company-ownedland.  The hotel design has beencompleted and the Company is actively seeking funding for the project, whichmanagement hopes to get underway in mid-2003.

 

Management is advancing on its plan to add a fourth full-service casinoin the region and is in the process of finalizing its development plans.  Such an addition would allow the Company totake advantage of its existing infrastructure, thereby benefiting fromeconomies of scale.

 

Except as described above, the Company has no specific arrangements orunderstandings with respect to the management or acquisition of any gamingfacility. There can be no assurance that the Company will manage or acquire anyother gaming facilities in the future.

 

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**Long Range Objectives**

 

TWC’s experience in the gaming industry is evidence of the volatilenature of this business.  The Companyhas suffered significant financial setbacks as a result of unexpected decisionsof voters in Louisiana and foreign governmental authorities in Eastern Europeand Spain, which forced the closure of several of its gaming operations and, inthe case of Spain, delayed transfer of the casino operation to a potentiallymore profitable location and, ultimately, prompted its sale.  Moreover, based on the negative results ofits efforts to raise investment capital, management has concluded that the poorpast performance of the Company, combined with the fact that it is exclusivelyin the gaming industry, the fact that its operations are overseas, and the factthat it is highly leveraged have undermined efforts to secure additionalfinancing for growth.

 

The Company’s senior corporate-level management, some of whosebackgrounds are in the hotel industry, has endeavored to rid the Company ofunprofitable business units, maximize the potential of the Company’s CzechRepublic operations, and explore expansion of the Company through the additionof new business units, including hotels. In addition to evaluating expansion opportunities in the Czech Republic,management is pursuing several potential hotel acquisition projects elsewherein Europe, subject to the availability of the necessary financing.  Management intends to use the greater partof the net proceeds from the sale of CDZ as investment capital for an expansionproject.

 

Management’s long-term goal is to create two hotel divisions, aEurope-based division and a U.S.-based division, while pursuing expansion ofthe casino division.  Acquisitions willbe based on an evaluation of the potential return of projects that arise andthe availability of financing to purchase additional assets.  Management is hopeful that this strategywill result in growth of the Company to approximately five to ten businessunits, which, coupled with benefits of debt reduction initiatives, may beenough to provide the Company with a stable cash position.

 

Assuming that TWC achieves cash flow stability, the Company will seekto establish or develop a signature property and will create a brand name forthis prototype hotel.  Thereafter, theCompany will expand its newly created chain by adding hotels that, andtransforming hotels to, conform to the Company’s established brand image.  Management’s long-term goal is to expand theTWC hotel chain to 40-60 units and to expand its casino division to 10-12units.  There can be no assurances thatmanagement’s plans and long-range objectives will be realized.

# ** **

# **Marketing**

 

The Company employed a number of marketing strategies in 2002, some ofwhich applied to all ACC business units and some of which were casinospecific.  In an effort to boostattendance and playtime, an award program was launched during the year, whichawarded points earned each time a certain “lucky” number appeared during playin roulette, blackjack and/or poker. Points were tracked and accumulated for each player.  At the end of the promotional period, prizeswere awarded based on points earned. The program proved to be a highly successful inducement for regularplayers as well as serving to increase the frequency of visitations byoccasional players and resulting in the introduction of new players to thecasinos.    The 2002 marketing plans ofthe casinos were split into internal and external components, and casinomanagement was given responsibility for developing in-house promotionscustomized to each facility.  Inaddition, a tracking system that gauged the success of promotions in terms ofrepeat visitation was implemented.  Overthe course of the year ended December 31, 2002, a number of theme and holidayrelated parties were held, which, in addition to boosting attendance on thenights of the events, gave the casinos significant media and word of mouthexposure.   To further supplement theactivity agenda, a series of ethnic-themed “Nights” were also introduced, whichpromoted the unique cuisine, music and culture of various ethnic groups andfeatured grand buffets and live entertainment.

 

Theyear ended December 31, 2002 was characterized by many marketing changes thatpositively affected Ceska’s attendance. In the second quarter of 2002, in an effort to combat decliningattendance, Ceska altered its strategy of exclusively targeting high-stakesplayers, when it became evident that its primary market consisted of divergentgroups - one small group of high-income players and a majority of middle-incomeplayers.  Further, the impact of

 

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thedeteriorating German economy, worsened by the additional economic costs of amajor flood that took place in the region, as well as fierce competition fromtwo recently renovated competitors exacerbated the initial efforts of drawingand depending on a small group of high-end players.  In light of this and other factors, Ceska repositioned itself toattract attendance from a broader range of players.  The strategy met with some success with attendance havingnarrowed the shortfall gap versus the prior year starting mid-year 2002.

 

To an even greater degree than Ceska, Rozvadov is patronized by a loyalgroup of gamblers.  In 2002, managementstrove to offer promotions that were designed to appeal to these key clientsand to improve the personalized service offered to VIPs.

 

In Znojmo, marketing continued to focus on cultivation of the Viennamarket.  The Company’s billboard, bus,radio and video wall advertising campaign was continued and expanded.  In 2002, management’s initiatives included aseries of themed events that proved to be popular and successful in augmentingattendance.  A reward program, wherebyplayers were recognized for their ability to attract new and repeat visitors(sometimes in groups) to the casino, was initiated in the year and proved to besuccessful in improving attendance and increasing the quality of the casino’scustomer base.

# ** **

# **Regulations and Licensing**

 

During the quarter ended June 30, 1998, the Czech Republic House ofDeputies passed an amendment to the gaming law, which restricted foreignownership of casino licenses. In response thereto, the Company restructured itssubsidiaries and Czech legal entities to comply with the amendment and wassubsequently granted a ten-year license. There can be no assurance that the authorities in the Czech Republicwill not amend the gaming law as it pertains to foreign ownership of casinolicenses.  In the event the gaming lawsare amended in the future, it may have a material adverse effect on theCompany’s future profitability and operations. Further, there has beenincreased competition in the areas where the Company operates because localmunicipalities no longer have control over the issuance of casino licenses,thereby effectively eliminating exclusivity.

** **

**Application of Future or AdditionalRegulatory Requirements**

 

In the future, the Company intends to seek the necessary licenses,approvals and findings of suitability for the Company and its personnel inother jurisdictions, where the Company plans to open casinos; however, therecan be no assurance that such licenses, approvals or findings of suitabilitywill be obtained or will not be revoked, suspended or conditioned or that theCompany will be able to obtain the necessary approvals for its futureactivities. If a license, approval or finding of suitability is required by aregulatory authority and the Company fails to seek or does not receive thenecessary license or finding of suitability, the Company may be prohibited fromowning or operating gaming establishments in that jurisdiction.

** **

**Gaming Taxes**

 

Gaming tax rates in the Czech Republic, which were revised by the localMinistry of Finance in June of 2001, averaged approximately 16.7% of totalgaming revenues for the year ended December 31, 2002 and currently consist ofgaming taxes of 11% of total gaming revenue, charity taxes of 10% of totalgaming revenue net of gaming taxes, and 6% of slot revenue of 500,000 CzechKorunas or less and 8% if above this threshold (both net of slot licensingfees).  There can be no assurances thattax rates, fees, or other payments applicable to the Company’s gamingoperations will not be increased in the future.

 

7

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**Competition**

 

The Company’s operations in the Czech Republic compete with a number oflocal and foreign casinos.  The Ceskaunit competes with three casinos in the immediate vicinity and three additionalcasinos in the greater region, two of which are located in Germany.  The Rozvadov casino competes with one casinoin the local area and four other casinos in the greater region, one of which islocated in Germany.   Construction of acompetitor casino began across the street from the Rozvadov casino in late 2002and is scheduled to open in May 2003. The Znojmo casino faces competition from four local casinos, none ofwhich are located in the duty free zone, as is TWC’s facility.  In addition to the currentcompetitors, two casinos are in the development stages, one of which is plannedto be located in the duty free zone. (See “Industry Overview”.)

** **

**Employees**

 

As of February 16, 2003, the Company had a total of 366 employees,including 120 in its casino in Ceska, 77 in its casino in Rozvadov, 154 in itscasino in Znojmo, 11 in its regional office in the Czech Republic, and four inthe Company’s headquarters in New York. The Company believes that its employee relations are excellent.

** **

**Item 2.  Description of Property.**

** **

**Corporate Offices**

 

The Company’s corporate offices are located at 545 Fifth Avenue, Suite940, New York, New York, occupying 1,559 square feet of office space under alease at the rental rate of $6,481 per month, expiring in December 2005.

** **

**Czech Republic**

 

The Company leases a 5,000 square foot casino facility in Ceska at arent of approximately $1,659 (50,000 Czech Korunas) per month.  The casino building lease expires in 2010. ** **The Company also leasesaccommodations for staff in Ceska Kubice at the rate of approximately $3,019(91,000 Czech Korunas) per month and for staff in Znojmo at the rate ofapproximately $5,509 (157,000 Czech Korunas) per month.

 

In Rozvadov, the Company owns the casino building and an adjacentfacility for staff accommodations.

 

As part of the acquisition of Resorts (See Item 1. “Description ofBusiness - General Development of Business”), TWC acquired approximately 10acres of land near Znojmo, close to the border in Austria, on which the Companyconstructed and operates a casino. TWC negotiated an agreement with a localbuilding contractor who financed and built a 5,000 square foot casino facilityand leased it to the Company under the terms of a 10 year lease forapproximately $27,000 per month.  InMarch 2002, the Company exercised its right to purchase the Znojmo casinobuilding lease.  The building leasepurchase, the cost of which was approximately $1.4 million was financed by aloan from a local Czech Republic bank.  The bank note, which is payable in monthlyinstallments through December 2006, bears interest at 6.2% per annum and iscollateralized by the Znojmo casino building, the Company’s Rozvadov casino andemployee housing buildings, and the Company’s land near Ceska in Folmava.

 

8

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**Item 3.**  **LegalProceedings.**

** **

**FormerPresident and Chief Operating Officer**

 

On February 14, 2003, TWC executed a two-part settlement agreement withthe Company’s former President and Chief Operating Officer.  Pursuant to the two-part settlementagreement, in exchange for cash payments that will continue through 2004 butwhich will not have a material effect on the Company’s consolidated financialposition, results of operations or cash flows, the former President and ChiefOperating Officer agreed to discontinue all litigation brought against theCompany, including litigation concerning CDZ, and to return the share of CDZstock to the Company.  The Companylikewise discontinued its lawsuit against him.

** **

**ChoiceCapital Corporation**

 

In October 2001, the Company filed a “Complaint for Damages” againstChoice Capital Corporation, a/k/a Choice International Corporation (“Choice”)and Jude Onukuwa in the Superior Court of Fulton County, Georgia.  The Company seeks to recover payments madeto Choice in connection with a financing transaction that neverclosed.  In addition, the Company seeksto recover interest and attorney fees.  In November 2001, Choice answered the complaintand included a counterclaim against the Company, whichseeks damages of $1.2 million for lost commissions related to theunconsummated deal.  In March 2003, theCompany’s motion to compel discovery was granted.  The Company believes that it has a strong case against Choice andthat it has meritorious defenses to Choice’s counterclaims and intends topursue the Company’s claims vigorously as well as to defend against Choice’scounterclaims vigorously.  Accordingly,no provision for liability to the Company that may result upon adjudication hasbeen made in the accompanying consolidated financial statements.

 

The Company is not currently involved in any other material legalproceeding nor was it involved in any other material litigation during the yearended December 31, 2002.

** **

**Item 4.**  **Submissionof Matters to a Vote of Security Holders.**

 

No matter was submitted to a vote of security holders during the fourthquarter of the fiscal year covered by this Report.

 

9

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## **PART II**

** **

**Item 5.**  **Market forCommon Equity and Related Stockholder Matters.**

 

The Company’s Common Stock is currently quoted on the OTC BulletinBoard under the symbol TWCP.OB.  As of March20, 2003, the Company’s stock price was $0.15. The following table sets forth the high and low prices of the Company’sCommon Stock for fiscal years 2001 and 2002: 

 
| **Common  Stock** |   | **High** |   | **Low** |   |
|-------------------|--------|----------|--------|---------|--------|
| 2001              |   |     |   |    |   |
| First Quarter     |   | $        | 0.17   | *       | $      | 0.12 | *  |
| Second Quarter    |   | $        | 0.12   | *       | $      | 0.04 | *  |
| Third Quarter     |   | $        | 0.05   | *       | $      | 0.03 | *  |
| Fourth Quarter    |   | $        | 0.05   | *       | $      | 0.03 | *  |
| 2002              |   |     |   |    |   |
| First Quarter     |   | $        | 0.22   | *       | $      | 0.04 | *  |
| Second Quarter    |   | $        | 0.20   | *       | $      | 0.09 | *  |
| Third Quarter     |   | $        | 0.20   | *       | $      | 0.05 | *  |
| Fourth Quarter    |   | $        | 0.18   | *       | $      | 0.07 | *  |

 

----

* Quoted on OTC Bulletin Board

 

There were no quotations for the $8.50 warrants.

 

As of March 20, 2003, there were (a) 50,328,175 outstanding shares ofCommon Stock held of record by approximately 91 holders; (b) outstandingoptions to purchase an aggregate of 726,000 shares of Common Stock; (c)outstanding $1.00 Series A Warrants to purchase an aggregate of 960,000 sharesof Common Stock issued in connection with the sale of certain debt instruments;(d) outstanding $1.50 Series B Warrants to purchase an aggregate of 3,200,000shares of Common Stock issued in connection with the restructuring of certainlong-term debt; (e) outstanding $0.01 Series C Warrants to purchase anaggregate of 1,013,090 shares of Common Stock issued in connection with theMarch 1998 Private Placement, with 6,074,362 of this series having beenexercised; (f) outstanding $0.01 Series G warrants to purchase an aggregate125,073 shares of Common Stock issued in connection with the October 1999Private Placement and the October 1999 Senior Notes. (See Item 6. “Management’sDiscussion and Analysis or Plan of Operation - Liquidity and CapitalResources”.); and (g) outstanding $.5938 Warrants to purchase an aggregate of250,000 shares of Common Stock issued in connection with the acquisition ofTottenham & Co., which have since expired. (See Item 1. “Description ofBusiness - Acquisition Agreements.”)

** **

**Item6.  Management’s Discussion and Analysis or Plan of Operations.**

** **

**Forward-Looking Statements**

 

This Form 10-KSB contains certain forward-looking statements. For thispurpose, any statements contained in this Form 10-KSB that are not statementsof historical fact may be deemed to be forward-looking statements. Withoutlimiting the foregoing, words such as “may,” “will,” “expects,” “believes,” “anticipates,”“estimates,” or “intends” or comparable terminology are intended to identifycertain forward-looking statements in this and other sections of the Form10-KSB.  These statements by theirnature involve substantial risks and uncertainties, and actual results maydiffer materially depending on a variety of factors, including those set forthin the section below entitled “Important Factors to Consider.”

 

10

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**Exchange Rates**

 

Due to the fact that the Company’s operations are all located overseas,the results of the Company are subject to the impact of fluctuations inexchanges rates.  Pursuant to theJanuary 2002 adoption of the Euro as the sole trading currency by all EuropeanUnion member nations that had previously tied their local currencies to it, theCompany’s operations conducted business exclusively in Euros and Czech Korunas,which is the currency in which payroll and some payable items are paid in theCzech Republic.

 

In contrast to the previousyear, a period in which the Euro and other European currencies lost significantvalue versus the U.S. Dollar (or USD), and negatively impacted theCompany’s performance, these currencies strengthened against the USD in 2002,which increased revenue and expense totals converted into USDs. Further, sincethe Company’s revenues were earned in Euros and the majority of casino relatedexpenses were paid in Czech Korunas, the Company incurred a disproportionateincrease in the USD value of expenses versus revenues as a result of the factthat the Koruna strengthened more against the USD in the reporting period thandid the Euro.

 

The impact of exchange rate fluctuations can be measured throughcomparison of the rates of exchange for these two currencies to the USD, whichare depicted on a quarterly basis in the following table.

 
| **Period**               |   | **USD** |   | **Czech  Koruna  2002** |    | **Czech  Koruna  2001** |    | **Euro  2002** |   | **Euro  2001** |   |
|--------------------------|--------|---------|--------|-------------------------|---------|-------------------------|---------|----------------|--------|----------------|--------|
|                     |   |    |   |                    |    |                    |    |           |   |           |   |
| January through March    |   | $       | 1.00   |                    | 36.2297 |                    | 37.6635 |           | 1.1405 |           | 1.0832 |   |
| April through June       |   | $       | 1.00   |                    | 33.2243 |                    | 39.2593 |           | 1.0893 |           | 1.1399 |   |
| July through September   |   | $       | 1.00   |                    | 30.8771 |                    | 38.4135 |           | 1.0169 |           | 1.1135 |   |
| October through December |   | $       | 1.00   |                    | 30.9725 |                    | 37.2265 |           | 0.9996 |           | 1.1169 |   |

 

The balance sheet totals of the Company’s foreign subsidiaries at December31, 2002 were converted to USDs using the prevailing exchange rates at December31, 2002, which are depicted in the following table.

 

| **As Of**         |   | **USD** |   | **Czech****Koruna** |    | **Euro** |   |
|-------------------|--------|---------|--------|---------------------|---------|----------|--------|
| December 31, 2002 |   | $       | 1.00   |                | 30.1400 |     | 0.9541 |   |
|                   |        |         |        |                     |         |          |        |  |

 

**Critical Accounting Policy**

 

Management has identified goodwill valuation as a critical accountingpolicy that affects the Company’s consolidated financial statements.  Goodwill,which represents the excess of cost of the Company’s Czech subsidiaries overthe fair value of their net assets on the date of acquisition, was beingamortized on a straight-line basis over seven years through December 31,2001.  Under Statement ofFinancial Accounting Standards (“SFAS”) No. 142, effective the first quarter ofthe year ended December 31, 2002, which stated that goodwill is no longersubject to amortization over its estimated useful life; rather, goodwill issubject to at least an annual assessment for impairment applying a fair-valuebased test.  During the quarter endedJune 2002, the Company completed the first step of the required two-stepimpairment testing.  The first step ofthe impairment testing required the Company to compare the fair value of itsCzech Republic reporting unit, the Company’s only reporting unit as definedunder SFAS No. 142, to its carrying value (the net equity of the Company) todetermine whether there was an indication that an impairment existed.  The fairvalue of the Czech Republic reporting unit was determined through a combinationof recent appraisals of the Company’s real property, a multiple of earningsbefore interest, taxes, depreciation and amortization and the Company’s sale ofits Spanish casino in 2001.  Noimpairment losses were recorded against goodwill of $3,579 upon the initialadoption of SFAS No. 142.

 

11

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**Results of Operations**

 

The following discussion and analysis relates to the consolidatedfinancial condition and results of continuing operations of the Company for theyears ended December 31, 2002 and 2001.

** **

**YearEnded December 31, 2002 Compared to Year Ended December 31, 2001**

 

($000s in thousands)

 
|                                                |   | **Year Ended  December 31, 2001** |   | **Change** |   | **Year Ended  December 31, 2002** |   |
|-----------------------------------------------------|--------|-----------------------------------|--------|------------|--------|-----------------------------------|--------|
|                                                |   |                              |   |       |   |                              |   |
| Loss from continuing  operations                    |   | (4,638                            | )      |       |   |                              |   |
| Revenues                                            |   |                              |   | 1,463      |   |                              |   |
| Cost of revenues                                    |   |                              |   | (1,145     | )      |                              |   |
| Depreciation and  amortization                      |   |                              |   | 1,300      |   |                              |   |
| Selling, general and  administrative                |   |                              |   | 198        |   |                              |   |
| Interest expense and other                          |   |                              |   | (525       | )      |                              |   |
| Foreign exchange gain                               |   |                              |   | 233        |   |                              |   |
| Foreign income tax loss  from continuing operations |   |                              |   | (161       | )      |                              |   |
| Loss from continuing  operations                    |   |                              |   | 1,363      |   | (3,275                            | )      |

 

In the year ended December 31, 2002, theCompany posted revenues of $14.2 million versus $12.8 million in the year endedDecember 31, 2001. The revenue growth can be attributed to several factors,including 19.4% and 1.8 percentage point increases in drop per head (“DpH”) andwin percentage (“WP”), respectively, which were somewhat offset by a 17.1%decline in attendance.   Further, the$1.5 million revenue improvement can partly be attributed to the success of thenewer Novomatic slot machines, which were installed as part of the continuationof the slot replacement program that was initiated in 2001.  In addition, the vast majority of the olderand less played mechanical Aristocrat slot machines have been removed fromservice from all of the casinos during the past two years.  The Company also saw a 3.9 percentage pointincrease in its WP in Rozvadov in 2002. Exchange rate fluctuations also exerted a positive influence on theCompany’s current year revenues in comparison to the prior year.

 

The Company’s cost of revenues increased by$1.1 million over the prior year due to several factors, which included:  (i) a higher proportion of gaming taxes ontable and reception revenues, which commenced in June 2001 whenthe Czech Republic Ministry of Finance issued a pronouncement, clarifying thetax treatment of reception revenue. This pronouncement significantly increased the tax rate for this type ofrevenue; (ii) a higher slot tax percentage (8% versus 6%) was retroactivelyassessed on the slot revenues of the Company’s slot subsidiary unit when itexceeded the annual threshold revenue amount (500,000 Czech Korunas) in 2002;(iii) higher expensesrelated to the newer Novomatic slot machines, the lease payments of which arerevenue-based; and (iv) recentlaw changes in 2001 regarding vacation, overtime, and night differential pay,which served to increase labor expenses in all of the Company’s casinos.

 

Depreciation and amortization expense in year2002 decreased by $1.3 million versus the same period in 2001 due, primarily,to the sale of CDZ in 2001 and the Company’s adoption of SFAS No. 142.

 

In the yearended December 31, 2002, selling, general and administrative expenses decreased$197,000 versus those of 2001. The savings were the result in part of lowerexpenditures in legal and accounting fees and gains from positive exchange ratefluctuations, which were partially offset by a portion of the cost of the legalsettlement with the former President of the Company *(see Item 3.Legal Proceedings).*

 

Interest expense and other expenses increasedby $525,000 in 2002 versus the prior year due, mainly, to $349,000 in expenserelated to an income tax audit in the Czech Republic, $104,500 in costsassociated with acquisition of the

 

12

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Znojmo casino building, and $84,000 inexpense related to a legal settlement were incurred in 2002 and no such costswere incurred in 2001.

 

A $228,000 foreign exchange gain was realizedin 2002 versus a loss of $5,000 in 2001 due, primarily, to currency exchangefluctuations between the Euro and the USD.

 

As a result, the Company incurred a loss fromcontinuing operations of approximately $3.3 million for the year ended December31, 2002, which is a $1.3 million improvement over a loss of $4.6 million inthe year ended December 31, 2001.

** **

**Business Units:**

*** ***

***Ces******ka, Czech Republic***

 

In the year ended December 31, 2002, competition in Ceska’s localmarket heightened as two of the three surviving competitor casinos underwentmajor renovations and re-theming.  Inview of the fierce competition and the erosion of the casino’s high volumeplayer base, management shifted its marketing focus in an effort to attract abroader client base.  Thus, rather thancultivating a shrinking market of high end players, management focused onbuilding a base of regular players from a wider range of demographical andsocial groups.  In concert with itseffort to retain and attract these players, management strove to provide thehighest possible level of service and attention and placed a greater emphasison reward and benefit programs. However, labor law changes, increased gaming taxes and slot machinerelated lease payments, increased marketing expenditures to combat competition,and increased repairs and maintenance expenditures related to the entrance andreception areas and the slot room renovations all contributed to a lower marginon revenues.  In 2002, with the exceptionof the WP, all other statistical indicators declined from the prior year.  Management has since undertaken steps toaugment its existing customer base by seeking out new customers through variousmarketing initiatives.

*** ***

***Roz******vadov, Czech Republic***

 

In2002, Rozvadov overcame the depressed local economy as it relied less on volumeof business like its sister casino in Ceska and focused more on retaining itsexceptionally loyal clientele, which is comprised mainly of well-to-do ruralfarmers and ranchers, whose businesses proved to be economically resistant tothe recent downturn in the German economy. These players’ contributions to the casino were evident in the 33% jumpin DpH in the year ended December 31, 2002 versus the year ended December 31,2001.  The casino also saw its highestannualized WP in its three year history as an ACC-owned and managedcasino.  By virtue of the fact thatthese high volume players tend to focus more on the service than anyextracurricular promotional activities staged, the revenue gains were realizedat significantly lower operating costs. Moreover, the high level of service and attention provided to theseplayers were crucial in maintaining their satisfaction and improving the casinoperformance causing revenue to improve by 25% over the previous year.  Operating expenses were lower in the yearended December 31, 2002 versus the prior year mainly due to the reduction inpromotional expenses and contributed to income from operations exclusiveof interest and depreciation and amortization of $465,000, which represented a128% improvement from that of the year ended December 31, 2001.  Notwithstanding the gains made in the year,Rozvadov also underwent a renovationof its main floor, including replacement of the carpet, relocation of its slotroom from its lower level to the main floor, and the introduction of a PacificSouth Seas theme.

*** ***

***Zno******jmo, Czech Republic***

 

Znojmo,which opened in December of 1999, reached a certain level of maturity in itsoperations in 2002.  Similar to Rozvadovbut to a larger extent, the casino drew upon a loyal, high volume player base,which consisted primarily of wealthy Viennese residents.  As a result, the casino’s DpH improved by35% in 2002 versus the prior year, while it achieved a 1.1 percentage pointgain in WP versus the year ended December 31, 2001.  The continuing success of Znojmo’s new lineup of Novomatic slotmachines exceeded management’s expectation, and also pushed the overall slotrevenue for the year above the revenue threshold and into a higher slot taxbracket (8% versus 6%).

 

13

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Thepopularity of the new machines was offset by higher operating costs as thecasino has a revenue-based lease agreement for these machines, which served toincrease the overall costs of the operation. With the appointment of a newcasino manager in February of 2002, the casino benefited from increasedemphasis on customer service and employee training.  Despite the negative impact on attendance by a major flood inAugust 2002 and on-going difficulties with congested border traffic, the casinomanaged to exceed prior year’s revenue in 2002 by 28%, and income fromoperations exclusive of interest and depreciation and amortization, increased by 19%.

** **

**Liquidity and Capital Resources**

 

The Company’s working capital, defined as current assets minus currentliabilities, decreased by $90,000 to a nominal surplus of $4,000 at December31, 2002 from a working capital surplus at December 31, 2001 of $94,000.

 

For the year ended December 31, 2002, the Company had net cash providedby continuing operations of $1.6 million. This was primarily a result of a $3.3 million loss from continuingoperations, $621,000 of depreciation and amortization, $803,000 of non-cashinterest related to the amortization of debt discount recorded in connectionwith the warrants issued with the March 1998 and October 1999 PrivatePlacements, other non-cash items of $19,000, and a $3.5 million net increase incash attributable to changes in operating assets and liabilities.  For the year ended December 31, 2002, netcash used in investing activities was $1.8 million and was used primarily forthe acquisition of the Znojmo casino building. For the year ended December 31, 2002, net cash from financing activitiesof $500,000 included $461,000 in retirement of a short-term operational loan inthe Czech Republic, proceeds from the financing of the Znojmo building leasepurchase by a local Czech Republic bank of $1.4 million, principal repaymentsof long term debt of $207,000, proceeds from the exercise of warrants of$21,000, and payments of deferred financing costs of $222,000, primarily inconnection with the proposed financing by Choice.

 

The Company is obligated under various contractual commitments over thenext five years.  The following is asummary of the five-year commitments of the Company as of December 31, 2002:

 
| **(in  thousands)Contractual Obligation** |   | **Total** |   | **Less than  1 Year** |   | **1-3 Years** |   | **4-5 Years** |   | **After  5 Years** |   |
|-------------------------------------------|--------|-----------|--------|-----------------------|--------|---------------|--------|---------------|--------|--------------------|--------|
| Long-term  debt                           |   | $         | 21,464 |                  | $      | 366           |   | $             | 20,732 |               | $      | 366 |   | $ | — |   |
| Operating  leases                         |   | 412       |   | 196                   |   | 176           |   | 40            |   |               |   |
| Employment  agreements                    |   | 1,260     |   | 530                   |   | 730           |   | —        |   |               |   |
| Other  agreements                         |   | 195       |   | 195                   |   |          |   |          |   |               |   |
| Consulting  agreements                    |   | 81        |   | 27                    |   | 54            |   | —        |   |               |   |
| Total  contractual obligations            |   | $         | 23,412 |                  | $      | 1,314         |   | $             | 21,692 |               | $      | 406 |   | $ | — |   |

 

The Companyhas, from time to time, been in technical default of the Amended Indentures andis so as of December 31, 2002.  TWCrelies upon the forbearance and waivers on the default of certain covenantsfrom Value Partners, which represents a majority in interest of the holders ofthe Senior Notes. The Company has borrowed other amounts from Value Partnersfrom time to time (some of which have been in technical default for whichforbearance or waivers have been granted). On February 23, 2001, Value Partners converted 5,657,453 of $0.01warrants held by it.  With the exerciseof those Warrants and the issuance of 23,270,833 shares of Common Stockto Value Partners in conjunction with the LA Bond Exchange, ValuePartners holds a controlling 57.5% of the Common Stock with warrants to acquirean additional 2.1% of the Common Stock. At December 31, 2002, Value Partners owned 66.6% of the Company’slong-term debt.

 

The Company remains highlyleveraged and has been unable to meet its interest payments in full sinceSeptember 2000. Waivers of default for non-payment of interest have beenreceived from Value Partners, the majority holder of the Notes, through January1, 2004.  The terms of this waiverrequire the payment of all defaulted interest payments plus all accrued andunpaid interest thereon within 10 business days following: the receipt by TWCor any subsidiary of $6.0 million or more from any borrowing or sale of equity,the payment of interest to another

 

14

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Noteholder, or thecommencement of a voluntary or involuntary insolvency proceeding against theCompany or any subsidiary Note issuer. *(seeNote 4 to Consolidated Financial Statements**)*

 

The Company has taken several steps toimprove its consolidated financial position, including (i) the December 2001sale of its under-performing Spanish casino ($1.3 million of the net proceedshave been earmarked for potential investment in a hotel or casino project);(ii) the LA Bond Exchange, which reduced liabilities by $6.7 million; (iii)expansion of its facility in Znojmo (from 11 to 21 gaming tables);  (iv) the renovation of its Ceska Kubice andRozvadov casinos, which were completed in May 2002 and November 2002,respectively; (v) the March 2002 purchase of the Znojmo casino building lease;(vi) the signing of the memorandum of understanding for space to be leased in adesigner outlet mall near Znojmo, in which the Company intends to open a slotroom and bar in the fall of 2003 (See Note 12 in Notes to Consolidated FinancialStatements); and (vii) most notably, the filing of a pre-effective prospectuswith the SEC in conjunction with the Exchange Agreement, whereby the Companyseeks to exchange  a minimum of 92% ofits Senior Notes for Common Stock (See Note 12 in Notes to ConsolidatedFinancial Statements.)

 

While the steps taken by management that have been completed haveenhanced the Company’s consolidated balance sheet and improved its results ofoperations, the Company’s management believes that completion of the ExchangeAgreement is a prerequisite for the Company to be in a position to secureadditional financing, the proceeds from which would be used to: (i) provide theCompany with supplementary working capital to preserve and enhance theCompany’s existing assets; and (ii) acquire new business units.

 

Additionally, the Company is studying several development projects inaddition to the slot room and bar discussed above, including the potentialdevelopment of a hotel near Znojmo, the possible development of a fourthfull-service casino in Europe, and the potential acquisition of existing hotelsin Europe.  There can be no assurancesthat management’s plans will be realized.

 

Assuming that the Exchange Offer is consummated successfully, theCompany believes that its cash resources at December 31, 2002, together with2003 developments (See Note 12 in Notes toConsolidated Financial Statements) and anticipated cash projected to beprovided by 2003 operations, are sufficient to fund its activities for the yearending December 31, 2003.  However,long-term liquidity is dependent on the Company’s ability to consummate theExchange Agreement, to attain profitable operations and to secure additionalfinancing.

** **

**Plan of Operations and Important Factors toConsider:**

 

TWC management will continue to develop marketing and operationalstrategies designed to increase attendance and revenues at its existinglocations in the Czech Republic.

 

In May 2002, the Company completed renovation of the Ceska casino and,during the year, replaced 38 of its existing Aristocrat slot machines withnewer-style Novomatic slot machines.  InRozvadov, the main floor was reconfigured to accommodate the relocation of theslot room from its lower level to the main floor for better player access andvisibility.  Further, the carpet andemployee uniforms were replaced and a Pacific South Seas theme wasintroduced.  In Znojmo, an additionalfour gaming tables were added in July 2002, which leaves the facility with atotal of 21 gaming tables currently in operation.  Further, 55 of the 56 existing slot machines in Znojmo werereplaced over a two-year period beginning in January 2001 with newer machinesof a type that are generally preferred by the casino’s target client base.

 

In February 2003, the Company also completed negotiation of thememorandum of understanding of a pending lease agreement for an approximately6,500 square foot space in a designer outlet mall that is currently underconstruction on a plot of land adjacent to the Company’s Znojmo Casino, wherethe Company intends to open a slot room and bar, which will have a Hollywoodtheme.  The mall is scheduled to open inthe fall of 2003.

 

15

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The Company is also pursuing construction of a three-star hotel, whichwould be connected to the Znojmo casino and be built on company-ownedland.  The hotel design has beencompleted and the Company is actively seeking funding for its planned groundbreaking in mid-2003.

 

Management is advancing on its plan to add a fourth full service casinoin the region and is in the process of finalizing its development plans.  Such an addition would allow the Company totake advantage of its existing infrastructure, thereby benefiting fromeconomies of scale.

*** ***

***Accumulated Deficit;Operating Losses***

 

On December 31, 2002, the Company had an accumulated deficit ofapproximately $37.4 million and a stockholders’ deficit of $14.8 million. Forthe year ended December 31, 2002, the Company incurred a net loss ofapproximately $3.3 million, primarily, as a result of increased competition andits high debt burden.  Further, theCompany is highly leveraged and, from time to time, has been unable to pay itsinterest and accounts payable obligations when they become due.  The ability of the Company to achieveprofitability from its continuing operations depends upon the successfulmanagement of gaming establishments in the Czech Republic, their expansion andpossible relocation, the addition of business units, and the diversification ofits operations to include other sources of revenue.  There can be no assurance that the Company will achieveprofitability as a result of these operations or otherwise.

*** ***

***Need to Diversify***

 

At this time, the Company has operations exclusively in the Czech Republic.  The Company is currently seeking to developor acquire interests in gaming operations and hotels in Europe; however, therecan be no assurance that the Company will be able to develop or acquire suchnew operations in the future.

*** ***

***Taxation of Gaming Operations***

 

Gaming operators are typically subject to significant taxes and fees inaddition to federal and state corporate income taxes, and such taxes and feesare subject to increase at any time. Any material increase in these taxes orfees would adversely affect the results of operations of the Company. The CzechRepublic currently has a number of laws related to various taxes imposed bygovernmental authorities. Applicable taxes include value added tax, corporatetax, charity tax, and payroll (social) taxes, together with others.  In addition, laws related to these taxeshave not been in force for significant periods, in contrast to more developedmarket economies; therefore, implementing regulations are often unclear ornonexistent. Accordingly, few precedents with regard to issues have beenestablished. Often, differing opinions regarding legal interpretations existboth among and within government ministries and organizations, creatinguncertainties and areas of conflict. Tax declarations, together with otherlegal compliance areas (for example, customs and currency control matters) aresubject to review and investigation by a number of authorities, which areauthorized by law to impose extremely severe fines, penalties and interestcharges. These facts create tax risks in the Czech Republic substantially moresignificant than typically found in countries with more developed tax systems.Management believes that it has adequately provided for tax liabilities;however, the risk remains that relevant authorities in the Czech Republic couldtake differing positions with regard to interpretive issues and the effect onamounts paid for taxes, fines, penalties, and interest could be significant.

 

InJune 2002, the financial authority of Domazlice, Czech Republic (the “Czech TaxAuthority”) commenced an audit of the income tax filings of the Company’s Czechsubsidiaries for the years ended December 31, 1999 and 2000.  As a result of the audit, the Company issubject to a tax liability of $238,000 and potential penalties and interestamounting to $270,000.  In recognitionof the ambiguity of the tax laws that resulted in incorrect filings, the CzechTax Authority has responded favorably in preliminary discussions regarding thepossibility of waiver of the penalties and interest.  The Company has accrued the full tax liability plus a provisionequal to 50% of the potential penalty and interest charges in its consolidatedfinancial statements for the year ended December 31, 2002 as well as an accrualrelated to an, as yet, unaudited period in the year ended December 31, 2001,for which the Company

 

16

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facesadditional potential tax liabilities. Clarifications by the Czech Tax Authority with regard to the statutorytax treatment of certain sources of revenue have resulted in adjustments in thetax treatment of these items by the Company, which eliminated potentialadditional exposure in these areas beyond June 2001.

*** ***

***Dependence upon Key Personnel***

 

The Company’s ability to successfully implement its strategy ofexpansion and diversification, manage the Czech casinos, and maintain acompetitive position will continue to depend, in large part, on the ability ofMr. Rami S. Ramadan, the Company’s President, Chief Executive Officer (“CEO”),and Chief Financial Officer (“CFO”). Prior to joining TWC in 1999, Mr. Ramadan served as Executive VicePresident of Finance for the Ian Schrager Hotels and also held financialpositions with Hyatt Hotels, Euro-Disney and Meridien Hotels.  The Company may also be highly dependentupon other key employees, casino managers and consultants whom the Company mayretain from time to time.

*** ***

***Need for Additional Financing***

 

Given the Company’s receipt of a conditional waiver regardingnonpayment of interest for the 2003 calendar year, management believes,although there can be no assurance, that existing cash, together withanticipated cash flows from operations, will be sufficient to satisfy itscurrent obligations for the next 12 months.  The expected cash flow will not be sufficient to settle existing pastdue interest.  Further, the Company willrequire additional capital for expansion. If such additional financing does not materialize, this would have amaterially adverse effect on the financial condition and operations of theCompany. The Company requires additional debt and/or equity financing for theacquisition of other businesses.  TheCompany’s ability to obtain additional financing may be limited for a number ofreasons, including the fact that the Company is highly leveraged and morevulnerable to extended economic downturns. This high leverage may adversely impact the holders of the Company’sequity and debt securities by impairing the Company’s ability to obtainadditional financing needed for working capital, capital expenditures,acquisitions or general corporate purposes. There can be no assurance that such financing will be available on termsfavorable to the Company or at all.

 

In an effort to make the Company more attractive to potentialinvestors, in addition to the continued improvement of the Company’soperations, management focused on improvement of the Company’s balance sheetthrough debt reduction initiatives.  InMarch 2002, management completed negotiation of the LA Bond Exchange, wherebythe principal sum of $4.8 million dollars together with approximately $1.9million in unpaid interest were converted to 37,233,334 shares of CommonStock.  The exchanged debt wereconverted to Common Stock at a per share price of $0.18.

 

Pursuantto the issuance of the 37,233,334 shares of Common Stock in connection with theLA Bond Exchange and the additional 50.0 million shares authorized by theshareholders in the previous year’s Annual Meeting, only 49,671,825 shares ofthe Company’s Common Stock remain available for issuance.  Of these 49,671,825 shares, 726,000 havebeen reserved for issuance upon the exercise of employee and non-employeedirector stock options, 5,298,163 have been reserved for issuance upon theexercise of outstanding and exercisable warrants, leaving 43,647,662 availablefor other general corporate purposes. The Company may need to amend its Articles of Incorporation to providefor additional authorized shares to fulfill the terms of the ExchangeAgreement.   It is anticipated that aproposal to amend the Articles of Incorporation of the Company to increase thenumber of authorized shares of capital stock will be presented to thestockholders for their consideration at the Company’s 2003 Special Meetingtentatively scheduled for the second quarter of 2003.

 

The Company’s Board ofDirectors has been monitoring the Company’s cash flow situation since 1998 andhas determined that the Company must act now to alleviate the debt serviceburden.  At the direction of the Board,the Company’s Chief Executive Officer, Rami S. Ramadan, has, for approximatelythe past two years, been discussing on a frequent but informal basisalternatives for the recapitalization of the Company with Value Partners (whohas agreed to maintain the confidentiality of all non-public informationprovided to it and not to trade in the securities of TWC while in possession ofnon-public information) and to a much lesser extent, with certain other of theNoteholders.  The Company’s Board hasalso considered, in this regard, sales of certain of the Company’s assets,

 

17

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and in December 2001,decided to sell the Company’s Spanish casino, primarily due to the failure ofthe local government to make good on its promise to provide the necessarypermissions to relocate the casino to the city center. While the Board haslooked at the sale of one or more of the Company’s Czech casinos, it hasrejected this notion because the Company’s Czech properties are currently thefoundation of the Company’s business, represent all of the Company’s basicfranchise value and provide all of the Company’s current cash flow whichsustains the Company’s operations.  Itis the belief of the Company’s Board, based on recent appraisals and thecurrent market conditions in the Czech Republic, that the sale of one or moreof the Company’s Czech casinos would not be sufficient to significantlyalleviate the Company’s debt burden, and that the sale of all of the casinoswould not produce sufficient funds to pay off all of the Notes and theCompany’s other liabilities.  Inaddition, the Board believes that with a restructuring such as the oneproposed, the Company will have the opportunity to grow revenue and becomeprofitable and thereby result in a positive return on investment for theCompany’s stockholders.  A liquidationof the Company’s assets at this time would, in the Board’s opinion, not providesuch a return. Accordingly, the Board did not, and does not believe thatfurther significant asset sales would be in the best interests of the Company,its stockholders or its creditors.  Bylate 2001, it became apparent to Mr. Ramadan that, after contactingapproximately 86 potential sources of capital in the U.S. and Europe,additional financing for TWC would not be possible without a majorrecapitalization of the Company.  Atthat time, Mr. Ramadan and the Board became concerned that the Company’s onlyreal alternative was to take significant steps to reduce the Company’slong-term debt.  In March 2002, asdiscussed above, seven private investors (Value Partners representing 62.5% ofthe total principal amount) agreed to complete the LA Bond Exchange, whichprovided for the exchange $4.8 million of the Company’s 12% Senior SecuredBonds relating to the Company’s discontinued Louisiana operations plus $1.9million of accrued and unpaid interest, into 37,233,334 shares of restrictedcommon stock in a private, exempt exchange transaction.

 

While this exchange providedsome help in alleviating the debt service burden, the Company’s Board ofDirectors agreed that more needed to be done to free up the Company’s cash flowand to make the Company attractive to outside financiers.  Mr. Ramadan analyzed and discussed with theBoard a wide range of potential debt restructure scenarios before concludingthat any plan that sought less than a 100% exchange of the existing debt forequity would not sufficiently address the Company’s cash flow and credit ratingissues to allow us to continue as a going concern or to pursue Mr. Ramadan’sgrowth strategy for the Company.

 

In exploring possiblesolutions to the Company’s tenuous financial position, Mr. Ramadan and theBoard carefully weighed the goals of the existing Noteholders against those ofthe Company’s existing stockholders and concluded that moving forward under theexisting conditions was of little benefit to either group.

 

In March 2003,the Company filed pre-effective amendment No. 3 to Form S-4 registrationstatement under the Securities Act of 1933. Through this prospectus, the Company seeks to exchange either 22,640shares of Common Stock or $1,000 principal amount variable rate promissorynotes due 2010 for each $1,000 principal amount of the Company’s 12% SeniorSecured Notes due March 17, 2005.  Inaddition, pursuant to the terms of the proposed Exchange Agreement, certaintendering noteholders would receive an 8% promissory note due 2006 for interestaccrued through September 17, 2001.

*** ***

***International Activities***

 

Since July 1, 1999, the Company’s operations were totally outside ofthe United States. Operating internationally involves additional risks relatingto such things as currency exchange rates, different legal or regulatoryenvironments, political and economic risks relating to the stability or predictabilityof foreign governments, differences in the manner in which different culturesdo business, difficulties in staffing and managing foreign operations,differences in financial reporting, operating difficulties, different types ofcriminal threats and other factors. The occurrence of any of these risks, ifsevere enough, could have a material adverse effect on the financial conditionor results of operations of the Company.

*** ***

***Licensing and Regulation***

 

The Company’s operations are subject to regulation by each localjurisdiction in which it operates or plans to operate business, as well asfederal laws and the laws of any foreign country. Each of the Company’sofficers, and directors, and in certain instances, persons who have more than afive percent income or profit interest in, or who exercise

 

18

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significant influence over the activities of the Company, may besubject to strict scrutiny and approval from the gaming commission or otherregulatory body of each jurisdiction in which the Company may conduct gamingoperations.

 

The failure to obtain any license for properties upon which the Companyplans to operate or manage a gaming establishment in the future would have amaterially adverse effect on the Company’s business. Obtaining requiredlicenses can be time consuming and costly with no assurance of success. Inaddition, the Company is subject to changes in the laws of the jurisdictions inwhich it operates, which could materially limit the Company’s ability toconduct business profitably. In the event that a required license is notgranted for any particular location, the Company’s options would includeeffecting a transfer of substantially all of its related gaming assets to adifferent location or selling its interest in the gaming operations at thatlocation to a third party. There can be no assurance that the Company would beable to relocate gaming assets or sell its interests on acceptable terms or atall, and the inability to do so would have a materially adverse effect upon thebusiness and prospects of the Company.

* *

***Liability Insurance***

 

The Company currently maintains and intends to maintain generalliability insurance in each of those locations in which it operates. There canbe no assurance that liability claims will not exceed the coverage limits ofsuch policies or that such insurance will continue to be available oncommercially reasonable terms or at all. There can be no assurance that suchinsurance will be adequate to cover unanticipated liabilities.

*** ***

***No Dividends***

 

The Company has not paid any dividends to date on its Common Stock, anddoes not expect to declare or pay any dividends in the foreseeable future. TheCompany intends to retain future earnings, if any are generated, for investmentin its operations.

*** ***

***Possible AdverseEffect of Issuance of Preferred Stock***

 

The Company’s Articles of Incorporation authorize the issuance of4,000,000 shares of “blank check” Preferred Stock, with designations, rightsand preferences determined from time to time by its Board of Directors.Accordingly, the Company’s Board of Directors is empowered, without furtherstockholder approval, to issue Preferred Stock with dividend, liquidation,conversion, voting or other rights that could adversely affect the voting poweror other rights of the holders of the Common Stock. In the event of issuance,the Preferred Stock could be used, under certain circumstances, as a method ofdiscouraging, delaying or preventing a change in control of the Company. TheCompany has no current plans to issue any shares of Preferred Stock. However,there can be no assurance that Preferred Stock will not be issued at some timein the future.

*** ***

***Dilutive Effect of Warrants***

 

In connection with the completion of the March 1998 Private Placement,the Company issued warrants to purchase approximately 9.5 million shares of theCompany’s Common Stock. In addition, in connection with the restructuring ofthe Senior Notes, in March 1998 the Company issued approximately 3.2 millionwarrants to purchase the Company’s Common Stock.  The Company also issued approximately 1.25 million warrants topurchase the Company’s Common Stock in connection with the October 1999 PrivatePlacement.  The issuance of suchsecurities will have a dilutive effect on any earnings that the Company mightgenerate when the earnings are evaluated on a diluted basis.  At March 20, 2002, a total of 5,298,163warrants are outstanding, which, if exercised, would represent 9.5% of the 55,626,338shares of Common Stock that would be outstanding.

 

19

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**Item 7.**  **FinancialStatements.**

 

The following items are included in this Report:

 

ConsolidatedFinancial Statements

 
| Independent Auditors’ Report                                      |
|------------------------------------------------------------------------|
| Consolidated Balance Sheet                                             |
| Consolidated Statements of Operations and  Comprehensive Income (Loss) |
| Consolidated Statements of Stockholders’  Deficit                 |
| Consolidated Statements of Cash Flows                                  |
| Notes to Consolidated Financial Statements                             |
| Report of Independent Auditors (CDZ)                                   |

 

20

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INDEPENDENT AUDITORS’ REPORT

 

Board of Directors

Trans World Corporation

 

We have audited the accompanying consolidated balance sheet of TransWorld Corporation and Subsidiaries as of December 31, 2002, and the relatedconsolidated statements of operations and comprehensive income (loss),stockholders’ deficit and cash flows for the years ended December 31, 2002 and2001.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.  We did not audit the financial statements ofa former majority-owned subsidiary, which statements reflect total revenues ofapproximately $2.6 million for the ten-month period ended October 31, 2001(reflected within discontinued operations in the accompanying consolidatedfinancial statements).  Those financialstatements were audited by other auditors, whose report has been furnished tous, and our opinion, insofar as it relates to the amounts included for theformer majority-owned subsidiary, is based solely on the report of the otherauditors.

 

We conducted our audits in accordance withauditing standards generally accepted in the United States of America.  Those standards require that we plan andperform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits and the report ofother auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and thereport of other auditors, the consolidated financial statements referred toabove present fairly, in all material respects, the financial position of TransWorld Corporation and Subsidiaries as of December 31, 2002, and the results oftheir operations and their cash flows for the years ended December 31, 2002 and2001, in conformity with accounting principles generally accepted in the UnitedStates of America.

 
|   | /s/   Rothstein, Kass & Company, P.C. |
|--------|------------------------------------------------|

 

Roseland, New Jersey

February 14, 2003

 

21

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###### **TRANSWORLD CORPORATION AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETDecember 31, 2002(In thousands, except for per share data)

 
| **ASSETS**                                                                                      |   |    |   |
|-------------------------------------------------------------------------------------------------|--------|---------|--------|
|                                                                                            |   |    |   |
| **CURRENT ASSETS:**                                                                             |   |    |   |
|                                                                                            |   |    |   |
| Cash                                                                                            |   | $       | 3,834  |   |
| Prepaid  expenses and other current assets                                                      |   | 369     |   |
|                                                                                            |   |    |   |
| **Total current assets**                                                                        |   | 4,203   |   |
|                                                                                            |   |    |   |
| **PROPERTY AND EQUIPMENT, net**                                                                 |   | 6,038   |   |
|                                                                                            |   |    |   |
| **OTHER ASSETS:**                                                                               |   |    |   |
|                                                                                            |   |    |   |
| Goodwill                                                                                        |   | 3,579   |   |
| Deposits  and other assets                                                                      |   | 1,335   |   |
|                                                                                            |   |    |   |
|                                                                                            |   | 4,914   |   |
|                                                                                            |   |    |   |
|                                                                                            |   | $       | 15,155 |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                 |   |    |   |
|                                                                                            |   |    |   |
| **CURRENT LIABILITIES:**                                                                        |   |    |   |
|                                                                                            |   |    |   |
| Short-term  debt                                                                                |   | $       | 249    |   |
| Long-term  debt, current maturities                                                             |   | 366     |   |
| Accounts  payable                                                                               |   | 386     |   |
| Accrued  expenses and other current liabilities                                                 |   | 3,198   |   |
|                                                                                            |   |    |   |
| **Total current liabilities**                                                                   |   | 4,199   |   |
|                                                                                            |   |    |   |
| **LONG-TERM LIABILITIES:**                                                                      |   |    |   |
|                                                                                            |   |    |   |
| Long-term  debt, less current maturities                                                        |   | 19,152  |   |
| Interest  payable                                                                               |   | 6,482   |   |
| Other                                                                                           |   | 155     |   |
|                                                                                            |   |    |   |
|                                                                                            |   | 25,789  |   |
|                                                                                            |   |    |   |
| **COMMITMENTS AND CONTINGENCIES**                                                               |   |    |   |
|                                                                                            |   |    |   |
| **STOCKHOLDERS’ DEFICIT:**                                                                 |   |    |   |
|                                                                                            |   |    |   |
| Preferred  stock, $.001 par value, 4,000 shares authorized, none issued                         |   |    |   |
| Common  stock $.001 par value, 100,000 shares authorized, 50,328 shares issued and  outstanding |   | 50      |   |
| Additional  paid-in capital                                                                     |   | 21,750  |   |
| Accumulated  other comprehensive income                                                         |   | 762     |   |
| Accumulated  deficit                                                                            |   | (37,395 | )      |
|                                                                                            |   |    |   |
| **Total stockholders’ deficit**                                                            |   | (14,833 | )      |
|                                                                                            |   |    |   |
|                                                                                            |   | $       | 15,155 |   |

 

*See accompanying notes to consolidated financial statements*

 

22

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF OPERATIONSAND COMPREHENSIVE INCOME (LOSS)Years Ended December 31, 2002 and 2001(In thousands, except for per share data)

 
|                                                                                                                                                                     |   | **2002** |   | **2001** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                                                                                                     |   |     |   |     |   |
| **REVENUES**                                                                                                                                                             |   | $        | 14,237 |     | $      | 12,773 |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **COSTS AND EXPENSES**                                                                                                                                                   |   |     |   |     |   |
| Cost  of revenues                                                                                                                                                        |   | 7,353    |   | 6,208    |   |
| Depreciation  and amortization                                                                                                                                           |   | 621      |   | 1,920    |   |
| Selling,  general and administrative                                                                                                                                     |   | 5,135    |   | 5,333    |   |
|                                                                                                                                                                     |   | 13,109   |   | 13,461   |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **INCOME/(LOSS) FROM OPERATIONS**                                                                                                                                        |   | 1,128    |   | (688     | )      |
|                                                                                                                                                                     |   |     |   |     |   |
| **OTHER INCOME/(EXPENSE):**                                                                                                                                              |   |     |   |     |   |
| Interest,  net                                                                                                                                                           |   | (3,911   | )      | (3,937   | )      |
| Loss  on sale of assets                                                                                                                                                  |   | (21      | )      | (8       | )      |
| Foreign  exchange gain (loss)                                                                                                                                            |   | 228      |   | (5       | )      |
| Other                                                                                                                                                                    |   | (537     | )      |     |   |
|                                                                                                                                                                     |   | (4,242   | )      | (3,950   | )      |
|                                                                                                                                                                     |   |     |   |     |   |
| **LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES**                                                                                                                  |   | (3,114   | )      | (4,638   | )      |
|                                                                                                                                                                     |   |     |   |     |   |
| **INCOME TAXES**                                                                                                                                                         |   | (161     | )      |     |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **LOSS FROM CONTINUING OPERATIONS**                                                                                                                                      |   | (3,275   | )      | (4,638   | )      |
|                                                                                                                                                                     |   |     |   |     |   |
| **DISCONTINUED OPERATIONS,**net gain from discontinued Casino De  Zaragoza, net of tax of $0                                                                             |   |     |   | 7,084    |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **NET INCOME/(LOSS)**                                                                                                                                                    |   | $        | (3,275 | )        | $      | 2,446 |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **WEIGHTED AVERAGE COMMON SHARES OUTSTANDING,**basic and diluted                                                                                                         |   | 42,939   |   | 10,201   |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **INCOME/(LOSS) PER COMMON SHARE,**basic and diluted                                                                                                                     |   |     |   |     |   |
| From  continuing operations                                                                                                                                              |   | $        | (0.08  | )        | $      | (0.45 | ) |
| From  discontinued operations                                                                                                                                            |   |     |   | 0.69     |   |
| Net  income/(loss)                                                                                                                                                       |   | $        | (0.08  | )        | $      | 0.24 |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **COMPREHENSIVE INCOME/(LOSS)**                                                                                                                                          |   |     |   |     |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **Net income/(loss)**                                                                                                                                                    |   | $        | (3,275 | )        | $      | 2,446 |   |
|                                                                                                                                                                     |   |     |   |     |   |
| **Other comprehensive income/(loss)**, foreign currency translation adjustment,  net of a $1,807 reclassification adjustment in 2001 for gains recognized in  net income |   | 700      |   | (1,446   | )      |
|                                                                                                                                                                     |   |     |   |     |   |
| **Comprehensive income/(loss)**                                                                                                                                          |   | $        | (2,575 | )        | $      | 1,000 |   |

 

*See accompanying notes to consolidated financial statements*

 

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICITYears Ended December 31, 2002 and 2001(In thousands, except for per share data)

** **
|                                                                             |   |       |   |   |   | **Additional  Paid-in  Capital** |   | **Accumulated  Other  Comprehensive  Income** |   | **Accumulated  Deficit** |   | **Total  Stockholders’  Deficit** |   |
|----------------------------------------------------------------------------------|--------|------------|--------|--------|--------|----------------------------------|--------|-----------------------------------------------|--------|--------------------------|--------|----------------------------------------|--------|
|                                                                             |   |       |
| **Common Stock**                                                                 |
| **Shares**                                                                       |   | **Amount** |
| **Balances,**January 1,  2001                                               |   | 5,365      |   | $      | 5      |                             | $      | 15,016                                        |   | $                        | 1,508  |                                   | $      | (36,566 | ) | $ | (20,037 | ) |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Exercise of warrants**                                                         |   | 5,658      |   | 6      |   | 51                               |   |                                          |   |                     |   | 57                                     |   |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Foreign currency translation adjustment, net**                                 |   |       |   |   |   |                             |   | (1,446                                        | )      |                     |   | (1,446                                 | )      |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Net income**                                                                   |   |       |   |   |   |                             |   |                                          |   | 2,446                    |   | 2,446                                  |   |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Balances,**December  31, 2001                                                  |   | 11,023     |   | 11     |   | 15,067                           |   | 62                                            |   | (34,120                  | )      | (18,980                                | )      |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Conversion of long-term debt and related accrued interest into Common  Stock** |   | 37,233     |   | 37     |   | 6,664                            |   |                                          |   |                     |   | 6,701                                  |   |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Exercise of warrants and options**                                             |   | 2,072      |   | 2      |   | 19                               |   |                                          |   |                     |   | 21                                     |   |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Foreign currency translation adjustment**                                      |   |       |   |   |   |                             |   | 700                                           |   |                     |   | 700                                    |   |
|                                                                             |   |       |   |   |   |                             |   |                                          |   |                     |   |                                   |   |
| **Net loss**                                                                     |   |       |   |   |   |                             |   |                                          |   | (3,275                   | )      | (3,275                                 | )      |
| **Balances,**December 31, 2002                                                   |   | 50,328     |   | $      | 50     |                             | $      | 21,750                                        |   | $                        | 762    |                                   | $      | (37,395 | ) | $ | (14,833 | ) |

 

*See accompanying notes to consolidated financial statements*

 

24

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CASH FLOWSYears Ended December 31, 2002 and 2001(In thousands, except for per share data)

 
|                                                                                                      |   | **2002** |   | **2001** |   |
|-----------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| **CASH FLOWS FROM OPERATING ACTIVITIES:**                                                                 |   |     |   |     |   |
| Net  income (loss)                                                                                        |   | $        | (3,275 | )        | $      | 2,446 |   |
| Adjusted  for discontinued operations                                                                     |   |     |   | (7,084   | )      |
| Loss  from continuing operations                                                                          |   | (3,275   | )      | (4,638   | )      |
| Adjustments  to reconcile loss from continuing operations to net cash provided by  continuing operations: |   |     |   |     |   |
| Depreciation  and amortization                                                                            |   | 621      |   | 1,920    |   |
| Non-cash  interest                                                                                        |   | 803      |   | 767      |   |
| Other  non-cash items                                                                                     |   | 19       |   | 283      |   |
| Increase  (decrease) in cash attributable to changes in operating assets and  liabilities:                |   |     |   |     |   |
| Prepaid  expenses and other current assets                                                                |   | (157     | )      | (54      | )      |
| Other  assets                                                                                             |   |     |   | (83      | )      |
| Accounts  payable, accrued expenses and other liabilities                                                 |   | 3,563    |   | 2,611    |   |
| Net  cash provided by in continuing operations                                                            |   | 1,574    |   | 806      |   |
| Net  cash used in discontinued operations                                                                 |   |     |   | (640     | )      |
|                                                                                                      |   |     |   |     |   |
| **NET CASH PROVIDED BY OPERATING ACTIVITIES**                                                             |   | 1,574    |   | 166      |   |
|                                                                                                      |   |     |   |     |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES:**                                                                 |   |     |   |     |   |
| Proceeds  from the sale of Casino de Zaragoza, net                                                        |   |     |   | 1,643    |   |
| Proceeds  from the sale of equipment                                                                      |   | 20       |   | 13       |   |
| Purchases  of property and equipment and other                                                            |   | (1,822   | )      | (161     | )      |
|                                                                                                      |   |     |   |     |   |
| **NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES**                                                   |   | (1,802   | )      | 1,495    |   |
|                                                                                                      |   |     |   |     |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES:**                                                                 |   |     |   |     |   |
| Proceeds  from short-term debt                                                                            |   |     |   | 1,792    |   |
| Payments  of short-term debt                                                                              |   | (461     | )      | (1,636   | )      |
| Proceeds  from long-term debt                                                                             |   | 1,369    |   |     |   |
| Payments  of long-term debt                                                                               |   | (207     | )      |     |   |
| Proceeds  from exercise of warrants and options                                                           |   | 21       |   | 57       |   |
| Payments  of deferred financing costs                                                                     |   | (222     | )      |     |   |
|                                                                                                      |   |     |   |     |   |
| **NET CASH PROVIDED BY FINANCING ACTIVITIES**                                                             |   | 500      |   | 213      |   |
|                                                                                                      |   |     |   |     |   |
| **EFFECT OF EXCHANGE RATE CHANGES ON CASH**                                                               |   | 312      |   | 91       |   |
|                                                                                                      |   |     |   |     |   |
| **NET INCREASE IN CASH**                                                                                  |   | 584      |   | 1,965    |   |
|                                                                                                      |   |     |   |     |   |
| **CASH**                                                                                                  |   |     |   |     |   |
| Beginning  of year                                                                                        |   | 3,250    |   | 1,285    |   |
|                                                                                                      |   |     |   |     |   |
| End  of year                                                                                              |   | $        | 3,834  |     | $      | 3,250 |   |

 

25

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)Years Ended December 31, 2002 and 2001(In thousands, except for per share data)

 
|                                                                        |   | **2002** |       | **2001** |       |
|-----------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| **SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION,**                     |   |     | ** ** |     | ** ** |
| Cash paid during the  year for:                                             |   |     |       |     |       |
| Interest                                                                    |   | $        | 108        |     | $          | 1,054 |   |
|                                                                        |   |     |       |     |       |
| **SUPPLEMENTAL  DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES** |   |     | ** ** |     | ** ** |
|                                                                        |   |     | ** ** |     | ** ** |
| Conversion of accounts  payable and accrued interest to short-term debt     |   | $        | 16         |     | $          | 216 |   |
|                                                                        |   |     |       |     |       |
| Conversion of long-term  debt and related accrued interestinto Common Stock |   | $        | 6,701      |     | $          | — |   |
|                                                                        |   |     |       |     |       |
| Accrual of deferred  financing costs                                        |   | $        | 72         |     | $          | — |   |

 

*See accompanying notes to consolidated financial statements*

 

26

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**TRANS WORLD CORPORATION AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands, except for per sharedata)

** **

**NOTE1** - **Nature****of Business and Liquidity**

*** ***

***Overview***

 

Trans World Corporation and Subsidiaries(collectively the “Company”), a Nevada corporation, is primarily engaged in thegaming business in the Czech Republic.   The Company’s Spanish operations were sold in December 2001 *(see Note11)*.

*** ***

***Gaming Operations******- Czech Republic***

 

The Company owns and operates three casinos in the Czech Republic, twoof which are located in the western part of the country, close to the border ofthe German State of Bavaria.  The largerof the German border casinos, located in Ceska Kubice, currently has 15 gamingtables and 48 slot machines. The smaller of the German border casinos, locatedin Rozvadov, currently has 11 gaming tables and 30 slot machines.  The Company also owns and operates a casinoin the southern Czech Republic, close to the border of Austria.  This casino, located in Hate near Znojmo (“Znojmo”), currently has 21 gaming tablesand 56 slot machines.

*** ***

***Discontinued GamingOperations******-Spain***

 

The Company held a majority interest in Casino de Zaragoza S.A.(“CDZ”), which owns the license to operate the only casino in the Spanishprovince of Aragon.  The casino, whichoperated nine gaming tables and 24 slot machines, was situated 15 miles outsideof Zaragoza, and had been operating at a loss since its April 1998 acquisitionby the Company.  As part of the terms ofthat acquisition, the Company had negotiated an agreement with the localrepresentatives of an agency of the provincial government, the DiputacionGeneral de Aragon (“DGA”), to allow the casino to relocate from its presentposition to the center of downtown Zaragoza, subject to a decree.  As a result of excessive delays by the localSpanish authorities in authorizing the casino’s relocation, coupled with thebusiness unit’s mounting losses, the Company elected to divest itself of thecasino, and in December 2001, the Company sold its interest in CDZ to a localSpanish casino operator.  (S*ee Note 11.*)

*** ***

***Liquidity***

 

At December 31, 2002, the Company has aworking capital surplus of only $4 and a stockholders’ deficit of $14,833.  Further,****in spite of the recent debt conversion initiative discussed below, theCompany is highly leveraged and was unable to meet its September 2000, March2001, September 2001, March 2002, and September 2002 interest payments in full *(see Note 4)**.*The Company has taken several steps to improve its consolidated financialposition, including (i) the December 2001 sale of its under-performing Spanishcasino ($1,300 of the net proceeds have been earmarked for potential investmentin a hotel or casino project); (ii) the March 2002 debt (and related accruedinterest) conversion to equity (hence reducing liabilities by $6,700); (iii)expansion of its facility in Znojmo, Czech Republic (from 11 to 21 gamingtables);  (iv) the renovation of itscasinos in Ceska Kubice and Rozvadov, which were completed in May 2002 andNovember 2002, respectively; (v) the March 2002 buyout (purchase) of the Znojmo casino building lease; (vi) the signing of theheads of terms (“memorandum of understanding”) for space to be leased in adesigner outlet mall in Hate, Czech Republic, in which the Company intends toopen a slot room and bar in the fall of 2003 (see Note 12); and (vii) mostnotably, the filing of a pre-effective prospectus with the Securities andExchange Commission (“SEC”) whereby the Company seeks to exchange  a minimum of 92% of its 12% Senior SecuredNotes due March 17, 2005 for Common Stock (the “Exchange Agreement)” (See Note12.)

 

27

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While the steps taken by management (discussed in the precedingparagraph) that have been completed have enhanced the Company’s consolidatedbalance sheet and improved its results, the Company’s management believes thatcompletion of the Exchange Agreement is a prerequisite for the Company to be ina position to secure additional financing, the proceeds from which would beused to (i) provide the Company with supplementary working capital to preserveand enhance the Company’s existing assets; and (ii) acquire new business units.

 

Additionally, the Company is studying several development projects inaddition to the slot room and bar discussed above, including the potentialdevelopment of a hotel in Hate, Czech Republic, the possible development of afourth full-service casino in Europe, and the potential acquisition of existinghotels in Europe.  There can be noassurances that management’s plans will be realized.

 

The Company believes that its cash resources at December 31, 2002,together with 2003 developments (See Note 12) and anticipated cash provided by2003 operations, are sufficient to fund its activities for the year endingDecember 31, 2003.  However, long-termliquidity is dependent on the Company’s ability to attain profitable operationsand to secure additional financing.

 

**NOTE2** - **Summary ofSignificant Accounting Policies**

 

**Principles of Consolidation ****- **The consolidated financial statements include theaccounts of the Company and its wholly-owned subsidiaries.  All significant intercompany balances andtransactions have been eliminated in consolidation.

 

**Cash****-** Cashconsists of cash in banks and on hand. The Company maintains its bank accounts at several financialinstitutions, which, at times, may exceed Federal Deposit Insurance Corporation(“FDIC”) insured limits.  In addition,the FDIC does not insure the Company’s foreign cash, which totaled $3,650 atDecember 31, 2002.  The Company has notincurred any losses in such accounts and believes it is not exposed to anysignificant credit risk on cash.

 

**Property and Equipment **- Property and equipment is stated at cost less accumulateddepreciation and amortization.  TheCompany provides for depreciation and amortization using the straight-linemethod over the following estimated useful lives:

 
| **Asset**                                |   | **Estimated Useful Life** |   |
|------------------------------------------|--------|---------------------------|--------|
|                                     |   |                      |   |
| Building and  improvements               |   | 4-45 years                |   |
| Gaming  equipment                        |   | 4-12 years                |   |
| Furniture,  fixtures and other equipment |   | 3-12 years                |   |

 

**Pre-opening and development costs **- Pre-opening and development costs incurred in connection with thepursuit and development of new gaming projects in various jurisdictions areexpensed as incurred.

 

28

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**Goodwill **- Goodwill, which represents the excess of cost of the Company’sCzech subsidiaries over the fair value of their net assets the date ofacquisition, was being amortized on a straight-line basis over seven yearsthrough December 31, 2001.  UnderStatement of Financial Accounting Standards (“SFAS”) No. 142, effective thefirst quarter of the year ended December 31, 2002, goodwill is no longersubject to amortization over its estimated useful life; rather, goodwill issubject to at least an annual assessment for impairment applying a fair-valuebased test.  During the quarter endedJune 2002, the Company completed the first step of the required two-step impairmenttesting.  The first step of the impairmenttesting required the Company to compare the fair value of its Czech Republicreporting unit, the Company’s only reporting unit as defined under SFAS No.142, to its carrying value (the net equity of the Company) to determine whetherthere was an indication that an impairment existed.  The fair value of the CzechRepublic reporting unit was determined through a combination of recentappraisals of the Company’s real property, a multiple of earnings beforeinterest taxes depreciation and amortization and the Company’s experience inselling its Spanish casino in 2001.  Noimpairment losses were recorded against goodwill of $3,579 upon the initialadoption of SFAS No. 142.

 

Had amortization expense been discontinued during the first quarter ofthe year ended December 31, 2001 (instead of the first quarter of the yearended December 31, 2002 pursuant to SFAS No. 142), the Company’s loss fromcontinuing operations for the year ended December 31, 2001 would have beendecreased $1,060 (or $0.10 per common share) and net income for the year endedDecember 31, 2001 would have been increased $1,775 (or $0.17 per common share).

 

**ForeignCurrency Translation **- Forforeign subsidiaries whose functional currency is the local foreign currency,balance sheet accounts are translated at exchange rates in effect at the end ofthe year and statement of operations accounts and cash flows are translated ataverage exchange rates for the year. Resulting translation adjustments are included in accumulated othercomprehensive income.

 

**Earnings/(Loss) Per Common Share **- Earnings/(loss) per common share is based on the weighted averagenumber of common shares outstanding.

 

The Company complies with SFAS No. 128,“Earnings Per Share,” which requires dual presentation of basic and dilutedearnings per share.  Basic earnings pershare excludes dilution and is computed by dividing income available to commonstockholders by the weighted-average common shares outstanding for the year.  Diluted earnings per share reflects thepotential dilution that could occur if securities or other contracts to issueCommon Stock were exercised or converted into Common Stock or resulted in theissuance of Common Stock that then shared in the earnings of the entity.

 

As the Company had a net loss from continuing operations for the yearsended December 31, 2002 and 2001, diluted earnings per share equals basicearnings per share as potentially dilutive common stock equivalents, includingunexercised warrants and options to purchase approximately 6,024 and 8,136shares of the Company’s Common Stock as of December 31, 2002 and 2001,respectively, are antidilutive.  Theaverage market price per share of the Company’s Common Stock for the yearsended December 31, 2002 and 2001 was $0.10 and $0.07, respectively.  If the Company would have had income fromcontinuing operations for the years ended December 31, 2002 and 2001, thedenominator (weighted average common shares outstanding) in the dilutedearnings per share calculation would have increased, through application of thetreasury stock method, for each class of

 

29

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option or warrant for which the average market price per share of theCompany’s Common Stock exceeded the Common Stock equivalents’ exercise price.

 

**IncomeTaxes ****- **TheCompany complies with SFAS No. 109, “Accounting for Income Taxes,” whichrequires an asset and liability approach to financial accounting and reportingfor income taxes.  Deferred income taxassets and liabilities are computed for differences between the financialstatement and tax bases of assets and liabilities that will result in futuretaxable or deductible amounts, based on enacted tax laws and rates applicableto the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, whennecessary, to reduce deferred tax income assets to the amount expected to berealized.

 

**Casino Revenue ****- **Casino revenue is the net win from gamingactivities, which is the difference between gaming wagers and the amount paidout to patrons, plus revenue generated from ancillary services, including salesof food, beverage, cigarettes, and casino logo merchandise, which representless than two percent of total revenues.

 

**Promotional Allowances ****- **Promotional allowances primarily consist of foodand beverages furnished gratuitously to customers.  For the years ended December 31, 2002 and 2001, revenues do notinclude the retail amount of food and beverage of $945 and $502, respectively,provided gratuitously to customers.  Thecost of these items of  $343 and $349,respectively, is included in cost of revenues.

 

**Fair Value of Financial Instruments ****- **The fair values of the Company’s assets andliabilities that qualify as financial instruments under SFAS No. 107, “Disclosuresabout Fair Value of Financial Instruments,” approximate their carrying amountspresented in the accompanying consolidated balance sheet at December 31, 2002.

 

**Use of Estimates ****- **The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**Impairment of Long-Lived Assets ****- **The Company periodically reviews the carryingvalue of its long-lived assets in relation to historical results, as well asmanagement’s best estimate of future trends, events and overall businessclimate.  If such reviews indicate thatthe carrying value of such assets may not be recoverable, the Company wouldthen estimate the future cash flows (undiscounted and without interestcharges).  If such future cash flows areinsufficient to recover the carrying amount of the assets, then impairment istriggered and the carrying value of any impaired assets would then be reducedto fair value.

 

**Stock-based compensation** - The Company accounts for its stock-basedcompensation arrangements under the provisions of Accounting Principles BoardOpinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and relatedinterpretations, including Financial Accounting Standards Board (“FASB”)Interpretation No. 44, “Accounting for Certain Transactions Involving StockCompensation”, rather than the alternative fair value accounting allowed bySFAS No. 123, “Accounting for Stock-Based Compensation” (see Note 10).

 

30

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**New Accounting Pronouncements**-During 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No.146, “Accounting for the Impairment or Disposal of Long-Lived Assets” and No.148, “Accounting for Stock-Based Compensation – Transition and Disclosure”.

 

SFASNo. 146, which is not effective until the year ending December 31, 2003,addresses financial accounting and reporting for costs associated with exit ordisposal activities.  The Company doesnot believe that SFAS No. 146 will have a significant impact on itsconsolidated financial position, results of operations or cash flows.

 

SFASNo. 148 amends SFAS No. 123 to provide alternative methods of transition for avoluntary change to the fair value method of accounting for stock-basedcompensation.  In addition, SFAS No. 148amends the disclosure requirements of SFAS No. 123 to require more prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodused on reported results.  The Company’smanagement currently does not plan to transition to the fair value method ofaccounting for employee stock options. Accordingly, the Company’s management does not believe that portion ofSFAS No. 148 will impact the Company. However, the Company has provided the required disclosures (see Note10).

 

During2001, the FASB issued SFAS Nos. 141, “Business Combinations”; 142, “Goodwilland Other Intangibles” and 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets”.  Neither SFAS Nos.141 nor 142 had a significant impact on the Company’s consolidated financialposition, results of operations or cash flows (see goodwill policy for furtherdiscussion of SFAS No. 142 implementation). SFAS No. 144 established a single model, based upon the frameworkestablished in SFAS No. 121 “Accounting for the Impairment or Disposal ofLong-Lived Assets to be Disposed of”, for long-lived assets to be disposed ofby sale and to address significant implementation issues.   In light ofits December 2001 sale of CDZ, the Company elected early adoption of thisstandard.  Accordingly, the Company haspresented the operations of its Spanish casino as discontinued operations forthe year ended December 31, 2001.

 

**NOTE3** - **Property andEquipment**

 

At December 31, 2002, property and equipmentconsists of the following:

 
| Land                                            |   | $      | 1,417  |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Building  and improvements                      |   | 2,768  |   |
| Gaming  equipment                               |   | 1,626  |   |
| Furniture,  fixtures and other equipment        |   | 2,687  |   |
| Construction  in progress                       |   | 48     |   |
|                                            |   | 8,546  |   |
| Less  accumulated depreciation and amortization |   | (2,508 | )      |
|                                            |   |   |   |
|                                            |   | $      | 6,038  |   |

 

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**NOTE4** - **Long-TermDebt**

 

At December 31, 2002, long-term debt consistsof the following:

 
| 12%  Senior Secured Promissory Notes(a)(d)  |   | $      | 17,000 |   |
|---------------------------------------------|--------|--------|--------|--------|
| 12%  Senior Secured Note(b)(d)              |   | 3,000  |   |
| Znojmo  casino building acquisition loan(c) |   | 1,464  |   |
|                                        |   | 21,464 |   |
| Less  unamortized debt discount             |   | (1,946 | )      |
|                                        |   | $      | 19,518 |   |

 

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| (a)    | In March 1998, the Company borrowed $17,000  ($9,000 from Value Partners, Ltd. – “Value Partners”) in a private placement  (“March 1998 Private Placement”).  The  loan is represented by 12% Senior Secured Notes (“the March 1998 Senior  Notes”) issued pursuant to indentures by and among the Company and an  independent indenture trustee.  The  March 1998 Senior Notes, which are due March 2005, carry a default interest  rate of 17% on any due but unpaid interest installments and require mandatory  prepayments based upon excess cash flows generated from the Company’s Czech  subsidiary 21st Century Resorts a.s. (“Resorts”).  The March 1998 Senior Notes are collateralized by substantially  all of Resort’s gaming equipment and a majority interest in the capital stock  of all of the Company’s subsidiaries.   In addition to the March 1998 Senior Notes, each investor received a  proportionate share of warrants to purchase 7,087 shares of the Company’s  Common Stock at an exercise price of $0.01 per share, expiring March 31, 2005 |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   | Of the $17,000 principal amount of notes  and warrants issued in the March 1998 Private Placement, the Company  allocated approximately $4,700 (computed using the Black-Scholes valuation  model, assuming a risk-free rate of five percent, a seven to 10 year  maturity, no expected dividends, and a volatility of 275%) as the estimated  value of the warrants issued with the notes.   This amount is being amortized as additional interest expense with a  corresponding increase to notes payable over the lives of the respective  notes using the effective interest method until such notes are repaid.  At December 31, 2002, approximately $3,029  has been amortized and the remaining balance of approximately $1,671 at  December 31, 2002 is reflected as a reduction of notes payable.                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
|   | See Notes 1 and 12 regarding exchange  initiative.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |
| (b)    | In October 1999, the Company borrowed  $3,000 ($2,700 from Value Partners) in a private placement (“October 1999  Private Placement”).  The loan is  represented by 12% Senior Secured Notes (“October 1999 Senior Notes”) issued  pursuant to indentures by and among the Company and an independent indenture  trustee.  The October 1999 Senior  Notes, which are due March 2005, require mandatory prepayments based upon  excess cash flows generated from Resorts.   The October 1999 Senior notes are collateralized by primarily all of  Resort’s gaming equipment and a majority interest in the capital stock of all  of the Company’s subsidiaries.  In  addition to the October 1999 Senior Notes, each investor received a  proportionate share of warrants to purchase 1,251 shares of the Company’s  Common Stock at an exercise price of $0.01 per share, expiring March 31,  2008.                                                                                                                                                                                                      |

 

32

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|   | Of the $3,000 principal amount of notes and  warrants issued in the October 1999 Private Placement, the Company allocated  approximately $625 (computed using the Black-Scholes valuation model,  assuming a risk-free rate of five percent, a five to 10 year maturity, no  expected dividends, and a volatility of 154%) as the estimated value of the  warrants issued with the notes.  This  amount is being amortized as additional interest expense with a corresponding  increase to notes payable over the lives of the respective notes using the  effective interest method until such notes are repaid.  At December 31, 2002, approximately $350  has been amortized and the remaining balance of approximately $275 at  December 31, 2002 is reflected as a reduction of notes payable. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
|   | See Notes 1 and 12 regarding exchange  initiative.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| (c)    | In March 2002, the Company received waivers on incurrence of  additional indebtedness related defaults under the March 1998 Senior Notes  and exercised its right to buyout (purchase) the Hate building lease.  The building lease buyout (purchase), the  cost of which was approximately $1,393, was financed by a loan from a local  Czech Republic bank.  The bank note, which is payable in monthly  installments through December 2006, bears interest at 6.2% per annum and is  collateralized by the Znojmo casino building, the Company’s Rozvadov casino  and employee housing buildings, and the Company’s land in Folmava.                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |
| (d)    | The  Company was not in compliance with certain covenants (nonpayment of interest  – see Notes 1 and 12) of its long-term debt obligations.  In February 2003, the Company received  waivers on the defaults from the holder of the majority interest of those  debt instruments (Value Partners)   (See Note 12).                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

Principal payments due on long-term debt areas follows:

 
| **Year  ending December 31,** |   |   |   |
|-------------------------------|--------|--------|--------|
| 2003                          |   | $      | 366    |   |
| 2004                          |   | 366    |   |
| 2005                          |   | 20,366 |   |
| 2006                          |   | 366    |   |
|                          |   |   |   |
|                          |   | $      | 21,464 |   |

 

**NOTE5**- **AccruedExpenses and Other Current Liabilities**

 

At December 31, 2002, accrued expenses and other current liabilitiesconsist of the following:

 
| Accrued  Czech gaming and charity taxes        |   | $      | 1,552  |   |
|------------------------------------------------|--------|--------|--------|--------|
| Accrued  compensation                          |   | 842    |   |
| Accrued other Czech taxes and related  charges |   | 373    |   |
| Other                                          |   | 431    |   |
|                                           |   |   |   |
|                                           |   | $      | 3,198  |   |

 

33

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**NOTE6**- **Commitmentsand Contingencies**

 

***Lease Obligations* -** The Company is obligated under operatingleases relative to its various facilities expiring through 2010.  Futureaggregate minimum annual rental payments under all of these leasesfor the next five years are as follows:

 
| **Year ending December 31,** |   |   |   |
|------------------------------|--------|--------|--------|
| 2003                         |   | $      | 196    |   |
| 2004                         |   | 98     |   |
| 2005                         |   | 78     |   |
| 2006                         |   | 20     |   |
| 2007                         |   | 20     |   |
|                              |        |        |        |  |

 

Rent expense under these leases (includingZnojmo’s building lease, which was bought out by the Company in March 2002)amounted to approximately $144 and $437 for the years ended December 31, 2002and 2001, respectively.

 

The Company is also obligated under operatingleases relative to slot equipment. Future rental payments under these leases are entirely revenue based.

 

***EmploymentAgreements -***The Company has entered into employment agreements with certain of itsexecutives, which provide for annual compensation plus, in most cases,participation in future benefit programs and stock options plans.  As of December 31, 2002, future annualcompensation under these employment agreements is as follows:

 
| **Year ending December 31,** |   |   |   |
|------------------------------|--------|--------|--------|
| 2003                         |   | $      | 530    |   |
| 2004                         |   | 530    |   |
| 2005                         |   | 200    |   |
|                              |        |        |        |  |

 

***Consulting Agreements* - **The Company has entered into consultingagreements in Czech Republic until 2005. Future annual payments under these consulting contracts are $27 for eachof the next three years.

 

***401 (k) and profitsharing plan*** - The Company maintains acontributory 401(k) plan and a profit sharing plan.  These plans are for the benefit of all eligible employees, whomay have up to 15% of their salary withheld, not to exceed $11 (in the yearended December 31, 2002).  The Companyis required to make a matching contribution based on a portion of salarywithheld.  The Company made 401(k) plan contributionsof $13 in 2002 and $11 in 2001.

 

***Foreign activities***- During the yearsended December 31, 2002 and 2001, the Company’s operations were entirelyoutside of the United States.  Operatinginternationally involves additional risks relating to such things as currencyexchange rates, different legal and regulatory environments, political andeconomic risks relating to the stability or predictability of foreigngovernments, differences in the manner in which different cultures do business,difficulties in staffing and managing foreign operations, differences infinancial reporting, operating difficulties, different types of criminalthreats and other factors.  Theoccurrence of any of these risks, if severe enough, could have a materialadverse effect on the consolidated financial position, results of operationsand cash flows of the Company.

 

***Litigations (formerPresident and Chief Operating Officer)* -** SinceOctober 2000, the Company and its former President and Chief Operating Officerhad been involved in certain legal proceedings in

 

34

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U.S. and Spanish courts.  InFebruary 2003, the Company and its former President and Chief Operating Officerexecuted a two-part settlement agreement in regards to these matters(See Note 12.)

 

***Litigation (ChoiceCapital Corporation)*** -******In October 2001, the Company filed a“Complaint for Damages” against Choice Capital Corporation, a/k/a ChoiceInternational Corporation (“Choice”) and Jude Onukuwa in the Superior Court ofFulton County, Georgia.  The Company seeksto recover payments made to Choice in connection with a financing dealthat never closed.  In addition,the Company seeks to recover interest and attorney fees.  In November 2001, Choice answered thecomplaint and included a counterclaim against the Company, whichseeks damages of $1,200 for lost commissions related to the unconsummateddeal.  In March 2003, the Company’smotion to compel discovery was granted. The Company believes, based on the advice of counsel, that it has areasonable expectation to recover certain payments (plus interest) that lie atthe heart of the litigation.  Further,the Company believes, based on the advice of counsel, Choice’s counterclaim iswithout merit.  Accordingly, noprovision for liability to the Company that may result upon adjudication hasbeen made in the accompanying consolidated financial statements.

 

***Other litigation***-The Company is not currently involved in any other material legal proceedingnor was it involved in any other material litigation during the year endedDecember 31, 2002.

 

***Taxing Jurisdiction*** - The Czech Republic currently has a number of lawsrelated to various taxes imposed by governmental authorities.  Applicable taxes include value added tax(“VAT”), charity tax, corporate tax, and payroll (social) taxes, together withothers.  In addition, laws related tothese taxes have not been in force for significant periods, in contrast to moredeveloped market economies; therefore, regulations are often unclear ornonexistent.  Accordingly, few precedentswith regard to issues have been established. Often, differing opinions regarding legal interpretations exist bothamong and within government ministries and organizations, thus, creatinguncertainties and areas of conflict. Tax declarations, together with other legal compliance areas (as examples,customs and currency control matters) are subject to review and investigationby a number of authorities, which are enabled by law to impose extremely severefines, penalties and interest charges. These facts create tax risks in the Czech Republic substantially moresignificant than typically found in countries with more developed taxsystems.  Management believes that ithas adequately provided for tax liabilities.

 

In June 2002, the financial authority of Domazlice, Czech Republic (the“Czech Tax Authority”) commenced an audit of the income tax filings of theCompany’s Czech subsidiaries for the years ended December 31, 1999 and2000.  As a result of the audit, theCompany is subject to a tax liability of $238 and potential penalties andinterest amounting to $270.  Inrecognition of the ambiguity of the tax laws that resulted in incorrectfilings, the Czech Tax Authority has responded favorably in preliminarydiscussions regarding the possibility of waiver of the penalties andinterest.  The Company has accrued thefull tax liability plus a provision equal to 50% of the potential penalty andinterest charges in its consolidated financial statements for the year endedDecember 31, 2002 as well as an accrual related to an, as yet, unaudited periodin the year ended December 31, 2001, for which the Company faces additionalpotential tax liabilities. Clarifications by the Czech Tax Authority with regard to the statutorytax treatment of certain sources of revenue have resulted in adjustments in thetax treatment of these items by the Company, which eliminated potentialadditional exposure in these areas beyond June 2001.

 

35

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**NOTE7**- **Stockholders’Deficit**

 

In conjunction with the Company’s 2002 Annual Meeting, which was heldin July 2002, the shareholders approved an amendment to the Company’s Articlesof Incorporation, as amended, that increased the number of authorized shares ofcapital stock of the Company from 52,000 to 104,000, of which 4,000 shares,each having a par value of $.001 per share, were designated “preferred stock”,and 100,000 shares, each having a par value of $.001 per share, were designated“Common Stock”.

 

In March 2002, the Company consummated an exchange agreement with theholders of $4,800 of debt (including $3,000 from Value Partners), whereby thisdebt, together with $1,902 of accrued and unpaid interest, was exchanged forapproximately 37,233 shares of the Company’s Common Stock at a conversion priceof $0.18 per share, the approximate fair value of the Company’s Common Stock asof the date of the Exchange Agreement. With this transaction and the February 2001 warrant exercise (discussedbelow), Value Partners owns approximately 58% of the Company’s Common Stock.

 

In May 2002, the holders of $0.01 Warrants Series D exercised anaggregate of 2,052 warrants to purchase shares of the Company’s CommonStock.  In July 2002, the Company’sManaging Director of Casino Operations exercised a portion of his exercisableoptions and purchased 20 shares of the Company’s Common Stock at the exerciseprice of $0.04 per share.

 

In February 2001, Value Partners exercisedwarrants to purchase 5,658 shares of the Company’s Common Stock at $0.01 pershare.

 

**NOTE8 -****OtherConsolidated Balance Sheet Items**

 

**Other Assets** - Included in other assets at December 31, 2002 areapproximately $747 in restricted deposits relating to Czech license bondrequirement and other items aggregating $588.

 

**Short-term Debt** - At December 31, 2002, short-term debt consisted exclusivelyof $249  related to a short-termpromissory note (including accrued interest of $33) associated with outstandinglegal fees from the year ended December 31, 2000 owed by the Company.  The note, which bears interest at a rate of7% per annum, matured on January 1, 2003 and was extended through January 1,2004 in the principal amount of $249 at an interest rate of 7% per annum.  Under the terms of the note, the Companymust keep any future activity of its account in good standing, which it has done.

 

**NOTE9 -****Income Taxes**

 

At December 31, 2002, the Company had U.S.and foreign net operating loss carry forwards (“NOL’s”) of approximately$29,888 and $2,108, respectively, available to offset certain future taxespayable.  However, based on limited analysis,the February 2001 warrant exercise (see Note 7) or earlier events may havetriggered significant limitations of preexisting U.S. NOL’s, pursuant toInternal Revenue Code Section 382, to the extent that substantially all of theCompany’s existing U.S. NOL’s prior to February 2001, aggregating approximately$20,606, may be significantly limited. The U.S. NOL’s generated subsequent to February 2001, aggregatingapproximately $9,282 resulted in an estimated $3,156 deferred tax asset atDecember 31, 2002 and the foreign NOL resulted in an estimated $664

 

36

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deferred tax asset at December 31, 2002.  A full valuation allowance has beenestablished for these deferred tax assets since its realization is consideredunlikely.

 

The U.S. NOL’s expire between 2009 and2022.  The foreign NOL’s expire between2003 and 2009.  The following tablepresents the U. S. and foreign components of pretax loss from continuingoperations before income taxes for the years ended December 31, 2002 and 2001:

 
|    |   | **2002** |   | **2001** |   |
|---------|--------|----------|--------|----------|--------|
|    |   |     |   |     |   |
| U.S.    |   | $        | (5,714 | )        | $      | (6,180 | ) |
| Foreign |   | 2,439    |   | 1,542    |   |
|    |   |     |   |     |   |
|    |   | $        | (3,275 | )        | $      | (4,638 | ) |

 

The following table presents the principalreasons for the differences between the effective tax rate and the U.S. federalstatutory income tax rate attributable to continuing operations for the yearsended December 31, 2002 and 2001:

 
|                                                  |   | **2002** |   | **2001** |   |
|-------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                  |   |     |   |     |   |
| U.S  federal statutory income tax rate                |   | (34      | )%     | (34      | )%     |
| Effect of  differences in foreign tax rates           |   | (21      | )      | (19      | )      |
| Effect of  non-deductibility of goodwill amortization |   |     |   | 8        |   |
| Effect of  NOL                                        |   |     |   |     |   |
| Valuation  allowances                                 |   | 60       |   | 45       |   |
|                                                  |   |     |   |     |   |
|                                                  |   | 5        | %      | —   | %      |

 

37

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**NOTE10 -****Warrants andStock Options**

 

***Warrants***

 

For the years ended December 31, 2002 and2001, warrant activity is as follows:

 
| **Price  per  Share** |   | **Balance,  January 1,  2001** |   | **Exercised  2001** |   | **Expired  2001** |   | **Balance,  December 31,  2001** |   | **Exercised  2002** |   | **Balance,  December 31,  2002** |   |
|-----------------------|--------|--------------------------------|--------|---------------------|--------|-------------------|--------|----------------------------------|--------|---------------------|--------|----------------------------------|--------|
|                  |   |                           |   |                |   |              |   |                             |   |                |   |                             |   |
| $                     | 1.50   |                           | 3,200  |                |   |              |   |                             | 3,200  |                |   |                             | 3,200  |   |
| 1.00                  |   | 960                            |   |                |   |              |   | 960                              |   |                |   | 960                              |   |
| 0.59                  |   | 250                            |   |                |   | (250              | )      | —                           |   |                |   | —                           |   |
| 0.01                  |   | 8,848                          |   | (5,657              | )      |              |   | 3,190                            |   | (2,052              | )      | 1,138                            |   |
|                  |   |                           |   |                |   |              |   |                             |   |                |   |                             |   |
|                  |   | 13,258                         |   | (5,657              | )      | (250              | )      | 7,350                            |   | (2,052              | )      | 5,298                            |   |
|                       |        |                                |        |                     |        |                   |        |                                  |        |                     |        |                                  |        |  |

 

All warrants outstanding at December 31, 2002are exercisable.

 

***Stock Option Plans***

 

The Company has incentive and non-statutorystock option plans under which certain key employees may purchase up to a totalof 2 common shares of the Company. Under the incentive stock option plan, the exercise price can not beless than the fair market value of a share on the date of grant or at 110percent of the fair market value on the date of grant, if, any employee ownsmore than 10 percent of the total combined voting power of all classes ofoutstanding stock of the Company.  Inaddition, the incentive stock option plan provided for automatic grant of anoption to purchase 2 shares of Common Stock to non-employee directors on aquarterly basis.  In the case of anon-statutory stock option, the exercise price may be any amount determined bythe Board on the date of grant, but not less than the par value of the stocksubject to the option.

 

During 1999, in light of diminishing sharesremaining available for grant to non-employee directors, the Company’s Board ofDirectors and the stockholders approved the 1999 Non-Employee Director StockOption Plan (the “1999 Plan”), which was amended in July 2000.  Under the 1999 Plan, an aggregate of 250shares of the Company’s Common Stock were reserved for issuance pursuant tooptions issued pursuant to the 1999 Plan. The 1999 Plan provides for an automatic grant of an option to purchase 2shares of Common Stock to non-employee directors on a quarterly basis throughthe second quarter of 2000 and 2.5 shares of Common Stock on a quarterly basisthereafter.  Under the 1999 Plan, theexercise price shall equal the fair market value of the Company’s Common Stockon the date of grant.  Options issuedunder the 1999 Plan shall be immediately exercisable over 10 years.

 

38

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The activity in the stock option plans is asfollows:

 
|                                    |   | **Options** |   | **Range**       |      | **Average** |   |
|-----------------------------------------|--------|-------------|--------|-----------------|-----------|-------------|--------|
|                                    |   |        |   |            |      |        |   |
| Balance  outstanding, January 1, 2001   |   | 549         |   | $               | 0.17-9.00 |        | $      | 0.69 |   |
|                                    |   |        |   |            |      |        |   |
| Granted                                 |   | 250         |   | 0.03-0.61       |      | 0.27        |   |
|                                    |   |        |   |            |      |        |   |
| Expired                                 |   | (13         | )      | 9.00            |      | 9.00        |   |
|                                    |   |        |   |            |      |        |   |
| Exercised                               |   | 0.0         |   | 0.0             |      | 0.0         |   |
|                                    |   |        |   |            |      |        |   |
| Balance  outstanding, December 31, 2001 |   | 786         |   | $               | 0.03-2.00 |        | $      | 0.44 |   |
|                                    |   |        |   |            |      |        |   |
| Granted                                 |   | 230         |   | 0.05-0.15       |      | 0.06        |   |
|                                    |   |        |   |            |      |        |   |
| Expired                                 |   | (270        | )      | 0.04-2.00  |      | 0.46        |   |
|                                    |   |        |   |            |      |        |   |
| Exercised                               |   | (20         | )      | 0.04            |      | 0.04        |   |
|                                    |   |        |   |            |      |        |   |
| Balance  outstanding, December 31, 2002 |   | 726         |   | $               | 0.03-0.83 |        | $      | 0.33 |   |
|                                    |   |        |   |            |      |        |   |
| Exercisable,  December 31, 2002         |   | 726         |   | $               | 0.03-0.83 |        | $      | 0.33 |   |

 

The option price per share was equal to orabove the market value of the underlying stock on the date of grant.  Options generally expire between five and 10years after the date of grant or earlier upon termination, as defined in theplans.

 

39

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Further information about the Company’soutstanding stock options at December 31, 2002 is as follows:

 
| **Range of  Exercise Prices** |   | **Number  of Shares** |   | **Weighted  Average  Remaining  Contractual  Life  (in Years)** |   | **Weighted  Average  Exercise  Price** |   |
|-------------------------------|--------|-----------------------|--------|-----------------------------------------------------------------|--------|----------------------------------------|--------|
|                          |   |                  |   |                                                            |   |                                   |   |
| $0.01 to $0.20                |   | 347                   |   | 9.13                                                            |   | $                                      | 0.08   |   |
| $0.21 to $0.40                |   | 55                    |   | 6.78                                                            |   | $                                      | 0.27   |   |
| $0.41 to $.060                |   | 8                     |   | 6.63                                                            |   | $                                      | 0.49   |   |
| $0.61 to $0.80                |   | 310                   |   | 3.82                                                            |   | $                                      | 0.61   |   |
| $0.81 to $0.83                |   | 6                     |   | 6.75                                                            |   | $                                      | 0.83   |   |
|                          |   |                  |   |                                                            |   |                                   |   |
|                          |   | 726                   |   | 6.64                                                            |   | $                                      | 0.33   |   |

 

The Company complies with the disclosure-onlyprovisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”

 

The Company applies APB No. 25 and relatedinterpretations in accounting for its stock option plans and, accordingly, nocompensation cost has been recognized because stock options granted under theplans were at exercise prices which were equal to or above the market value ofthe underlying stock at date of grant. Had compensation expenses been determined as provided by SFAS No. 123using the Black-Scholes option-pricing model, the pro forma effect on the Company’snet income (loss) and per share amounts would have been:

 
|                                                                                                        |   | **2002** |       | **2001** |       |
|-------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
|                                                                                                        |   |     | ** ** |     | ** ** |
| Net  income/(loss)                                                                                          |   | $        | (3,275     | )        | $          | 2,446 |   |
| Stock-based  employee compensation expense included in netloss net of related tax effects                   |   | —   |       | —   |       |
| Stock-based  employee compensation determined under thefair value based method, net of related  tax effects |   | (14      | )          | (66      | )          |
|                                                                                                        |   |     |       |     |       |
| Pro forma                                                                                                   |   | $        | (3,289     | )        | $          | 2,380 |   |
|                                                                                                        |   |     |       |     |       |
| Income/(loss) per common share,basic and diluted                                                            |   |     |       |     |       |
| As  reported                                                                                                |   | $        | (0.08      | )        | $          | 0.24 |   |
| Pro forma                                                                                                   |   | $        | (0.08      | )        | $          | 0.23 |   |

 

40

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The fair value of each option grant iscalculated using the following weighted average assumptions:

 
|                   |   | **2002** |   | **2001** |   |
|------------------------|--------|----------|--------|----------|--------|
|                   |   |     |   |     |   |
| Expected  life (years) |   | 10       |   | 5-10     |   |
| Risk-free  rate        |   | 4.6      | %      | 5.5      | %      |
| Volatility             |   | 254      | %      | 172      | %      |
| Dividend  yield        |   | 0        | %      | 0        | %      |

 

**NOTE 11 -****DiscontinuedOperations**

 

In December 2001, the Company sold its majority interest in CDZ (as ofOctober 31, 2001) to an unrelated Spanish casino operator (the “Buyer”) for11,119 Euros (including the Buyer’s assumption of CDZ’s liabilities of 7,505Euros).  Of the gross sales amount,1,955 Euros (or approximately $1,736 using the exchange rate in effect at thetime of the sale) was received directly by the Company (reduced byapproximately $481 of closing costs, paid prior to 2001, during 2001, andduring 2002) and 1,659 Euros (or approximately $1,473 using the exchange ratein effect at the time of the sale) were paid by the Buyer directly to CDZ onbehalf of the Company to offset the Company’s existing liability to CDZ.  The $7,084 net gain from discontinuedoperations, as reported in the accompanying consolidated statements ofoperations, is comprised of a $1,456 loss from 2001 operations and a $8,540 gainon sale (including $1,807 of previously unrealized foreign currency translationadjustments).

 

Summary operating results of discontinued operations for the year endedDecember 31, 2001 are as follows:

 
| **Revenues**                                  |   | $      | 2,622      |   |
|-----------------------------------------------|--------|--------|------------|--------|
|                                          |   |   | ** ** |
| **Costs and expenses**                        |   |   | ** ** |
| Cost of  revenues                             |   | 2,353  |       |
| Depreciation  and amortization                |   | 715    |       |
| Selling  general and administrative and other |   | 1,010  |       |
|                                          |   |   |       |
|                                          |   | 4,078  |       |
|                                          |   |   |       |
| **Net loss**                                  |   | $      | (1,456     | )      |

 

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At October 31, 2001, CDZ’s balance sheet wascomprised primarily of the following:

 
| Current  assets                                   |   | $      | 1,813  |   |
|---------------------------------------------------|--------|--------|--------|--------|
| Non-current assets, including goodwill of  $2,831 |   | $      | 3,192  |   |
|                                              |   |   |   |
| Current liabilities                               |   | $      | 4,218  |   |
| Non-current liabilities                           |   | $      | 4,792  |   |

 

The gain on the sale of CDZ is computed asfollows:

 
| Gross  sales proceeds (received by the Company)                  |   | $      | 1,736  |   |
|------------------------------------------------------------------|--------|--------|--------|--------|
| Less: transaction costs                                          |   | (481   | )      |
|                                                             |   |   |   |
|                                                             |   | 1,255  |   |
|                                                             |   |   |   |
| Gross sales proceeds (paid to CDZ on the  Company’s behalf) |   | 1,473  |   |
|                                                             |   |   |   |
|                                                             |   | 2,728  |   |
|                                                             |   |   |   |
| Basis                                                            |   | (4,005 | )      |
| Foreign currency translation adjustment                          |   | (1,807 | )      |
|                                                             |   |   |   |
| Gain                                                             |   | $      | 8,540  |   |

 

**NOTE 12- Subsequent Events**

 

In January 2003, the Company signed a memorandum of understandingregarding an approximately 6,500 square foot space that the Company intends tolease in a designer outlet mall that is currently under construction on a plotof land adjacent to the Company’s Znojmo Casino.  The Company plans to open a slot room and bar, which will have aHollywood theme, in this space.  Themall is scheduled to open in the fall of 2003.

 

In February 2003, the Company received waivers on payment ofinterest-related defaults through January 1, 2004.  The terms of the waivers require the payment of all defaultedinterest payments plus all accrued and unpaid interest thereon within tenbusiness days of (i) the Company’s receipt of $6,000 or more from any borrowingor sale of equity; (ii) the commencement of a voluntary or involuntaryinsolvency proceeding against the Company or (iii) the payment of interest toanother Noteholder.  Inthe event that the Company obtains funds in excess of $6,000 on or beforeSeptember 17, 2003, the accrued unpaid interest due as of September 17, 2003shall be due on September 17, 2003.

 

42

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As a result of the receipt of waivers, the Company has classified allinterest payable related to the March 1998 Senior Notes and the October 1999Senior Notes aggregating $6,482 as long-term on the accompanying December 31,2002 consolidated balance sheet.

 

In March 2003, the Company filed pre-effective amendment No. 3 to FormS-4 registration statement under the Securities Act of 1933.  Through this prospectus, the Company seeksto exchange either 22,640 shares of Common Stock or $1,000 principal amountvariable rate promissory notes due 2010 for each $1,000 principal amount of theCompany’s 12% Senior Secured Notes due March 17, 2005.  In addition, pursuant to the ExchangeAgreement, certain tendering noteholders would receive an 8% promissory notedue 2006 for interest accrued through September 17, 2001.

 

In February2003, the Company executed a two-part settlement agreement with its formerPresident and Chief Operating Officer.  Pursuantto the two-part settlement agreement in exchange for cash payments that willcontinue through 2004 but which will not have a material effect on the Company’sconsolidated financial position, results of operations or cash flows, theformer President and Chief Operating Officer agreed to discontinue alllitigation brought against the Company, including litigation concerning CDZ,and to return the share of CDZ stock to the Company.  The Company likewise discontinued its lawsuit against him.

 

43

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**REPORT OF INDEPENDENTAUDITORS**

 

Board of Directors

Casino de Zaragoza, S.A.

 

We haveaudited the accompanying consolidated balance sheets of **CASINO DE****ZARAGOZA,S.A. AND SUBSIDIARIES** as of October 31, 2001, and the relatedconsolidated statements of operations, shareholders’ equity and cash flows forthe ten month period then ended. These financial statements are the responsibilityof Casino de Zaragoza, S.A.’s management. Our responsibility is to express anopinion on these financial statements based on our audit.

 

We conductedour audit in accordance with auditing standards generally accepted in theUnited States of America. Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit provides a reasonable basisfor our opinion.

 

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Casino de Zaragoza,S.A. and Subsidiaries as of October 31, 2001, and the consolidated results ofits operations and its cash flows for ten month period then ended in conformitywith generally accepted accounting principles in the United States of America.

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. As more fully described in Note7, the Company suffered significant losses from operations and has a workingcapital and stockholders’ deficit at October 31, 2001, that raises substantialdoubt about its ability to continue as a going concern. Management’s plans inregard to these matters are also described in Note 7. The consolidatedfinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classification of liabilities that might result from the outcome ofthis uncertainty.

 
|   | ERNST & YOUNG |
|--------|-------------------|

 

 
|            | Represented by:                   |
|-----------------|-----------------------------------|
|            | /s/ Juan Pedro Gómez Quiroga |   |
|            |
| Zaragoza, Spain |
| March 26, 2002  |

 

44

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**Item 8****.  ChangesIn and Disagreements with Accountants on Accounting and Financial Disclosure.**

 

None.

 

**PART III**

 

**Item 9****.  Directorsand Executive Officers, Promoters and Control Persons; Compliance with Section16(A) of the Exchange Act.**

 

The following table provides information as of March 20, 2003 withrespect to each of the Company’s directors and each Executive Officer:

 
| **Name**                     |   | **Age** |   | **Position in the Company**      |   | **Director or Executive Since** |
|------------------------------|--------|---------|--------|----------------------------------|--------|---------------------------------|
| Rami S. Ramadan              |   | 53      |   | CEO, CFO, President and Director |   | 1999                            |
| Julio E.  Heurtematte, Jr(1) |   | 67      |   | Director                         |   | 1998                            |
| Malcolm M.B. Sterrett(1)     |   | 60      |   | Director                         |   | 1998                            |
| Geoffrey B. Baker(1)(2)      |   | 53      |   | Director                         |   | 1999                            |

 

----

| (1) | Member of Audit Committee and Compensation Committee.                                                                                                                                   |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Mr. Baker, who was appointed to a fill a  vacancy on the Board of Directors on December 22, 1998, resigned from his  position on May 13, 1999 and rejoined the Board on August 4, 1999. |

 

***Rami S. Ramadan***hasserved as CEO/CFO since July 12, 1999 and President since August 2000. His mostrecent prior position had been Executive Vice President of Finance for the IanSchrager Hotels from November 1997 to July 1999. Prior to that, Mr. Ramadanheld senior financial positions with Hyatt Hotels from January 1994 to November1997, Euro Disney from October 1990 to December 1993 and Meridien Hotels fromSeptember 1975 to September 1990.

 

***Julio E.Heurtematte, Jr.*** Mr. Heurtematte currently is aprivate consultant, specializing in international projects, trade andinvestments and has acted in such capacity since 1989. From 1963 to 1989, Mr.Heurtematte served with the Inter-American Development Bank in severalcapacities, most recently as its Deputy Manager for Project Analysis.

 

***Malcolm M. B.Sterrett***. Mr. Sterrett is a private investor. From1989 to 1993, he was a partner at the law firm of Pepper Hamilton &Scheetz, Washington, D.C. From 1988 to 1989, he served as General Counsel tothe U.S. Department of Health and Human Services and from 1982 to 1988 he was aCommissioner on the U.S. Interstate Commerce Commission. Prior thereto, he wasVice President and General Counsel to the United States Railway Association andserved as Staff Director and Counsel to the U.S. Senate Committee on Commerce,Science and Transportation.

 

***Geoffrey B.Baker. *** Mr. Baker is a private investor.  From 1983 to the present, Mr. Baker has beena member of the private investment firm, Baker & Donaldson.  From 1977 to 1982, he was LegislativeDirector to U. S. Senator Lowell P. Weicker, Jr., and from 1975 to 1977 heserved on the Senate Committee on Commerce as a minority staff member forsurface transportation.

 

45

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**Information about theBoard and its Committees:**

 

The Company’s Board of Directors manages the business and affairs ofthe Company. Meetings of the Board are held quarterly and on an as-neededbasis. The Board has established several committees, described below, whichalso meet on an as-required basis during the year. The Board held six meetingsand acted by consent through weekly conference calls conducted during theCompany’s fiscal year ended December 31, 2002. No director of the Companyattended fewer than 75% of the total number of meetings of the Board ormeetings of committees of the Board during the year ended December 31, 2002.

 

The Board of Directors has established the following committees:

 

***Audit Committee***

 

The Audit Committee reviews and approves internal accounting controls,internal audit operations and activities, the Company’s annual report andaudited financial statements, the selection of the Company’s independentauditors, the activities and recommendations of the Company’s independentauditors, material changes in the Company’s accounting procedures, theCompany’s policies regarding conflicts of interest and such other matters asmay be delegated by the Board. The Audit Committee, composed of Messrs. Baker,Heurtematte and Sterrett, all non-employee directors, met once and acted byconsent through four conference calls in 2002.

 

***Compensation Committee***

 

The Compensation Committee sets the compensation for executive officersof the Company and sets the terms of grants of awards under the Company’s 1993Incentive Stock Option Plan (the “1993 Plan”), the Company’s 1998 Stock OptionPlan (the “1998 Plan”), the 1999 Non-Employee Director Stock Option Plan andany other equity-based compensation plans adopted by the Company. TheCompensation Committee, composed of Messrs. Baker, Heurtematte and Sterrett,met twice in 2002 and acted by consent through one conference call in 2002.

 

# **Section16(a) Beneficial Ownership Reporting Compliance**

 

Section 16(a) of the Exchange Act requires the Company’s officers,directors and persons who own more than 10% of the Company’s Common Stock tofile reports of ownership and changes in ownership with the Securities andExchange Commission (“SEC”) and the National Association of Securities Dealers,Inc. by certain dates. The Company’s directors and executive officers satisfiedthese filing requirements for the fiscal year ended December 31, 2002.  On February 23, 2001, Value Partners, theCompany’s majority bondholder, converted 5,657,453 of $0.01 warrants it held,and on May 20, 2002, it received an additional 23,270,833 shares as part of itsparticipation in the LA Bond Exchange. With this conversion, Value Partners holds a controlling 57.5% of theCompany’s issued and outstanding Common Stock. At December 31, 2002, Value Partners owned 66.6% of the Company’sexisting long-term debt and owned 2,600,000 warrants which, upon exercise, wouldresult in Value Partner’s beneficial ownership of Common Stock equaling 59.6%of the Company’s issued and outstanding shares of Common Stock,

 

On May 20, 2002, Anasazi Partners, a limited partnership, was alsoissued 9,696,389 shares as part of its participation in the LA BondExchange.  With this conversion, AnasaziPartners holds a 19.8% of the Company’s issued and outstanding CommonStock.  At December 31, 2002, AnasaziPartners owns 1,083,333 warrants, which, upon exercise would result in AnasaziPartners’ beneficial ownership of Common Stock equaling 21.5% of the Company’sissued and outstanding shares of Common Stock.

 

Mr.Christopher P. Baker, by virtue of his position as general partner of AnasaziPartners, effectively controls Anasazi Partners’ beneficial ownership of 21.5%of the Company’s issued and outstanding shares of Common Stock.  In addition, Mr. Baker owns:2,988,481 shares of Common Stock; 10,000 shares of Common Stock held by C.P.Baker LLC of which he is President; 994,473 shares of Common Stock held by CPBaker Venture Fund I, of

 

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which Mr. Baker is thePresident; warrants to purchase 43,333 shares of Common Stock; and, warrants topurchase 86,667 shares of Common Stock, of which CP Baker Venture Fund I is therecord holder.  Upon exercise of thesesaid warrants and the exercise of all warrants held by Anasazi Partners, Mr.Baker would beneficially own 29.4% of the Company’s issued andoutstanding shares of Common Stock.  Mr.Baker’s wife, Adrienne Baker, holds 442,534 shares of Common Stock.  Mr. Baker disclaims beneficial ownership ofsuch shares.

 

The Company knows of no other person who owns 10% or more of theCompany’s Common Stock.

** **

**Item 10****.            Executive Compensation.**

 

**                           Summary of Cash and Certain OtherCompensation:**

 

The following table sets forth the cash and non-cash compensationearned during the fiscal years ending December 31, 2002, 2001, 2000, and 1999by the Chief Executive Officer(s) and Chief Financial Officer of the Company(the “Named Officers”) during those periods.

 

**Summary Compensation Table**

 
|                   |   | **Annual  Compensation** |   |       |    |         |   | **Long Term  Compensation**    |   |
|------------------------|--------|--------------------------|--------|------------|---------|--------------|--------|--------------------------------|--------|
|                   |   | **Year**                 |   | **Salary** |    | **Bonus(2)** |   | **Other Annual  Compensation** |   | **Stock  Options(3)** |   | **All Other Compensation  (4)** |   |
| Rami Ramadan(1)        |   | 2002                     |   | $          | 350,000 |         | $      | 126,000                        |   | $ | — |   | 150,000 |   | $ | 5,616 |   |
| President, CEO and CFO |   | 2001                     |   | 300,000    |    | 39,900       |   | —                         |   | 100,000 |   | 5,556 |   |
|                   |   | 2000                     |   | 300,000    |    | —       |   | —                         |   | 100,000 |   | 5,450 |   |
|                   |   | 1999                     |   | 150,000    |    | —       |   | —                         |   | 100,000 |   | 2,200 |   |
|                        |        |                          |        |            |         |              |        |                                |        |  |  |  |  |  |  |  |  |

 

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| (1)    |   | Mr. Ramadan joined the Company as its CEO and CFO, July 12,  1999.  He was elected the Company’s  President in August 2000.  On July 12,  2002, Mr. Ramadan’s employment agreement was renewed with amendments for an  additional three years.                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (2)    |   | 2002 estimated bonus has been accrued but not yet paid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (3)    |   | Amounts in year 1999 through 2001 represent the number of qualified  stock options granted each year.   These options listed are exercisable, and the option price per share  was set forth in Mr. Ramadan’s employment contract (See: Employment/Severance  Agreements.) As part of his employment agreement renewal in 2002, the number  of options to be granted was increased to 150,000 per year for the duration  of his three-year agreement.  The  options are exercisable at a per share price equal to the fair market value  of such share, as determined by the average of the bid and ask price of such  share at the close of the market on the date of the grant. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (4)    |   | The amounts shown represent the cost of a leased automobile provided  to Mr. Ramadan for each year indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

***Option Grants and Exercises***

 

The following table summarizes certain information concerningindividual grants of options during fiscal 2002 to the executive officer namedin the Summary Compensation Table above and the potential realizable value of theoptions held by such person at December 31, 2002.

 

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**OptionsGranted in Fiscal 2002Individual Grants**

 
|                |   | **Shares of  Common  Stock Underlying  Options Granted** |       | **% of Total  Options  Granted to Employees  in Fiscal Year** |       | **Exercise  of  Base Price  ($/SH)** |       | **Expiration  Date** |         |
|---------------------|--------|----------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------|------------|----------------------|--------------|
|                |   |                                                     | ** ** |                                                          | ** ** |                                 | ** ** |                 | ** **   |
| **Rami S. Ramadan** |   | **150,000**                                              | ** ** | **65**                                                        | **%**      | **$**                                | **0.05**   | ** **           | **07/12/12** | ** ** |
|                     |        |                                                          |            |                                                               |            |                                      |            |                      |              |  |

 

No options were exercised by the executive officer named in the SummaryCompensation Table during fiscal 2002.

 

The following table summarizes the option values held by the executiveofficer named in the Summary Compensation Table as of December 31, 2002.

 

**AggregateOption Exercises in Fiscal 2002 andFiscal 2002 Year-End Option Value Table**

 
| **Name**            |   | **No. of Shares  Acquired on  Exercise** |       | **Value  Realized  Upon Exercise** |       | **Number of  Unexercised  Options At  December 31, 2002** |        | **Value of  Unexercised in the  Money Options at  December 31, 2002** |       |
|---------------------|--------|------------------------------------------|------------|------------------------------------|------------|-----------------------------------------------------------|-------------|-----------------------------------------------------------------------|------------|
| **Exercisable**     |   | **Unexercisable**                        |       | **Exercisable**                    |       | **Unexercisable**                                         |
|                |   |                                     | ** ** |                               | ** ** |                                                      | ** **  |                                                                  | ** ** |   | ** ** |   | ** ** |
| **Rami S. Ramadan** |   | **—**                               | ** ** | **$**                              | —     | ** **                                                | **450,000** | ** **                                                            | **—** | ** ** | **$** | **15,000** | ** ** | **$** | **—** | ** ** |
|                     |        |                                          |            |                                    |            |                                                           |             |                                                                       |            |  |  |  |  |  |  |  |

 

***Directors’ Compensation***

 

As of July 2000, non-employee directors receive a cash retainer fee of$2,500 per quarter, plus $1,000 per Board meeting and $750 per Committeemeeting.  All members of the Board arereimbursed for out-of-pocket expenses in connection with attending Boardmeetings.  Pursuant to the 1999Non-Employee Director Stock Option Plan adopted at the 1999 Annual Meeting andamended by the Board in July 2000, each non-employee director is provided withan automatic grant of a non-qualified option to purchase 2,500 shares of CommonStock on the date following each fiscal quarter in which the director serves.Each such option (i) has a 10-year term, (ii) has an exercise price per shareequal to 100% of the fair market value of one share of Common Stock on the dateof grant, and (iii) becomes fully exercisable on the date of grant.

 

***Employment/Severance Agreements***

 

***Rami S. Ramadan****.*EffectiveJuly 12, 2002, the Company entered into a renewal of a three year employmentagreement with Mr. Ramadan pursuant to which he will continue to serve as theCompany’s CEO, CFO and President at an annual salary of $400,000. Mr. Ramadanis eligible to participate in the 1998 Plan, Executive Compensation Plan andany present or future employee benefit plans. He also will be reimbursed forreasonable travel and out-of-pocket expenses necessarily incurred in theperformance of his duties. Mr. Ramadan will also receive three separate equalannual installments of options to acquire the Company’s Common Stock, each ofwhich shall have a 10-year term commencing upon the date on which eachinstallment is granted. Upon commencement of the renewal agreement, Mr. Ramadanreceived 150,000 options exercisable at aper share price equal to the fair

 

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market value of such share,as determined by the average of the bid and ask price of such share at theclose of the market on the date of the grant.  In the event the employment agreement is terminated other thanfor cause, as defined in the agreement, Mr. Ramadan will receive two years’salary.  In addition, upon the expiration of the employment agreement, if TWCelects not to renew Mr. Ramadan’s employment, TWC shall continue to pay to himhis base salary and his medical insurance benefits then in effect insemi-monthly increments until the date of the earlier of the commencement ofhis full time employment with another employer, or the first anniversary dateof the expiration date of the employment agreement.

 

**Item 11****.  Security Ownership of Certain BeneficialOwners and Management.**

 

The following table sets forth information regarding the beneficialownership of the Common Stock as of March 20, 2003 (the “Calculation Date”),unless otherwise noted, (a) by each shareholder who is known by the Company toown beneficially more than 5.0% of the outstanding Common Stock, (b) by eachdirector, (c) by each executive officer named in the Summary Compensation Tableabove and by all executive officers and directors as a group. Unless otherwisenoted, each of the shareholders listed in the table or included within a grouplisted in the table possesses sole voting and investment power with respect tothe shares indicated, subject to community property laws where applicable. Thebusiness address for each director and officer of the Company is 545 FifthAvenue, Suite 940, New York, New York 10017.

 
| **Name of Beneficial Owner**                                       |   | **Number of  Shares of  Common Stock  Beneficially Owned(1)** |   | **Percentage  of  Ownership(1)** |    |
|--------------------------------------------------------------------|--------|---------------------------------------------------------------|--------|----------------------------------|---------|
|                                                               |   |                                                          |   |                             |    |
| Value Partners, Ltd.(2)                                            |   | 31,528,286                                                    |   | 59.6                             | %       |
| Anasazi Partners Limited Partnership(3)                            |   | 11,048,722                                                    |   | 21.5                             | %       |
| Christopher P. Baker(4)                                            |   | 15,171,676                                                    |   | 29.47                            | %       |
| Rami S. Ramadan(5)                                                 |   | 450,000                                                       |   |                             | *  |
| Julio E. Heurtematte, Jr.(6)                                       |   | 81,691                                                        |   |                             | *  |
| Malcolm M.B. Sterrett(7)                                           |   | 81,691                                                        |   |                             | *  |
| Geoffrey B. Baker(8)                                               |   | 77,691                                                        |   |                             | *  |
| All directors and the executive officer as  a group (4 persons)(9) |   | 691,073                                                       |   | 1.4                              | %       |

 

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*      Less than 1%.

 

(1)          The percentage of outstanding shares is based on 50,328,175 sharesoutstanding as of March 20, 2003 and, for certain individuals and entities, onreports filed with the SEC or on information provided directly to the Companyby such individuals or entities. A person is deemed to be the beneficial ownerof securities that can be acquired by such person within 60 days from March 20,2003 upon the exercise of options or warrants. Each beneficial owner’spercentage ownership is determined by assuming that options or warrants thatare held by such person (but not those held by any other person) are exercisablewithin 60 days from March 20, 2003 have been exercised. Included are shares ofCommon Stock issuable upon the exercise of options or warrants to purchase theCompany’s Common Stock.

 

(2)          Value Partners, Ltd. is a Texas limited partnership, whose businessaddress is 4514 Cole Avenue, Suite 808, Dallas, Texas 75205. Includes28,928,286 shares of Common Stock; warrants to purchase: 600,000 shares ofCommon Stock at an exercise price of $1.00, expiring December 31, 2005 and2,000,000 shares of Common Stock at an exercise price of $1.50 per share,expiring December 31, 2005.

 

(3)          Anasazi Partners, Ltd. is a Massachusetts limited partnership whosebusiness address is 303 Congress Street, Suite 301, Boston, Massachusetts02210. Includes 9,965,389 shares of Common Stock; warrants to purchase 250,000shares of Common Stock at an exercise price of $1.00 per share, expiringDecember 31, 2005; and warrants to purchase 833,333 shares of Common Stock atan exercise price of $1.50 per share, expiring December 31, 2005.

 

(4)          The business address for Christopher P. Baker is 303 Congress Street,Suite 301, Boston, Massachusetts 02210. Includes: 2,988,481 shares of CommonStock of which Mr. Christopher P. Baker, President of C.P. Baker &

 

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Co., is the record holder;10,000 shares of Common Stock held by Baker LLC, of which Christopher P. Bakeris the President; 994,473 shares of Common Stock held by CP Baker Venture FundI, of which Christopher P. Baker is the President; 9,965,389 shares of CommonStock held by Anasazi Partners, Ltd, of which Christopher P. Baker is a generalpartner; warrants to purchase 250,000 shares of Common Stock at an exerciseprice of $1.00 per share, expiring December 31, 2005 held by Anasazi Partners,Ltd; warrants to purchase 833,333 shares of Common Stock at an exercise priceof $1.50 per share, expiring December 31, 2005, held by Anasazi Partners, Ltd.;warrants to purchase 10,000 shares of Common Stock at an exercise price of$1.00, expiring December 31, 2005; warrants to purchase 33,333 shares of CommonStock at an exercise price of $1.50, expiring on December 31, 2005; warrants topurchase 20,000 shares of Common Stock at an exercise price of $1.00, expiringon December 31, 2005; warrants to purchase 66,667 shares of Common Stock at anexercise price of $1.50, expiring on December 31, 2005; and, excludes 442,534shares of Common Stock held by Adrienne Baker, Mr. Baker’s spouse, thebeneficial ownership thereof is disclaimed by Mr. Baker.

 

(5)          Consists of shares subject to incentive options granted to Mr. Ramadanon July 12, 1999, 2000, 2001 and 2002, all of which were fully vested on thedate of grant.

 

(6)          Includes warrants to purchase 41,691 shares of Common Stock at anexercise price of $.01 per share expiring March 31, 2008; 1,000 shares ofCommon Stock subject to non-qualified options granted to Mr. Heurtematte underthe 1998 Incentive Stock Option Plan at the end of each calendar quarter endedJune 30, 1998 through December 31, 1998 and 2,000 shares of Common Stocksubject to non-qualified options granted under the 1999 Non-Employee DirectorStock Option Plan at the end of each calendar quarter ended March 31, 1999through June 30, 2000, and 2,500 shares of Common Stock subject to non-qualifiedoptions granted under the 1999 Director Plan at the end of each calendarquarter ended September 30, 2000 through December 31, 2002, all of which werefully vested on the dates of grant.  Mr. Heurtematte is also the owner of Senior Notes having a principalbalance of $100,000.

 

(7)          Includes warrants to purchase 41,691 shares of Common Stock at anexercise price of $.01 per share expiring March 31, 2008; 1,000 shares ofCommon Stock subject to non-qualified options granted to Mr. Sterrett under the1998 Plan at the end of each calendar quarter ended June 30, 1998 throughDecember 31, 1998 and 2,000 shares of Common Stock, subject to non-qualifiedoptions, granted under the 1999 Director Plan at the end of each calendarquarter ended since March 31, 1999 through June 30, 2000, and 2,500 shares ofCommon Stock subject to non-qualified options granted under the 1999 DirectorPlan at the end of each calendar quarter ended September 30, 2000 throughDecember 31, 2002, all of which were fully vested on the dates of grant.  Mr. Sterrett is also the owner of SeniorNotes having a principal balance of $100,000.

 

(8)          Includes warrants to purchase 41,691 shares of Common Stock at anexercise price of $.01 per share expiring March 31, 2008; 1,000 shares ofCommon Stock subject to non-qualified options granted to Mr. Baker under the1993 Incentive Stock Option Plan at December 31, 1998, 2,000 shares of CommonStock, subject to non-qualified options, granted under the 1999 Director Planfor the calendar quarter ended March 31, 1999 and 2,000 shares of Common Stocksubject to non-qualified options granted under the 1999 Director Plan at theend of each quarter ended since September 31, 1999 through June 30, 2000, and2,500 shares of Common Stock subject to non-qualified options granted under the1999 Director Plan at the end of each calendar quarter ended September 30, 2000through December 31, 2002, all of which were fully vested on the dates ofgrant.  Mr. Baker is also the owner ofSenior Notes having a principal balance of $100,000 and has no relation to Mr.Christopher P. Baker.

 

(9)          See Notes (5), (6), (7) and (8) above.

 

**Item 12****.  Certain Relationships and RelatedTransactions.**

 

On March 31, 1998, the Company, with the assistance of Libra, acting asplacement agent, borrowed $17.0 million from 14 investors in the March 1998Private Placement. The loan is represented by the Senior Notes issued pursuantto the Indentures by and among TWC, TWGI, TWGF and USTCT. The Indentures wereamended on October 29, 1998 in connection with the restructuring of theCompany’s ownership of Resorts as a result of the change in the Czech gaminglaw, which restricted foreign ownership of Czech casinos. The AmendedIndentures, however, did not alter the underlying basis of the Senior Notes.The Senior Notes require mandatory prepayments based upon excess cash flowgenerated by TWGI from the operation of the Czech casinos acquired in theResorts acquisition and bear interest at the rate of 12% per annum. Theproceeds of the Senior Notes were used to pay the net

 

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acquisition costs of, and improvements to, Resorts totaling $12.6million, to repay the First Amended Loan Agreement in the amount of $1.3million, to cover costs and expenses of $1.4 million relating to the March 1998Private Placement and to provide working capital of $1.7 million.

 

On October 15, 1999, the Company borrowed $3.0 million ($2.7 millionfrom Value Partners) in the October 1999 Private Placement.  The loan is represented by the October 1999Senior Notes issued pursuant to indentures by and among the Company and anindependent indenture trustee.  TheOctober 1999 Senior Notes, which are due March 2005, require mandatoryprepayments based on excess cash flow generated from Resorts.  The October 1999 Senior Notes arecollateralized, primarily by all of Resort’s gaming equipment and a majorityinterest in the capital stock of all of the Company’s subsidiaries (exceptCDZ).  In addition to the October 1999Senior Notes, each investor received a proportionate share of warrants topurchase 1,251,000 shares of the Company’s Common Stock.  The proceeds of the October 1999 SeniorNotes were used to retire a $1.0 million short-term debt obligation related tothe acquisition of the CDZ casino, to make an interest payment of approximately$250,000 on said debt, and to finance the equipment, working capital, andpre-opening costs associated with the opening of a third casino in the CzechRepublic on land that had been previously purchased.  That casino, located near Znojmo, opened on December 22, 1999.

 

The Company was unable tofully meet its September 2000, March 2001, September 2001, March 2002,September 2002 and March 2003 interest payments related to the Senior Notes *(see Note 4 of the notes to Consolidated FinancialStatements)**.*TheCompany has obtained waivers of past due and future default and forbearancefrom Value Partners, the majority holder of the Notes through January 1, 2004.The terms of these waivers require the payment of all defaulted interestpayments plus all accrued and unpaid interest thereon within 10 business daysfollowing: the receipt by TWC or any subsidiary of $6.0 million or more fromany borrowing or sale of equity, the payment of interest to another Noteholder,or the commencement of a voluntary or involuntary insolvency proceeding againstthe Company or any subsidiary Note issuer. Its other Noteholders have not takenany action, to date, to enforce the Indentures against the Company.

 

The Company has, from timeto time, been in technical default of the Indentures and has relied upon theforbearance and waivers from a majority interest of the holders of the Notes,Value Partners. The Company has borrowed other amounts from Value Partners fromtime to time, including a short-term loan of $1.0 million in March 2001, (someof which have been in technical default for which forbearance or waivers havebeen granted) and may seek to borrow additional funds or obtain equityinvestments from Value Partners in the future. On February 23, 2001, ValuePartners exercised warrants representing 5,657,453 shares of its Common Stockfor the $0.01 exercise price. In May 2002, The Company issued 23,270,833 sharesof its Common Stock to Value Partners in conjunction with the LA Bond Exchangetransaction. With the exercise of those warrants, Value Partners holds, as ofthe date of this prospectus, a controlling 57.5% of its issued and outstandingCommon Stock and owns warrants exercisable for 2,600,000 shares of CommonStock. Upon the exercise of such warrants, Value Partners’ holdings would equalapproximately 59.6% of the issued and outstanding shares of its Common Stock.In addition to these holdings, Value Partners owns 66.6% of its long-term debt.

 

**Item 13****.  Exhibits and Reports on Form 8-K.**

 

**(a)**           **Exhibits**

 

Reference ismade to the Exhibit Index hereinafter contained.

 

A copy of anyexhibits listed or referred to herein will be furnished at a reasonable cost toany person who was a shareholder of the Company as of March 20, 2003, uponwritten request from any such person. Requests should be sent to: Rami S.Ramadan, Chief Executive Officer, Trans World Corporation, 545 Fifth Avenue,Suite 940, New York, New York 10017.

 

**(b)**           **Reports on Form 8-K**

 

During thelast quarter of the year ended December 31, 2002, the Company did not file aPeriodic Report on Form 8-K with the SEC.

 

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**TRANS WORLD CORPORATIONEXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSBFOR THE YEAR ENDED DECEMBER 31, 2002**

 
| **Item No** |   | **Item**                                                                                                                                                                                                                                       |   | **Method of Filing**                                                                                                                                              |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 3.1(a)      |   | Articles of Incorporation                                                                                                                                                                                                                      |   | Incorporated by reference to Exhibit 3.1 contained in the  registration statement on Form SB-2 (File No. 33-85446-A).                                             |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 3.1(b)      |   | Certificate of Amendment to Articles of Incorporation                                                                                                                                                                                          |   | Incorporated by reference to Exhibit 3.1 contained in the Form 10-KSB  for the fiscal year ended December 31, 2000 (File No. 0-25244)                             |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 3.2         |   | Bylaws                                                                                                                                                                                                                                         |   | Incorporated by reference to Exhibit 3.2 contained in the  registration statement on Form SB-2 (File No. 33-85446-A).                                             |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.1         |   | Specimen Common Stock Certificate                                                                                                                                                                                                              |   | Incorporated by reference to Exhibit 4.1 contained in the  registration statement on Form SB-2 (File No. 33-85446-A).                                             |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.2         |   | Indenture dated March 31, 1998, as supplemented on October 29, 1998.  October 15, 1999 and September 10, 2001,  among the registrant, TWC International   U.S. Corporation, TWC Finance Corp. and U.S. Trust Company of Texas,  N.A. |   | Incorporated by reference to Exhibit 4(1) contained in the Form 8-K  filed on April 14, 1998 (File No.0-25244).   Each of the supplements is filed herewith. |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.3         |   | Indenture dated March 31, 1998, as supplemented on October 29, 1998,  October 15, 1999 and September 10, 2001, between TWC International U.S.  Corporation and U.S. Trust Company of Texas, N.A.                                               |   | Incorporated by reference to Exhibit 4(III) contained in the Form 8-K  filed on April 14, 1998 (File No. 0-25244). Each of the supplements is filed  herewith.    |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.4         |   | Series A Warrant to Purchase Common Stock dated March 31, 1998                                                                                                                                                                                 |   | Incorporated by reference to Exhibit 4(VI) contained in the Form 8-K  filed on April 14, 1998 (File No. 0-25244)                                                  |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.5         |   | Series B Warrant to Purchase Common Stock dated March 31, 1998                                                                                                                                                                                 |   | Incorporated by reference to Exhibit 4(VII) contained in the Form 8-K  filed on April 14, 1998 (File No. 0-25244)                                                 |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.6         |   | Series C Warrant to Purchase Common Stock dated March 31, 1998                                                                                                                                                                                 |   | Incorporated by reference to Exhibit 4(II) contained in the Form 8-K  filed on April 14, 1998 (File No. 0-25244)                                                  |
|        |   |                                                                                                                                                                                                                                           |   |                                                                                                                                                              |
| 4.7         |   | Series G Warrant to Purchase Common Stock dated March 31, 1999                                                                                                                                                                                 |   | Incorporated by reference to Exhibit 10.49 contained in the Form  10-KSB filed on May 30, 2000 (File No. 0-25244)                                                 |

 

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| 4.8    |   | Agreement  to Amend Warrants dated March 31, 1998 among the Company and the named  Holders                                                                                                               |   | Incorporated by reference to Exhibit 4(VIII) contained in the Form  8-K filed on April 14, 1998 (File No. 0-25244)                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.1   |   | 1993 Incentive Stock Option Plan                                                                                                                                                                         |   | Incorporated by reference to Exhibit 10.13 contained in the  registration statement on Form SB-2 (File No. 33-85446-A).                                           |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.2   |   | Loan Agreement dated June 11, 1997 between the Company and Value  Partners                                                                                                                               |   | Incorporated by reference to Exhibit 10.36 contained in the Form 8-K  filed on June 17, 1997 (File No. 0-25244)                                                   |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.3   |   | Loan Agreement dated October 27, 1997, between Value Partners, and  the Company                                                                                                                          |   | Incorporated by reference to Exhibit 10.39 contained in the Form  10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997  (File No. 0-25244) |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.4   |   | Employment Agreement between the Company and Rami S. Ramadan dated  July 12, 1999                                                                                                                        |   | Incorporated by reference to Exhibit 10.1 contained in the Form 8-K  filed on July 13, 1999 (File No. 0-25244)                                                    |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.5   |   | Amendment to Employment Agreement between the Company and Rami S.  Ramadan dated July 1, 2002                                                                                                            |   | Incorporated by reference to Exhibit 10.5 contained in the  Registration Statement on Form S-4   (File No. 333-101028)                                       |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.6   |   | 1998 Incentive Stock Option Plan                                                                                                                                                                         |   | Incorporated by reference to Exhibit 10.46 contained in the Form  10-KSB filed on May 26, 2000 (File No. 0-25244)                                                 |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.7   |   | 1999 Non-Employee Director Stock Option Plan                                                                                                                                                             |   | Incorporated by reference to Exhibit 10.47 contained in the Form  10-KSB filed on May 26, 2000 (File No. 0-25244)                                                 |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.8   |   | Form 12% Secured Senior Note due March 2005                                                                                                                                                              |   | Incorporated by reference to Exhibit 10.48 contained in the Form  10-KSB filed on May 26, 2000 (File No. 0-25244)                                                 |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.9   |   | English Restatement of the Spanish Agreement of Sale of Casino de Zaragoza                                                                                                                               |   | Incorporated by reference to Exhibit 99.2 contained in the Form 8-K  filed on January 9, 2002 (File No. 0-22544)                                                  |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.10  |   | Form of Fourth Supplemental Trust Indenture by and among Trans World  Corporation, TWG International U.S. Corp., TWG Finance Corp. and the Bank of  New York Trust Company of Florida, N.A. (as Trustee) |   | Incorporated by reference to Exhibit 10.10 contained in the  Registration Statement on Form S-4   (File No. 333-101028)                                      |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.11  |   | Waiver and Forbearance of Covenant Violations (Interest) – Primary  Indenture                                                                                                                       |   | Incorporated by reference to Exhibit 10.11 contained in the  Registration Statement on Form S-4   (File No. 333-101028)                                      |
|   |   |                                                                                                                                                                                                     |   |                                                                                                                                                              |
| 10.12  |   | Waiver  and Forbearance of Covenant Violations (Interest) – Finance Indenture                                                                                                                       |   | Incorporated by reference to Exhibit 10.12 contained in the  Registration Statement on Form S-4   (File No. 333-101028)                                      |

 

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| 10.13  |   | Indemnification Agreement by and between Value Partners, Ltd., Trans  World Corporation and TWG International U.S. Corporation dated February 12,  2003 |   | Incorporated by reference to Exhibit 10.13 contained in the  Registration Statement on Form S-4   (File No. 333-101028) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                    |   |                                                                                                                         |
| 21.0   |   | Subsidiaries                                                                                                                                            |   | Incorporated by reference to Exhibit 21.0 contained in the Form  S-4  (File No. 333-101028)                             |
|   |   |                                                                                                                                                    |   |                                                                                                                         |
| 99.1   |   | Certification of Chief Executive Officer and Chief Financial Officer                                                                                    |   | Filed herewith                                                                                                               |
|   |   |                                                                                                                                                    |   |                                                                                                                         |

 

54

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15 of the SecuritiesExchange Act of 1934, the Issuer has duly caused this Report to be signed onits behalf by the undersigned, thereunto duly authorized.

 
|   | **TRANS WORLD  CORPORATION** |
|--------|------------------------------|
|   | (registrant)                 |

 

 
| Dated:    *March 31, 2003* |   |                                                           |
|------------------------------------------------|--------|----------------------------------------------------------------|
|                                           | By:    | /s/ Rami S. Ramadan                                            |   |
|                                           |   | Rami S. Ramadan                                                |
|                                           |   | President, Chief Executive Officer and Chief Financial Officer |
|                                           |   | (Principal Executive and Financial Officer)                    |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this Report has been signed by the following persons on behalf of the Issuer on***March 31, 2003*** in thecapacities indicated.

 
|   | **Signature and Title**       |
|--------|-------------------------------|
|   |                          |
|   | /s/ Rami S. Ramadan           |   |
|   | Director                      |
|   |                          |
|   | /s/ Geoffrey B. Baker         |   |
|   | Director                      |
|   |                          |
|   | /s/ Malcolm M.B. Sterrett     |   |
|   | Director                      |
|   |                          |
|   | /s/ Julio E. Heurtematte, Jr. |   |
|   | Director                      |
|        |                               |  |  |

 

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**SECTION 302 CERTIFICATION OF THE**

**CHIEF EXECUTIVE OFFICER/CHIEFFINANCIAL OFFICER**

 

I, Rami S. Ramadan, theChief Executive Officer/Chief Financial Officer of Trans World Corporation,certify that:

 

1. I have reviewed thisannual report on Form 10-KSB of Trans World Corporation;

 

2. Based on my knowledge,this annual report does not contain any untrue statement of a material fact oromit to state a material fact necessary to make the statements made, in lightof the circumstances under which such statements were made, not misleading withrespect to the period covered by this annual report;

 

3. Based on my knowledge,the financial statements, and other financial information included in thisannual report, fairly present in all material respects the financial condition,results of operations and cash flows of the registrant as of, and for, theperiods presented in this annual report;

 

4. I am responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

 

a) designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to me byothers within those entities, particularly during the period in which thisannual report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this annual report (the“Evaluation Date”); and

 

c) presented in this annualreport my conclusions about the effectiveness of the disclosure controls andprocedures based on my evaluation as of the Evaluation Date;

 

5. I have disclosed, basedon my most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6. I have indicated in thisannual report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of my most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date:  | March 31, 2003 | By:                            | /s/ Rami S. Ramadan |   |
|--------|----------------|--------------------------------|---------------------|--------|
|   |           | Chief  Executive Officer/Chief |
|   |           | Financial  Officer             |

 

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