**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-KSB**

 

**ý****  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For theYear Ended December 31, 2004**

 

**o****  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from                          to                          .**

 

**CommissionFile No.:  0-25244**

 

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**TRANS WORLD CORPORATION**

(Exact name ofregistrant 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’stelephone number, including area code:  **(212) 983-3355**

 

Securitiesregistered pursuant to Section 12(b) of the Act: **None**

 

Securitiesregistered pursuant to Section 12(g) of the Act:

**CommonStock, $.001 par valueWarrants to Purchase Common Stock**

 

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.  YES   ý     NO   o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-B is not containedherein, and will not be contained, to the best of Registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-KSB or any amendment to this Form 10-KSB.     o

 

The issuer’s revenues forthe year ended December 31, 2004 were approximately $18,938,000.

 

The aggregate marketvalue of Common Stock of the Registrant as of March 14, 2005, based uponthe average bid and asked price of $3.00 as reported on the OTC Bulletin Boardon that date, was $15,095,043.  Therewere 5,031,681 shares of Common Stock of the Registrant deemed outstanding asof said date.

 

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

 

 

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**TRANS WORLD CORPORATIONFORM IO-KSB**

 

**TABLE OFCONTENTS**

 
| PART I. |   |     |   |                                                 |   |
|--------------|--------|----------|--------|------------------------------------------------------|--------|
|         |   | Item 1.  |   | Description of  Business                             |   |
|         |   |     |   | General Development of  Business                     |   |
|         |   |     |   | Recapitalization                                     |   |
|         |   |     |   | 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      |   |
|          |   |     |   | Reverse  Stock Split                                           |   |
|          |   | Item  6. |   | Management’s  Discussion and Analysis or                  |   |
|          |   |     |   | Plan  of Operations                                            |   |
|          |   |     |   | Forward-Looking Statements                                     |   |
|          |   |     |   | Exchange  Rates                                                |   |
|          |   |     |   | Critical Accounting  Policies                                  |   |
|          |   |     |   | Results  of Operations                                         |   |
|          |   |     |   | Business  Units                                                |   |
|          |   |     |   | Route 59, Czech Republic                                       |   |
|          |   |     |   | Ceska,  Czech Republic                                         |   |
|          |   |     |   | Rozvadov, Czech Republic                                       |   |
|          |   |     |   | Hollywood Spin, Czech  Republic                                |   |
|          |   |     |   | Route 55, Czech Republic                                       |   |
|          |   |     |   | Liquidity and Capital  Resources                               |   |
|          |   |     |   | Plan  of Operations and Important Factors to Consider          |   |
|          |   |     |   | Positive  Stockholders’ Equity; Positive Operating Income |   |
|          |   |     |   | Need to Diversify                                              |   |
|          |   |     |   | Taxation of Gaming  Operations                                 |   |
|          |   |     |   | Social  Security and Health Insurance Contributions            |   |
|          |   |     |   | 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 and Options                       |   |
|          |   | 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                           |   |
|                                        |   |      |   | Nominating 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                 |   |
|                                        |   |      |   | Code of Ethics                                   |   |
|                                        |   | 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 toas the “Company” or “TWC”) owns and operates four full-service casinos in theCzech Republic, which are located in Ceska Kubice (“Ceska”), Rozvadov (“Rozvadov”),Hate (near Znojmo) (“Route 59”), and, since December 19, 2004, DolniDvoriste (“Route 55”), plus a casino slot bar and restaurant (“Hollywood Spin”),which is also located in Hate, Czech Republic. The casinos, which operate under the brand name American Chance Casinos(“ACC”) and showcase themes portraying recognizable eras of American history,are located at border locations and draw the majority of their clients fromGermany and Austria.  Each of the casinoshas a distinctive theme: Pacific South Seas, Chicago in the Roaring 20’s,Southern Antebellum, Miami Beach in the 1950’s and Hollywood.  ACC’s operating strategy centers on differentiatingits products from the alternative German and Austrian casinos, which have veryformal atmospheres.  Management hasendeavored to create gaming environments with casual and exciting atmospheresthat emphasize relaxed entertainment. Further, as part of the ACC operating formula, management has striven tohighlight the integrity and professionalism of its American-owned operations asa means to dispel any concerns that German and Austrian clients might haveabout gambling abroad.

 

TWC was organized as a Nevada corporation in October 1993to acquire, develop and manage, to the extent permitted by applicable locallaws, gaming establishments featuring live and mechanized gaming, includingvideo gaming devices such as video poker machines.  With the 1994 acquisition of severalLouisiana-based entities, TWC conducted operations under these guidelines.  In 1998, faced with a closing date of June 30,1999 for its Louisiana operations as a result of changes in laws governing thelegality of operating video gaming devices in the State of Louisiana, TWCamended its operating strategy by shifting its focus to the casino market inEurope and acquired three casinos, one located in Spain, Casino de Zaragoza,S.A. (“CDZ”), which included a hotel, and two casinos located in the CzechRepublic, as well as a parcel of land also located in the Czech Republic.  The Company also operated two other casinosin Europe under management agreements, which have since been closed due togaming law changes.  In December 1999,TWC opened Route 59 on the parcel of land in Hate, Czech Republic, that waspurchased in 1998; In December 2001, the Company sold its interest in CDZand, in September 2003, opened a slot bar and restaurant operation in adesigner outlet mall located in Hate, Czech Republic adjacent to Route 59.  On December 19, 2004, TWC completed itssecond and largest casino construction to date and opened Casino Route 55 inDolni Dvoriste, Czech Republic, at the border near Linz, Austria.  The gala event for Route 55 was held successfullyon January 29, 2005 with high-profile Austrian celebrities and sportsfigures, local politicians from both sides of the border and distinguishedguests of the Company in attendance.

 

The Company, which is headquartered in NewYork City, has no operating presence in the United States.

 

## **Recapitalization**

 

On June 26, 2003,the Company completed an exchange agreement (the “June 2003 ExchangeAgreement”) with the holders of the Senior Notes, whereby $18.45 million of the$20.0 million note principal, or 92.25%, was exchanged for 452,797,000 shares (orapproximately 4.5 million shares after giving effect to the April 2004 one(1) for one hundred (100) reverse stock split) (see Part II, Item 5 “Marketfor Common Equity and Related Stockholder Matters” – Reverse Stock Split) ofthe Company’s Common Stock and the remaining $1.55 million was exchanged forseven-year, unsecured, variable rate promissory notes (the “Replacement Notes”).  In addition, approximately $2.5 million inpre-September 18, 2001 accrued and unpaid interest was converted intothree-year, unsecured, promissory notes (the “Interest Notes”) bearing 8%interest and approximately $5.2 million of post-September 17, 2001interest was waived and forgiven by the holders of the Senior Notes.  The completion of the June 2003 ExchangeAgreement, the exchange of the Replacement Notes, the conversion of the unpaidand accrued interest into Interest Notes and waiver and forgiveness of post September 17,2001 interest on Senior Notes are collectively

 

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referred to as the “2003Recapitalization.” (See also under Item 6. “Management’s Discussion andAnalysis or Plan of Operation”).

 

On April 5, 2004,the Company executed the reverse stock split, which reduced the outstandingshares of the Company to approximately 5 million. In addition, all referencesherein and in the consolidated financial statements to the number of shares andper share amount were restated. (See under Item 5.  “Market for Common Equity and RelatedStockholder Matters”).

 

**Corporate Information**

 

The Company’s corporate offices are locatedat 545 Fifth Avenue, Suite 940, New York, New York 10017, its telephonenumber is (212) 983-3355, and its website is www.transwc.com.

 

**OTC Bulletin Board**

 

The Company’s Common Stock is quoted on theOTC Bulletin Board under the symbol TWOC.OB.

 

**Description of Business**

 

The Company is engaged in the acquisition,development and management of niche casino operations in Europe, which featuregaming tables and mechanized gaming devices, such as slot and video pokermachines, as well as the acquisition, development and management of small tomidsize hotels, which may include casino facilities.  In anticipation of its logical expansion intothe hotel industry in order to complement its casino operations, theshareholders voted to amend the Company’s Articles of Incorporation by changingits name from “Trans World Gaming Corp.” to “Trans World Corporation” in July 2000.  The Company’s name change was based on theimportance of accurately conveying its desired identity as more than just anowner/operator of gaming operations.  TWC’splanned expansion into the hotel industry is founded on management’s beliefthat hotels in the small to midsize boutique class are complementary to theCompany’s brand of niche casinos, that opportunities in one of these twoindustries often lead to, or are tied to, opportunities in the other industry,and that a more diversified portfolio of assets will give the Company greaterstability and make it more attractive to potential investors.  Further, several of the Company’s topmanagement have significant experience in the hotel industry.

 

**Industry Overview**

 

Prior to the amendments to the Czech gamingregulations in December 1998, local municipalities were empowered to grantcasino licenses in their regions. The amendments to the gaming legislationremoved that right from the local governments and effectively eliminatedexclusivity. Since this licensing change, four casinos have opened in Folmava,Czech Republic, one of which has since closed, which operate in directcompetition with the Company’s Ceska Casino due to their proximity.  Route 59 currently has only two competitors: oneremaining from four in existence two years ago and a new competitor which is similarlylocated in the former duty free zone between the border posts.  The Company’s newest casino, Route 55, which openedon December 19, 2004, has one immediate competitor.  In early 2000, in response to increasedcompetition from casinos located in the Czech Republic, the German governmentissued 12 new gaming licenses in the Bavarian region of Germany.  Two of the Bavarian casinos that went intooperation in spring of 2000, as a result of issuance of the additional licenseshave operated in direct competition with TWC’s casinos in Ceska andRozvadov.  Further, in June 2003, anew competitor casino began operation across the street from the Company’s casinoin Rozvadov.

 

The casinos in Germany and Austria haveformal atmospheres and an air of exclusivity. ACC’s brand of casinos offers a relaxed but exciting, informalatmosphere, which has proven to be a desirable alternative.  Further, ACC has

 

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established itself as a reputable casinocompany in the Czech Republic through its consistent policies, professionalservice, and strict adherence to all local gaming regulations.

 

In conformity to the European Union (“EU”)taxation legislation (as part of its joining in 2004), the Czech Republic’svalue added tax (“VAT”) increased from 5% to 19%, effective January 2004,for all intra-EU generated purchases, while all non-EU generated purchases wereimpacted by identical VAT increases, with their May 2004 commencement.  Unlike other industries, the VATs are notrecoverable for gaming operations.

 

**The Company’s Facilities**

 

The Ceska casino, whichhas a 1920’s Chicago theme, currently has 15 gaming tables, including sevencard tables, seven roulette tables, and one electro-mechanical, eight-positionroulette machine.  It also has 46 slotmachines, including 44 newer-style Novomatic machines, and parking forapproximately 60 cars. The Rozvadov casino, which has a South Pacific theme,currently operates 10 gaming tables, including five card tables and fiveroulette tables, 30 Novomatic slot machines; and parking for 40 cars.  At Route 59, the casino features a SouthernAntebellum theme and includes 22 gaming tables, which consist of 12 cardtables, eight roulette tables, and two electro-mechanical roulette machines, 61slot machines, 60 of which are newer-style Novomatic machines; and parking forapproximately 120 cars.  Nearby, in thedesigner outlet mall, Hollywood Spin offers two card tables, oneelectro-mechanical roulette machine, 20 Novomatic slot machines, a 76-seatrestaurant and 16-seat bar.  On December 19,2004, TWC opened its largest casino to date. Starting in April 2004 and constructed over a period of eight months,the casino features a Miami Beach “Streamline Moderne” style, reminiscent ofMiami Beach in the early 50’s and its interior is painted with a vivid paletteof tropical colors.  The two story casinooffers 18 tables (8 American Roulette, 4 Blackjack, 4 Poker and two electronicmulti-roulettes) and 94 slot machines on the main gaming floor, and, on themezzanine level, includes a full Italian, Pompeii-themed restaurant with aseating capacity for 70 guests; an open buffet area; a VIP lounge; a VIP gamingroom and a large al-fresco terrace.

 

**FutureOperations**

 

The Company is pursuing construction of a four-starhotel, which would be connected to the Route 59 casino and be built onCompany-owned land.  The hotel design hasbeen completed and the Company is actively seeking funding for theproject.  There can be no assurance thatthe Company will manage or acquire any other gaming facilities in the future.

 

**The Company is also evaluatingseveral possible expansion projects, which include acquisition of existinghotels in Europe and development of hotels in Germany and Croatia.  Management intends to pursue what it believesto be projects with the highest potential returns and greatest strategic valuebased on its analyses of all potential investment opportunities.**

 

**Long Range Objectives**

 

The Company’s existingoperations are exclusively in the Czech Republic and in gaming.  Consequently, the Company’s seniorcorporate-level management, several of whose backgrounds are in the hotelindustry, has endeavored to expand its operations by exploring ways to expandthe Company through the acquisition and/or development of new non-gamingbusiness units, while continuing to grow the Company’s existing Czech Republicoperations.  Acquisitions will be basedon evaluations of the potential returns of projects that arise and theavailability of financing to purchase additional assets.

 

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# **Marketing**

 

In the year ended December 31,2004, the Company boosted its marketing and promotional programs in an effortto secure and enhance its competitive position in the respective markets thatit serves.  Moreover, the event calendarwas broadened and higher player incentive games were launched.  Some of these programs were applied to all ACCbusiness units, while others were casino-specific.  In addition, the Company participated inseveral high-profile community events, including the annual Chamlanschau TradeShow, and sponsored several athletic teams and community projects during theyear, as a way to further promote its image and positive contribution to thevarious communities in which the Company operates.  The Company continued its popular,ethnic-themed and holiday-related parties, which featured live entertainment,raffles and complimentary grand buffets. The Company aggressively targeted key cities in its media campaigns, mostnotably Vienna, Regensburg and the areas surrounding these cities. (See Item 6.“Management’s Discussion and Analysis or Plan of Operations – Results of Operations– Business Units.”)

 

# **Regulations and Licensing**

 

In 1998, the CzechRepublic House of Deputies passed an amendment to the gaming law, whichrestricted foreign ownership of casino licenses. In response thereto, theCompany restructured its subsidiaries and Czech legal entities to comply withthe amendment and was subsequently granted a 10-year license.  There can be no assurance that theauthorities in the Czech Republic will not amend the gaming law as it pertainsto foreign ownership of casino licenses. In the event the gaming laws are amended in the future, it may have amaterial adverse effect on the Company’s future profitability and operations.Further, there has been increased competition in the areas where the Companyoperates because local municipalities no longer have control over the issuanceof casino licenses, thereby effectively eliminating exclusivity.

 

**Application of Future orAdditional Regulatory Requirements**

 

In the future, theCompany intends to seek the necessary licenses, approvals and findings ofsuitability for the Company and its personnel in other jurisdictions, where theCompany plans to open casinos.  However,there can be no assurance that such licenses, approvals or findings ofsuitability will be obtained or will not be revoked, suspended or conditionedor that the Company will be able to obtain the necessary approvals for itsfuture activities. If a license, approval or finding of suitability is requiredby a regulatory 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 averagedapproximately 15.6% of total gaming revenues for the year ended December 31,2004 and currently consist of gaming taxes of 11% of total gaming revenue,charity taxes of 10% of total gaming revenue net of gaming taxes, and 6% ofslot revenue of 50.0 million Czech Korunas (“CZK”) (approximately $1.9 million)or less or 8% if above this threshold (both net of slot licensing fees).  There can be no assurances that tax rates,fees, or other payments applicable to the Company’s gaming operations will notbe increased in the future.

 

**Competition**

 

The Company’s operationsin the Czech Republic compete with a number of local and foreign casinos.  The Ceska unit competes with three casinos inits immediate vicinity and three additional casinos in the greater region, twoof which are located in Germany.  TheRozvadov casino competes with one casino in the local area, which opened in June 2003across the street, and four other casinos in the greater region, one of whichis located in Germany.   Route

 

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59 faces competition fromthree local casinos, one located in the former duty free zone in Hate as is TWC’sfacility, and two nearer to Znojmo, while the Company’s newest casino, Route55, faces an existing local competitor in Dolni Dvoriste, and three others in thegreater region, one of which is located in Austria.

 

**Employees**

 

As of February 23,2005, the Company had a total of 532 employees, including 120 in its casino inCeska, 74 in its casino in Rozvadov, 183 in Route 59, 11 in Hollywood Spin, 126in Route 55, 13 in its regional office in the Czech Republic, and five in theCompany’s headquarters in New York.  TheCompany believes that its employee relations are excellent.

 

**Item 2. Description of Property**

 

**Corporate Offices**

 

The Company’s corporate offices are locatedat 545 Fifth Avenue, Suite 940, New York, New York, occupying 1,626 squarefeet of office space under a lease at the rental rate of $6,321 per month,expiring in March 2010.

 

**Czech Republic**

 

The Company leases a5,000 square foot casino facility in Ceska. The casino building lease expires in 2010. ** **The Company also owns a parcel ofland in Folmova, Czech Republic in the same region as the existing Ceskacasino.

 

The Company leasesaccommodations for staff in Ceska Kubice and in Route 59.

 

In Rozvadov, the Company owns the casinobuilding and an adjacent facility for staff accommodations.

 

In March 2002, theCompany exercised its right to purchase the Route 59 building lease.  The purchase of approximately $1.8 millionwas financed by a loan from a local bank in the Czech Republic.  Thebank note, which is payable in monthly installments through December 2006,bears interest at 6.2% per annum and is collateralized by the Route 59 buildingand the Company’s Rozvadov casino and employee housing buildings.

 

InApril 2002, TWC acquired a parcel of land in Dolni Dvoriste, CzechRepublic, on which it constructed its fifth casino, Route 55.

 

**Item 3.****Legal Proceedings.**

 

**Choice Capital 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 sought to recoverpayments made to Choice in connection with a financing transactionthat never closed as well as interest on the payments. After theexpiration of the discovery period, TWC moved for summary judgment, which thecourt granted with regard to TWC’s claim for return of the payments incontroversy.  Further,

 

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the court also dismissed Choice’s counterclaim.  Thereafter,TWC petitioned the court to award it interest and to conclude the litigation byissuing a final judgment in TWC’s favor.  The court granted the petitionon December 16, 2003 and awarded TWC pre-judgment and post-judgment interest.  TWC has servednotice to Choice for a post-judgment deposition, set for April 12,2005.  Because the judgment issolely in TWC’s favor and all claims against TWC have been dismissed orwithdrawn, no provision for liability to the Company that may result uponadjudication has been made in the accompanying consolidated financialstatements.

 

The Company is notcurrently involved in any other material legal proceeding nor was it involvedin any other material litigation during the year ended December 31, 2004,or through the date of this filing.

 

**Item 4.****Submission of Matters to aVote of Security Holders.**

 

No matter was submittedto a vote of security holders during the fourth quarter of the fiscal yearcovered by this Report.

 

## **PART II**

 

**Item 5.****Market for Common Equityand Related Stockholder Matters.**

 

The Company’s Common Stock is quoted on theOTC Bulletin Board under the symbol TWOC.OB (formerly TWCP.OB).

 

**Reverse Stock Split**

 

On March 5, 2004, TWC’s Board ofDirectors (the “Board”) approved a one (1)-for-one hundred (100) reverse stocksplit of its Common Stock, with all fractional shares being rounded up to thenext whole share.  The reverse stocksplit was effective on April 5, 2004. Stockholders’ equity was restated to give retroactive recognition to thestock split for all periods presented by reclassifying from common stock toadditional paid-in capital for the par value of the diminished shares arisingfrom the reverse split.  In addition, allreferences herein and in the consolidated financial statements to the number ofshares and per share amount were restated.

 

As of March 14, 2005, the Company’s stockprice was $3.00.  The following tablesets forth the high and low prices of the Company’s Common Stock for fiscalyears 2003 and 2004.

 
| **Common Stock** | ** ** | **High** | ** ** | **Low** | ** ** |
|------------------|------------|----------|------------|---------|------------|
| **2003**         |       |     |       |    |       |
| First Quarter    |       | $        | 15.00      | *       | $          | 8.00 | * |
| Second Quarter   |       | $        | 11.00      | *       | $          | 6.00 | * |
| Third Quarter    |       | $        | 8.00       | *       | $          | 4.00 | * |
| Fourth Quarter   |       | $        | 7.00       | *       | $          | 3.00 | * |
| **2004**         |       |     |       |    |       |
| First Quarter    |       | $        | 5.00       | *       | $          | 2.00 | * |
| Second Quarter   |       | $        | 5.00       | *       | $          | 2.50 | * |
| Third Quarter    |       | $        | 5.00       | *       | $          | 2.70 | * |
| Fourth Quarter   |       | $        | 3.90       | *       | $          | 2.75 | * |

 

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* Quoted on OTC BulletinBoard, as adjusted to reflect the 1 for 100 reverse stock split.

 

There were no quotationsfor the $150.00 warrants.

 

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As of March 14, 2005, there were (a) 5,031,681outstanding shares of Common Stock held of record by approximately 148 holders;(b) outstanding options to purchase an aggregate of 11,060 shares ofCommon Stock; (c) outstanding $100.00 Series A Warrants to purchasean aggregate of 9,600 shares of Common Stock issued in connection with the saleof certain debt instruments; (d) outstanding $150.00 Series BWarrants to purchase an aggregate of 32,001 shares of Common Stock issued inconnection with the restructuring of certain long-term debt; (e) outstanding$1.00 Series C Warrants to purchase an aggregate of 10,131 shares ofCommon Stock issued in connection with the March 1998 Private Placement,with 6,074 of this series having been exercised; (f) outstanding $1.00 Series Gwarrants to purchase an aggregate 1,251 shares of Common Stock.

 

**Item 6. Management’s Discussion and Analysis or Plan ofOperations.**

 

**Forward-Looking Statements**

 

This Form 10-KSB contains certainforward-looking statements. For this purpose, any statements contained in this Form 10-KSBthat are not statements of historical fact may be deemed to be forward-lookingstatements. Without limiting the foregoing, words such as “may,” “will,” “expects,”“believes,” “anticipates,” “estimates,” or “intends” or comparable terminologyare intended to identify certain forward-looking statements in this and othersections of the Form 10-KSB.  Thesestatements by their nature involve substantial risks and uncertainties, andactual results may differ materially depending on a variety of factors,including those set forth in the section below entitled “Important Factorsto Consider.”

 

**Exchange Rates**

 

Due to the fact that the Company’s operationsare all located overseas, the results of the Company are subject to the impactof fluctuations in foreign exchanges rates. Pursuant to the January 2002 adoption of the Euro (“EUR”) as thesole trading currency by all European Union member nations that had previouslytied their local currencies to it, the Company’s operations conducted businessexclusively in EURs and CZKs, which is the currency in which payroll and somepayable items are paid in the Czech Republic.

 

In continuation of the trend in 2003, these currenciesfurther strengthened against the U.S. Dollar (“USD”) in 2004, which increasedrevenue and expense totals converted into USDs. In addition, since the Company’srevenues were earned in EURs and the majority of casino related expenses werepaid in CZKs, the Company incurred a disproportionate increase in the USD valueof expenses versus revenues as a result of the fact that the CZK strengthenedmore against the USD in the reporting period than it did versus the EUR.  Thus, the Company’s earnings benefited lessfrom the weakness of the USD versus these currencies than did its revenues.

 

The impact of exchange rate fluctuations canbe measured through comparison of the rates of exchange for these twocurrencies to the USD, which are depicted on a quarterly basis in the followingtable.

 
| **Period**                     | ** ** | **USD** | ** ** | **CZK  2004** | ** ** | **CZK  2003** | ** ** | **EUR  2004** | ** ** | **EUR  2003** | ** ** |
|--------------------------------|------------|---------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|
|                           |       |    |       |          |       |          |       |          |       |          |       |
| January through  March    |       | $       | 1.00       |          | 26.3223    |          | 29.5745    |          | 0.8009     |          | 0.9326     |   |
| April through  June       |       | $       | 1.00       |          | 26.6319    |          | 27.7484    |          | 0.8299     |          | 0.8811     |   |
| July through  September   |       | $       | 1.00       |          | 25.8847    |          | 28.5945    |          | 0.8181     |          | 0.8882     |   |
| October through  December |       | $       | 1.00       |          | 24.0779    |          | 27.0078    |          | 0.7719     |          | 0.8407     |   |

 

7

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The balance sheet totals of the Company’sforeign subsidiaries at December 31, 2004 were converted to USDs using theprevailing exchange rates at December 31, 2004, which are depicted in thefollowing table.

 

| **As Of**               | ** ** | **USD** | ** ** | **CZK** | ** ** | **EUR** | ** ** |
|-------------------------|------------|---------|------------|---------|------------|---------|------------|
| December 31,  2004 |       | $       | 1.00       |    | 22.3580    |    | 0.7331     |   |
|                         |            |         |            |         |            |         |            |  |

 

**Critical Accounting Policies**

 

Management has identifiedthe following as critical accounting policies that affect the Company’sconsolidated financial statements.

 

*Goodwill*

 

Goodwill represents theexcess of the cost of the Company’s Czech subsidiaries over the fair value oftheir net assets at the date of acquisition. Under Statement of Financial Accounting Standards (“SFAS”) No. 142,goodwill is no longer subject to amortization over its estimated useful life;rather, goodwill is subject to at least an annual assessment for impairmentapplying a fair-value based test.  Theimpairment assessment requires 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 is an indication that an impairment exists.  The fair value of the Czech Republicreporting unit is determined through a combination of recent appraisals of theCompany’s real property and a multiple of earnings before interest taxesdepreciation and amortization, which was based on the Company’s experience inselling its Spanish casino in 2001. During the second quarter of 2003 and 2004, as required by SFAS No. 142,the Company performed the fair-value based testing of the carrying value ofgoodwill related to its Czech Republic reporting unit, and determined that norecording of impairment losses was warranted.

 

*June 2003 Exchange Agreement*

 

In June 2003, the Company completed the June 2003Exchange Agreement (see Note 4 of the Notes to the Consolidated FinancialStatements “Long-Term Debt” for further discussion).  The transactionincreased the Company’s stockholders’ equity by approximately $21.4million.  The debt to equity conversionprice of approximately $4.00 per share was a product of the terms of the June 2003Exchange Agreement, which was designed to provide the noteholders who tenderedin the exchange approximately 90% ownership of the Company’s issued andoutstanding Common Stock.  The Company believes the approximate $4.00 pershare conversion price was representative of the fair value of the Company’sCommon Stock, which was affirmed in a fairness opinion by an independent valuationfirm.  Accordingly, the transaction was accounted for as an even exchangeof value, with no gain or loss recognized.  Further, the Company believesthe waiver by the holders of the Senior Notes of the post-September 17,2001 interest was an inseparable component of the June 2003 ExchangeAgreement and has accounted for this forgiveness as part of the overalltransaction (e.g. an increase to additional paid-in-capital).

 

**Results of Operations**

 

The following discussionand analysis relates to the consolidated financial condition and results ofoperations of the Company for the years ended December 31, 2004 and 2003.

 

8

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**YearEnded December 31, 2004 Compared to Year Ended December 31, 2003**

 

($000s inthousands)

 
| ** **                                    | ** ** | **Year  Ended  December 31, 2003** | ** ** | **Change** | ** ** | **Year  Ended  December 31, 2004** | ** ** |
|-----------------------------------------------|------------|-----------------------------------------|------------|------------|------------|-----------------------------------------|------------|
|                                          |       |                                    |       |       |       |                                    |       |
| Net income                                    |       | 238                                     |       |       |       |                                    |       |
| Revenues                                      |       |                                    |       | 1,333      |       |                                    |       |
| Cost of revenues                              |       |                                    |       | (1,201     | )          |                                    |       |
| Depreciation and  amortization                |       |                                    |       | 17         |       |                                    |       |
| Selling, general  and administrative          |       |                                    |       | (138       | )          |                                    |       |
| Interest income                               |       |                                    |       | 5          |       |                                    |       |
| Interest expense                              |       |                                    |       | 1,515      |       |                                    |       |
| Foreign exchange  loss                        |       |                                    |       | (356       | )          |                                    |       |
| Route 55  December 2004 preopening costs |       |                                    |       | (197       | )          |                                    |       |
| Other income                                  |       |                                    |       | 31         |       |                                    |       |
| Net income                                    |       |                                    |       | 1,009      |       | 1,247                                   |       |

 

In the year ended December 31, 2004, the Company posted a 7.4%, or$1.3 million, improvement on revenues of $18.9 million versus $17.6 million inthe prior year. The growth in revenue was largely due to a 3.4% attendanceimprovement, which contributed to an 8.4% growth in total drop, and favorableexchange rate fluctuations, which exerted a positive influence on revenues,including a 4.8% increase on the drop per head (“DpH”), the per guest averagedollar value of gaming chips purchased.  An aggregate 20.3% improvement in other gaming-related revenues,including slot revenues, in 2004 was due partly as to the Company’s ongoingrefinement of player benefits and customer service programs, while an 87.9%increase in food and beverage sales occurred mainly due to the operations at  Hollywood Spin.

 

The Company’s cost of revenues increased by $1.2 million over the prioryear due to several factors, principally the negative impact on expenses fromthe aforementioned exchange rate fluctuations that benefited revenues.  Other factors that also contributed to theincrease in cost of revenues include: (i) higher expenses related to thenewer Novomatic slot machines, the lease payments of which are revenue-based; (ii) greateramenity expenses related to the refinement of player benefits programs; and (iii) higherlabor costs related to quality and service enhancements in food and beverageoperations.

 

Depreciation and amortization expense decreased by $17,000 in year 2004versus the prior year due primarily to the full amortization of certain slotoperating leases.

 

Selling, general and administrative expenses increased $138,000 in year2004 in comparison to those of 2003, in large part, as a result of highermarketing expenditures to increase market share, which were partially offset bylower legal expenses incurred in 2004.

 

Interest income marginally increased while interest expense decreasedby $1.5 million in 2004 versus the prior year due mainly to the 2003 Recapitalization.

 

A foreign exchange loss of $5,000 was incurred in 2004 versus a gain of$351,000 in 2003 due principally to a gradual strengthening of the USD versusthe EUR and CZK through the first three quarters of 2004, which wasconsequently offset by the subsequent weakening of the USD versus the EUR andCZK in the final quarter in 2004.

 

Preopening costs for Route 55 totaled $197,000.

 

9

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Other income in 2004 of $31,000 was derived mainly from the gain of saleof outdated slot machines of $27,000.

 

As a result, the Company posted a positive net income of approximately $1.2million for the year ended December 31, 2004, which is a significant improvementover the net income of $238,000 posted for the year ended December 31, 2003.

 

**Business Units:**

 

***Route 59, Czech Republic***

 

For the year ended December 31,2004, Route 59 sustained its ability to attract both high-end and casualplayers with its fourth consecutive year of double-digit revenue growth.  Attendance in 2004 accounted for a 13.2%increase over the same period in 2003, while DpH benefited from the visitationsof affluent clientele to record a 7.5% improvement over 2003.  The combination of improved attendance andDpH contributed to a 21.7% improvement in total drop for 2004.  Other gaming-related income, including slotrevenues, also increased, contributing to a 10.8% improvement in totalrevenue.  Fluctuations in foreign exchangerates contributed positively to overall revenue but also impacted expensesnegatively.  Operating expensesincreased, notably in revenue-driven gaming taxes, higher payroll related tothe enhanced customer service level and greater player amenities.  Earnings exclusive of interest, taxes, anddepreciation and amortization reflected 23% retention of the incrementalrevenue increase over the prior year. The high level of dedication to customer service and professionalism,and amenity offerings to casino visitors was instrumental in the success of thecasino.

 

***Ceska, Czech Republic***

 

Fierce competition and a recessionaryregional market, that was largely dependent on the Bavarian economy, continuedto plague Ceska in 2004.  The deepeningeconomic woes in Germany and, specifically, the massive layoffs from largemanufacturing and industrial companies in Bavaria impacted the regional andlocal economies.  Management expendedgreat efforts to promote the casino with a full promotional events calendar in2004 in order to maintain its competitive share of the market.  After a decline in 2003, the casino’s attendancestabilized in 2004, as the casino redirected its marketing to Regensburg, thenearest metropolitan city in Germany, to supplement the weak local market.  Despite worsening economic conditions in theregion, Ceska achieved total revenue improvement of 3.6% for the year ended December 31,2004, which was aided by a 22.7% increase in slot revenue as many of the low-stakes,live game players transitioned to slot games, and by favorable exchange ratefluctuations on revenues.  However, theadded marketing and promotional expenses, coupled with greater player amenitiesto retain and grow its market share, and the negative effect of exchangefluctuations decreased its operating margins and served to reduce its earningsbefore interest, taxes, and depreciation and amortization.

 

***Rozvadov, Czech Republic***

 

Similarly to Ceska, in 2004,Rozvadov experienced continued regional economic stagnation, which wasacerbated by the appearance of a direct competitor.  The combination served to further erode itsattendance by 23.1% from the prior year. The severe economic conditions effectively reduced the size of thecasino’s overall customer base and its previously dedicated group of high-volumeplayers and exerted downward pressure on its DpH, which fell 10.6% from2003.  Slot revenues, on the other hand,jumped 69.3% as more live-game players switched to lower stakes games, but therevenue improvement was not sufficient to compensate for the decline in overallrevenue.  Total revenue fell 16.4% forthe year ended December 31, 2004 versus the year ended December 31,2003.  In the last part of 2004, Rozvadovapplied greater efforts to revitalize its operations by increasing promotionalactivities, improving its external signage and billboards, and enhancing itsguest amenities and services, the benefits of which will take a measure of timeto bear fruit.

 

***HollywoodSpin, Czech Republic***

 

The positioning of theunit in the Freeport designer outlet mall should have permitted the operationto capture a portion of the 1.5 million visitors anticipated to visit the Freeport-ownedmall, but in reality the owner-projected

 

10

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number of visitors did notmaterialize.  Attendance to the mall wasdismal throughout the year and was sporadic at best during the year end holidayseason.

 

***Route 55, Czech Republic***

 

Route 55, which opened onDecember 19, 2004 in Dolni Dvoriste, posted nominal revenues for the twelvedays of its operation in 2004.  Thecasino, themed in a Miami Beach “Streamline Moderne” style harkens back to anera of Miami in the 50’s.  It has approximately1,000 square meters of gaming area, equipped with 18 tables and 94 slot machines.  Also located on the main floor are reception,coffee, bar and grill areas.  On themezzanine level, the casino features an Italian restaurant, decorated in an “OldPompeii” façade, with seating capacity for 70 people, including a buffet area,plus an al fresco terrace.  a VIP lounge,and a private card room.  TWC officiallylaunched the casino on January 29, 2005 with a hosted, by invitation-only galaevent, that included a wide range of attendees, including high-profilecelebrities, sports legends, local politicians from both sides of the border,news reporters from television stations in Linz and distinguished guests of theCompany and of its subsidiary, ACC.

 

**Liquidity and Capital Resources**

 

The Company’s workingcapital deficit increased to approximately $4.7 million at December 31,2004 from approximately $140,000 at December 31, 2003, primarily as aresult of its direct investment (i.e. cash infusion) in the construction of itsfifth casino, Route 55.  To alleviatesome of this deficit, the Company executed a construction loan with GE CapitalBank a.s. in the amount of 60 million CZK (or approximately $2.7 million usingyear end exchange rates), of which only 10 million CZKs (or approximately$447,000 using year end exchange rates) was drawn as of December 31, 2004.

 

The Company is current onall of its long-term obligations. Further, in addition to the 2003 Recapitalization, the Company has takenseveral steps in an effort to improve its consolidated financial position,including (i) the doubling of the capacity of Route 59 from 11 to 22gaming tables; (ii) the renovations of its Ceska and Rozvadov casinos and (iii) therecent opening of its fifth and largest casino, Route 55, near the Austrianborder, which features 18 gaming tables and 94 slot machines.

 

For the year ended December 31,2004, the Company had net cash provided by operations of approximately $2.0million.  This was primarily a result of netincome of approximately $1.2 million, an increase in accounts payable of $611,000and $494,000 of depreciation and amortization, which were partially offset by adecrease in cash of $167,000 as a result of increases in prepaid expenses andother current assets, $138,000 decrease in cash attributable to changes inother assets, $27,000 from sale of outdated slot machines, and also by adecrease in cash of $22,000 from changes in accrued expenses and otherliabilities.  For the year ended December 31,2004, net cash used in investing activities was approximately $3.6 million andwas used primarily for the construction of the Company’s newest casino, Route55, and minor additions to, and replacements of, casino equipment of HollywoodSpin, while net cash used in financing activities of $906,000 included $1.3million in repayment of the Interest Notes and long-term debt related to the Route59 building lease purchase, which were somewhat offset by a partial draw on theRoute 55 construction term loan of $389.

 

11

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The Company is alsoobligated under various contractual commitments over the next five years.  The following is a summary of the five-yearcommitments of the Company as of December 31, 2004:

 
| **(in thousands)  Contractual Obligations** | ** ** | **Total** | ** ** | **Less than  1 Year** | ** ** | **1-3 Years** | ** ** | **4-5 Years** | ** ** | **After  5 Years** | ** ** |
|---------------------------------------------|------------|-----------|------------|-----------------------|------------|---------------|------------|---------------|------------|--------------------|------------|
|                                        |       |      |       |                  |       |          |       |          |       |               |       |
| Long-term,  unsecured debt, US              |       | $         | 2,861      |                  | $          | 856           |       | $             | 455        |               | $          | — |   | $ | 1,550 |   |
| Long-term debt,  foreign                    |       | 1,473     |       | 559                   |       | 714           |       | 186           |       | 14                 |       |
| Operating leases                            |       | 587       |       | 118                   |       | 226           |       | 198           |       | 45                 |       |
| Employment  agreements                      |       | 650       |       | 350                   |       | 300           |       |          |       |               |       |
| Consulting  agreements                      |       | 27        |       | 27                    |       |          |       |          |       |               |       |
|                                        |       |      |       |                  |       |          |       |          |       |               |       |
| Total  contractual obligations              |       | $         | 5,598      |                  | $          | 1,910         |       | $             | 1,695      |               | $          | 384 |   | $ | 1,609 |   |

 

The Company’s management believes that its cashresources at December 31, 2004, the proceeds of the construction loan andanticipated cash provided by 2005 operations are sufficient to fund itsactivities for the year ending December 31, 2005.

 

**Plan of Operations and ImportantFactors to Consider:**

 

TWC management willcontinue to develop marketing and operational strategies designed to increase attendanceand revenues at its existing locations in the Czech Republic.

 

In May 2002, theCompany completed renovation of the Ceska casino and, in 2003, replaced 38 ofits existing Aristocrat slot machines with newer-style Novomatic slotmachines.  In 2003, the gaming floor inRozvadov was reconfigured to accommodate the relocation of the slot room fromits lower level to the main floor for better player access and visibility andthe casino’s carpet was replaced.  Additionally,employee uniforms were changed and a Pacific South Seas theme wasintroduced.  In 2004, Rozvadov’s entranceand reception areas were renovated and more effective signage wereinstalled.  In Route 59, an additionalfour gaming tables were introduced in July 2002, an electro-mechanical multi-roulettein April 2003, which leaves the facility with a total of 22 gaming tablescurrently in operation.  Also, 55 of the56 existing slot machines in Route 59 were replaced over a two-year period,beginning in January 2001, with newer machines of a type that aregenerally preferred by the casino’s target client base, and four newer machineswere recently introduced, giving the casino a total of 60 machines currently inoperation.  On September 1, 2003, theCompany opened Hollywood Spin in conjunction with the opening of a designeroutlet mall located in the former tax-free zone between the Austrian and Czechborders.  In Hollywood Spin, the Companyoperates three gaming tables, one of which is an electro-mechanicalmulti-roulette, 20 Novomatic slot machines, and features a Hollywood-themed barand restaurant.  In December 2004,the Company launched its largest casino to date, Route 55, which opened with 18tables, two of which are electro-mechanical multi-roulettes, and 94 Novomaticslot machines.  (See also under “BusinessUnits: Route 55, Czech Republic” above).

 

The Company is alsopursuing construction of a four-star hotel, which would be connected to the Route59 and be built on company-owned land. The hotel design has been completed and the Company is actively seekingfunding for its planned construction in mid-2005.

 

***PositiveStockholders’ Equity; Positive Operating Income***

 

On December 31, 2004,the Company had a positive stockholders’ equity of approximately $12.1 million.For the year ended December 31, 2004, the Company achieved a net income ofapproximately $1.2 million, as a result of a combination of the 2003 Recapitalization,improved revenue from operations and favorable exchange rate fluctuations.  The ability of the Company to sustain profitabilityfrom its continuing operations depends upon the

 

12

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successful management ofgaming establishments in the Czech Republic, their expansions, the addition ofbusiness units, and the expansion of its operations to include other sources ofrevenue.  There can be no assurance thatthe Company will achieve profitability as a result of these operations orotherwise.

 

***Need to Diversify***

 

At this time, the Companyhas 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.

 

***Taxationof Gaming Operations***

 

Gaming operators aretypically subject to significant taxes and fees in addition to federal andstate corporate income taxes, and such taxes and fees are subject to increaseat any time. Any material increase in these taxes or fees would adverselyaffect the results of operations of the Company. The Czech Republic currentlyhas a number of laws related to various taxes imposed by governmentalauthorities. Applicable taxes include VAT, corporate tax, charity tax, andpayroll (social) taxes.  Taxdeclarations, together with other legal compliance areas (for example, customsand currency control matters) are subject to review and investigation by anumber of authorities, which are authorized by law to impose extremely severefines, penalties and interest charges, may create tax risks. Managementbelieves that it has adequately provided for tax liabilities.

 

***Social Security and Health Insurance Contributions***

 

In January 2004, the Czech governmenteliminated the social security tax and health insurance waivers on foreignersemployed in the country.  The impact ofthis change required TWC to make an employer contribution of 26% of salarytoward the national social security fund, with a corresponding employee contributionof 8%.  Further, TWC voluntarily chose toassist in the employee health insurance plan contribution of 9% by contributing4.5% to the fund.  The impact of thischange on TWC’s operational costs in 2004 was approximately $102,000 and isexpected to remain in this range each year.

 

 ***Dependence upon KeyPersonnel***

 

The Company’s ability tosuccessfully implement its strategy of expansion, manage the Czech casinos, andmaintain a competitive position will continue to depend, in large part, on theability of Mr. Rami S. Ramadan, the Company’s President, Chief ExecutiveOfficer (“CEO”), and Chief Financial Officer (“CFO”).  Prior to joining TWC in 1999, Mr. Ramadanserved as Executive Vice President of Finance for the Ian Schrager Hotels andalso held financial positions with Hyatt Hotels, Euro-Disney and MeridienHotels.  The Company may also be highlydependent upon other key employees, casino managers and consultants whom theCompany may retain from time to time.

 

***Needfor Additional Financing***

 

Although the Company hasachieved positive income for the second consecutive year, the Company, pursuantto its growth strategies, would require additional debt and/or equity financingfor the acquisition of other businesses. In this regard, the Company’s ability to obtain additional financing hasbeen improved as a result of the 2003 Recapitalization, which effectivelyreduced its then existing debt burden by approximately 80%.  Despite these balance sheet enhancements,there can be no assurance that such financing will be available on termsfavorable to the Company or at all.

 

13

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***InternationalActivities***

 

The Company’s operations arecompletely outside of the United States. Operating internationally involvesadditional risks relating to such things as currency exchange rates, differentlegal or regulatory environments, political and economic risks relating to thestability or predictability of foreign governments, differences in the mannerin which different cultures do business, difficulties in staffing and managingforeign operations, differences in financial reporting, operating difficulties,different types of criminal threats and other factors. The occurrence of any ofthese risks, if severe enough, could have a material adverse effect on thefinancial condition or results of operations of the Company.

 

***Licensing and Regulation***

 

The Company’s operationsare subject to regulation by each local jurisdiction in which it operates orplans to operate business, as well as federal laws and the laws of any foreigncountry. Each of the Company’s officers and directors, and, in certaininstances, persons who have more than a five percent income or profit interestin, or who exercise significant influence over the activities of the Company,may be subject to strict scrutiny and approval from the gaming commission orother regulatory body of each jurisdiction in which the Company may conductgaming operations.

 

The failure to obtain anylicense for properties upon which the Company plans to operate or manage a gamingestablishment in the future would have a materially adverse effect on theCompany’s business. Obtaining required licenses can be time consuming andcostly with no assurance of success. In addition, the Company is subject tochanges in the laws of the jurisdictions in which it operates, which couldmaterially limit the Company’s ability to conduct business profitably. In theevent that a required license is not granted for any particular location, theCompany’s options would include effecting a transfer of substantially all ofits related gaming assets to a different location or selling its interest inthe gaming operations at that location to a third party. There can be noassurance that the Company would be able to relocate gaming assets or sell itsinterests on acceptable terms or at all, and the inability to do so would havea materially adverse effect upon the business and prospects of the Company.

 

***Liability******Insurance***

 

The Company currentlymaintains and intends to maintain general liability insurance in each of thoselocations in which it operates. There can be no assurance that liability claimswill not exceed the coverage limits of such policies or that such insurancewill continue to be available on commercially reasonable terms or at all. Therecan be no assurance that such insurance will be adequate to cover unanticipatedliabilities.

 

***No Dividends***

 

The Company has not paidany dividends to date on its Common Stock, and does not expect to declare orpay any dividends in the foreseeable future. The Company intends to retainfuture earnings, if any are generated, for investment in its current operationsand for future project developments.

 

***PossibleAdverse Effect of Issuance of Preferred Stock***

 

The Company’s Articles ofIncorporation authorize the issuance of 4,000,000 shares of “blank check”Preferred Stock, with designations, rights and preferences determined from timeto time by its Board of Directors. Accordingly, the Company’s Board ofDirectors is empowered, without further stockholder approval, to issuePreferred Stock with dividend, liquidation, conversion, voting or other rightsthat could adversely affect the voting power or other rights of the holders ofthe Common Stock. In the event of issuance, the Preferred Stock could be

 

14

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used, under certaincircumstances, as a method of discouraging, delaying or preventing a change incontrol of the Company. The Company has no current plans to issue any shares ofPreferred Stock. However, there can be no assurance that Preferred Stock willnot be issued at some time in the future.

 

***DilutiveEffect of Warrants and Options***

 

As of March 14,2005, a total of 52,983 warrants and 11,060 options are outstanding, which, ifexercised, would represent 1.3% of the 5,095,724 shares of Common Stock thatwould be outstanding.  The issuance ofsuch securities would have a dilutive effect on any earnings per share that theCompany may generate when the earnings per share are evaluated on a dilutedbasis.

 

15

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**Item 7.****Financial Statements.**

 

The following items areincluded in this Report:

 

Consolidated FinancialStatements

 

 
| Report  of Independent Registered Public Accounting Firm    |   |
|-------------------------------------------------------------|--------|
| Consolidated Balance Sheet                                  |   |
| Consolidated  Statements of Income and Comprehensive Income |   |
| Consolidated  Statements of Stockholders’ Equity       |   |
| Consolidated  Statements of Cash Flows                      |   |
| Notes to  Consolidated Financial Statements                 |   |

 

16

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors andStockholders

Trans World Corporation

 

 

We have audited the accompanying consolidatedbalance sheet of Trans World Corporation and Subsidiaries as of December 31,2004, and the related consolidated statements of income and comprehensiveincome, stockholders’ equity (deficit) and cash flows for each of the years inthe two-year period ended December 31, 2004.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audits to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  The Company is not required to have, nor werewe engaged to perform, an audit of its internal control over financialreporting. Our audit included consideration of internal control over financialreporting as a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Trans World Corporation andSubsidiaries as of December 31, 2004, and the results of their operationsand their cash flows for each of the years in the two-year period ended December 31,2004, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

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

 

 

 

Roseland, New Jersey

February 18, 2005

 

17

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###### **TRANS WORLD CORPORATION AND SUBSIDIARIES**

CONSOLIDATED BALANCE SHEETDecember 31, 2004(dollarsin thousands, except for per share data)

 

**ASSETS**

 
| ** **                                                           |   |   |   |
|----------------------------------------------------------------------|--------|--------|--------|
|                                                                 |   |   |   |
| **CURRENT  ASSETS:**                                                 |   |   |   |
|                                                                 |   |   |   |
| Cash                                                                 |   | $      | 2,686  |   |
| Prepaid expenses                                                     |   | 492    |   |
| Other current  assets                                                |   | 154    |   |
|                                                                 |   |   |   |
| **Total  current assets**                                            |   | 3,332  |   |
|                                                                 |   |   |   |
| **PROPERTY  AND EQUIPMENT**, less accumulated depreciation of $3,673 |   | 13,917 |   |
|                                                                 |   |   |   |
| **OTHER  ASSETS:**                                                   |   |   |   |
|                                                                 |   |   |   |
| Goodwill                                                             |   | 5,424  |   |
| Deposits and  other assets                                           |   | 1,370  |   |
|                                                                 |   |   |   |
| **Total  other assets**                                              |   | 6,794  |   |
|                                                                 |   |   |   |
|                                                                 |   | $      | 24,043 |   |
|                                                                 |   |   |   |

**LIABILITIES AND STOCKHOLDERS’EQUITY**

 
| **CURRENT  LIABILITIES:**                                                                            |   |    |   |
|------------------------------------------------------------------------------------------------------|--------|---------|--------|
|                                                                                                 |   |    |   |
| Long-term debt,  current maturities                                                                  |   | $       | 1,415  |   |
| Accounts payable                                                                                     |   | 3,315   |   |
| Interest payable                                                                                     |   | 51      |   |
| Czech tax  accrual                                                                                   |   | 1,858   |   |
| Accrued expenses  and other current liabilities                                                      |   | 1,398   |   |
|                                                                                                 |   |    |   |
| **Total  current liabilities**                                                                       |   | 8,037   |   |
|                                                                                                 |   |    |   |
| **LONG-TERM  LIABILITIES:**                                                                          |   |    |   |
|                                                                                                 |   |    |   |
| Long-term debt,  less current maturities                                                             |   | 2,919   |   |
| Other                                                                                                |   | 1,026   |   |
|                                                                                                 |   |    |   |
| **Total  long-term liabilities**                                                                     |   | 3,945   |   |
|                                                                                                 |   |    |   |
| **STOCKHOLDERS’  EQUITY:**                                                                      |   |    |   |
|                                                                                                 |   |    |   |
| Preferred stock,  $.001 par value, 4,000,000 shares authorized,  none issued                         |   |    |   |
|                                                                                                 |   |    |   |
| Common stock  $.001 par value, 9,500,000 shares authorized,  5,031,681 shares issued and outstanding |   | 5       |   |
| Additional  paid-in capital                                                                          |   | 43,228  |   |
| Accumulated  other comprehensive income                                                              |   | 4,738   |   |
| Accumulated  deficit                                                                                 |   | (35,910 | )      |
|                                                                                                 |   |    |   |
| **Total  stockholders’ equity**                                                                 |   | 12,061  |   |
|                                                                                                 |   |    |   |
|                                                                                                 |   | $       | 24,043 |   |

 

*See accompanying notes to consolidated financialstatements*

 

18

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**TRANSWORLD CORPORATION AND SUBSIDIARIES**

CONSOLIDATEDSTATEMENTS OF INCOMEAND COMPREHENSIVE INCOMEYears Ended December 31, 2004 and 2003(dollars in thousands, except for per share data)

 
| ** **                                                                | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|---------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
|                                                                      |       |      |       |      |       |
| **REVENUES**                                                              |       | $         | 18,938     |      | $          | 17,605 |   |
|                                                                      |       |      |       |      |       |
| **COSTS  AND EXPENSES:**                                                  |       |      |       |      |       |
| Cost of revenues                                                          |       | 10,512    |       | 9,312     |       |
| Depreciation and  amortization                                            |       | 494       |       | 511       |       |
| Selling, general  and administrative                                      |       | 6,211     |       | 6,073     |       |
| Preopening costs                                                          |       | 197       |       |      |       |
|                                                                      |       | 17,414    |       | 15,896    |       |
|                                                                      |       |      |       |      |       |
| **INCOME  FROM OPERATIONS**                                               |       | 1,524     |       | 1,709     |       |
|                                                                      |       |      |       |      |       |
| **OTHER  INCOME (EXPENSE):**                                              |       |      |       |      |       |
| Interest income                                                           |       | 23        |       | 18        |       |
| Interest expense                                                          |       | (309      | )          | (1,824    | )          |
| Foreign exchange  gain (loss)                                             |       | (5        | )          | 351       |       |
| Other                                                                     |       | 14        |       | (16       | )          |
|                                                                      |       | (277      | )          | (1,471    | )          |
|                                                                      |       |      |       |      |       |
| **NET  INCOME**                                                           |       | $         | 1,247      |      | $          | 238 |   |
|                                                                      |       |      |       |      |       |
| **WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING:**                          |       |      |       |      |       |
| Basic                                                                     |       | 5,031,606 |       | 2,798,334 |       |
| Diluted                                                                   |       | 5,039,194 |       | 2,805,922 |       |
|                                                                      |       |      |       |      |       |
| **EARNINGS  PER COMMON SHARE:**                                           |       |      |       |      |       |
| Basic                                                                     |       | $         | 0.25       |      | $          | 0.08 |   |
| Diluted                                                                   |       | $         | 0.25       |      | $          | 0.08 |   |
|                                                                      |       |      |       |      |       |
| **COMPREHENSIVE  INCOME:**                                                |       |      |       |      |       |
|                                                                      |       |      |       |      |       |
| **Net  income**                                                           |       | $         | 1,247      |      | $          | 238 |   |
|                                                                      |       |      |       |      |       |
| **Other  comprehensive income,** foreign currency  translation adjustment |       | 2,033     |       | 1,943     |       |
|                                                                      |       |      |       |      |       |
| **Comprehensive  income**                                                 |       | $         | 3,280      |      | $          | 2,181 |   |

 

*See accompanying notes to consolidated financialstatements*

 

19

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**TRANSWORLD CORPORATION AND SUBSIDIARIES**

CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ EQUITY/(DEFICIT)Years Ended December 31, 2004 and 2003(dollars in thousands, except for per share data)

 
| ** **                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | ** **        | ** ** | **Accumulated** | ** ** | ** **             | ** ** | ** **               | ** ** |
|----------------------------------------------------------------------------------|------------|------------------|------------|-------------|------------|-------------------|------------|-----------------|------------|------------------------|------------|--------------------------|------------|
| ** **                                                                       | ** ** | ** **       | ** ** | ** **  | ** ** | **Additional**    | ** ** | **Other**       | ** ** | ** **             | ** ** | **Total**                | ** ** |
| ** **                                                                       | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Comprehensive** | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                                                                       | ** ** | **Shares**       | ** ** | **Amount**  | ** ** | **Capital**       | ** ** | **Income**      | ** ** | **Deficit**            | ** ** | **Equity/(****Deficit)** | ** ** |
| **Balances,** January 1, 2003                                          |       | 503,282          |       | $           | 1          |              | $          | 21,799          |       | $                      | 762        |                     | $          | (37,395 | ) | $ | (14,833 | ) |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Conversion of long-term debt and related accrued  interest into Common Stock** |       | 4,527,970        |       | 4           |       | 21,428            |       |            |       |                   |       | 21,432                   |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Exercise  of options**                                                         |       | 200              |       |        |       |              |       |            |       |                   |       |                     |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Foreign currency translation adjustment**                                      |       |             |       |        |       |              |       | 1,943           |       |                   |       | 1,943                    |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Net  income**                                                                  |       |             |       |        |       |              |       |            |       | 238                    |       | 238                      |       |
| **Balances,** December 31, 2003                                        |       | 5,031,452        |       | 5           |       | 43,227            |       | 2,705           |       | (37,157                | )          | 8,780                    |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Exercise of options**                                                          |       | 200              |       |        |       |              |       |            |       |                   |       |                     |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Foreign  currency translation adjustment**                                     |       |             |       |        |       |              |       | 2,033           |       |                   |       | 2,034                    |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Other**                                                                        |       | 29               |       |        |       | 1                 |       |            |       |                   |       |                     |       |
|                                                                             |       |             |       |        |       |              |       |            |       |                   |       |                     |       |
| **Net income**                                                                   |       |             |       |        |       |              |       |            |       | 1,247                  |       | 1,247                    |       |
| **Balances,** December 31, 2004                                             |       | 5,031,681        |       | $           | 5          |              | $          | 43,228          |       | $                      | 4,738      |                     | $          | (35,910 | ) | $ | 12,061 |   |

 

*See accompanying notes to consolidated financialstatements*

 

20

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**TRANSWORLD CORPORATION AND SUBSIDIARIES**

CONSOLIDATEDSTATEMENTS OF CASH FLOWSYears Ended December 31, 2004 and 2003(dollars in thousands, except for per share data)

 
| ** **                                                                                     | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **CASH  FLOWS FROM OPERATING ACTIVITIES:**                                                     |       |       |       |       |       |
| Net income                                                                                     |       | $          | 1,247      |       | $          | 238 |   |
| Adjustments to  reconcile net income to net cash provided by operations:                       |       |       |       |       |       |
| Depreciation and  amortization                                                                 |       | 494        |       | 511        |       |
| Noncash interest                                                                               |       |       |       | 1,617      |       |
| Gain on sale of  equipment                                                                     |       | (27        | )          |       |       |
| Increase  (decrease) in cash attributable to changes in assets and liabilities:                |       |       |       |       |       |
| Prepaid expenses  and other current assets                                                     |       | (167       | )          | (9         | )          |
| Other assets                                                                                   |       | (138       | )          | (227       | )          |
| Accounts payable                                                                               |       | 611        |       | (33        | )          |
| Accrued expenses  and other liabilities                                                        |       | (22        | )          | (170       | )          |
|                                                                                           |       |       |       |       |       |
| **NET  CASH PROVIDED BY OPERATING ACTIVITIES**                                                 |       | 1,998      |       | 1,927      |       |
|                                                                                           |       |       |       |       |       |
| **CASH  FLOWS FROM INVESTING ACTIVITIES,**                                                     |       |       |       |       |       |
| Purchases of  property and equipment                                                           |       | (3,601     | )          | (437       | )          |
| Proceeds from  the sale of equipment                                                           |       | 27         |       | 4          |       |
|                                                                                           |       |       |       |       |       |
| **NET  CASH USED IN INVESTING ACTIVITIES**                                                     |       | (3,574     | )          | (433       | )          |
|                                                                                           |       |       |       |       |       |
| **CASH  FLOWS FROM FINANCING ACTIVITIES:**                                                     |       |       |       |       |       |
| Proceeds from  long-term debt                                                                  |       | 389        |       |       |       |
| Payments of  long-term debt                                                                    |       | (1,295     | )          | (726       | )          |
| Proceeds from  exercise of warrants                                                            |       |       |       | 1          |       |
|                                                                                           |       |       |       |       |       |
| **NET  CASH USED IN FINANCING ACTIVITIES**                                                     |       | (906       | )          | (725       | )          |
|                                                                                           |       |       |       |       |       |
| **EFFECT  OF EXCHANGE RATE CHANGES ON CASH**                                                   |       | 224        |       | 341        |       |
|                                                                                           |       |       |       |       |       |
| **NET  INCREASE (DECREASE) IN CASH**                                                           |       | (2,258     | )          | 1,110      |       |
|                                                                                           |       |       |       |       |       |
| **CASH**                                                                                       |       |       |       |       |       |
| Beginning of  year                                                                             |       | 4,944      |       | 3,834      |       |
|                                                                                           |       |       |       |       |       |
| End of year                                                                                    |       | $          | 2,686      |       | $          | 4,944 |   |
| ** **                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION,**                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid during  the year for:                                                                |       |       |       |       |       |
| Interest                                                                                       |       | $          | 240        |       | $          | 189 |   |
| **SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING  AND FINANCING ACTIVITIES**                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Conversion of  accrued interest to debt                                                        |       | $          | 19         |       | $          | 17 |   |
| Conversion of  long-term debt and related accrued interest into common stock                   |       | $          | —     |       | $          | 21,432 |   |
| Route 55 partial  construction cost included in accounts payable and other current liabilities |       | $          | 1,866      |       | $          | — |   |
| Note incurred in  connection with acquisition of vehicle                                       |       | $          | 20         |       | $          | — |   |

 

*See accompanying notes to consolidated financialstatements*

 

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**TRANS WORLD CORPORATION AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands, except for per share data)

 

**NOTE 1** - **Nature****of Business and Liquidity**

 

***Nature of Business***

 

Trans World Corporation and Subsidiaries (collectively “TWC” or the “Company”),a Nevada corporation, is primarily engaged in the gaming business in the CzechRepublic.

 

The Company owns and operates five 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 two, located in Ceska Kubice (“Ceska”), currently has 15 gaming tablesand 46 slot machines. The smaller is located in Rozvadov (“Rozvadov”) andcurrently has 10 gaming tables and 30 slot machines.  Three casinos are located in the southernpart of the Czech Republic, close to the Austrian border.  The largest of these three, “Route 55”,recently opened on December 19, 2004 at Dolni Dvoriste with 18 gamingtables, 94 slot machines, a 70-seat Italian restaurant and a bar andgrill.  The other two are located in Hate(near Znojmo), where one, “Route 59” currently has 22 gaming tables and 60 slotmachines.  The other, Hollywood SpinRestaurant and Slot Bar (“Hollywood Spin”), which is located in a space thatthe Company leases in a designer outlet mall, operates three gaming tables, 20slot machines, a 76-seat restaurant and a 16-seat bar.

 

***Liquidity***

 

The Company’s working capital deficit increased to $4,705 atDecember 31, 2004 from $140 at December 31, 2003, primarily as aresult of its direct investment (i.e. cash infusion) in the construction of itsfifth casino, Route 55.  To alleviatesome of this deficit, the Company executed a construction term loan with GECapital Bank a.s. in the amount of 60 million Czech Korunas (“CZK”) (orapproximately $2,684 using year end exchange rates), of which only 10 millionCZKs (or approximately $447 using year end exchange rates) was drawn as ofDecember 31, 2004.

 

The Company is current on all of its long-term obligations.  Further, in addition to the June 2003Exchange Agreement (see “Note 4 – Long-Term Debt” ), the Company has takenseveral steps in an effort to improve its consolidated financial position,including (i) the doubling of the capacity of Route 59 from 11 to 22gaming tables; (ii) the renovations of its Ceska and Rozvadov casinos and(iii) the recent opening of its fifth and largest casino, Route 55, nearthe Austrian border, close to Linz. While the steps taken by management have enhanced the Company’s consolidatedbalance sheet and improved its results, the Company’s management is now focusedon securing additional financing to acquire and develop new businessunits.  Additionally, the Company isstudying several development projects, including the potential development of ahotel in Hate, Czech Republic, and the potential acquisition of existing hotelsin Europe.  There can be no assurancesthat management’s plans will be realized.

 

The Company’s management believes that its cash resources atDecember 31, 2004, the proceeds of the construction term loan andanticipated cash provided by 2005 operations are sufficient to fund itsactivities for the year ending December 31, 2005.

 

**NOTE 2** - **Summary of Significant Accounting Policies**

 

**Principles of Consolidation ****- **Theconsolidated financial statements include the accounts of the Company and itswholly-owned subsidiaries.  Allsignificant intercompany balances and transactions have been eliminated inconsolidation.

 

22

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**Cash****-**Cash consists 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 totaledapproximately $2,521 at December 31, 2004. The Company has not incurred any losses in such accounts and believes itis not exposed to any significant credit risk on cash.

 

**Property and Equipment **- Propertyand equipment is stated at cost less accumulated depreciation andamortization.  The Company provides fordepreciation and amortization using the straight-line method over the followingestimated 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                |       |

 

**Preopening Costs **- Preopening costs are expensed as incurred pursuant to Statement of Position98-5.

 

**Goodwill **- Goodwillrepresents the excess of the cost of the Company’s Czech subsidiaries over thefair value of their net assets at the date of acquisition.  Under Statement of Financial AccountingStandards (“SFAS”) No. 142, goodwill is no longer subject to amortizationover its estimated useful life; rather, goodwill is subject to at least anannual assessment for impairment applying a fair-value based test.  The impairment assessment requires theCompany to compare the fair value of its Czech Republic reporting unit, theCompany’s only reporting unit as defined under SFAS No. 142, to itscarrying value (the net equity of the Company) to determine whether there is anindication that an impairment exists. The fair value of the Czech Republic reporting unit is determinedthrough a combination of recent appraisals of the Company’s real property and amultiple of earnings before interest taxes depreciation and amortization, whichwas based on the Company’s experience in selling its Spanish casino in2001.  During the second quarter of 2003and 2004, as required by SFAS No. 142, the Company performed thefair-value based testing of the carrying value of goodwill related to its CzechRepublic reporting unit, and determined that no recording of impairment losseswas warranted.

 

**ForeignCurrency Translation **- Forforeign subsidiaries whose functional currency is the local foreign currency,balance sheet accounts and cash flows are translated at exchange rates ineffect at the end of the year and statement of operations accounts aretranslated applying monthly averages of daily exchange rates on the respectivemonthly local statement of operations accounts for the year.  Resulting translation adjustments areincluded in “accumulated other comprehensive income”.

 

**Earnings Per Common Share **- Basicearnings per common share are computed by dividing net income by the weightedaverage number of common shares outstanding during the period.  Diluted earnings per common share incorporatethe dilutive effect of common stock equivalents on an average basis during theperiod.  The Company’s common stockequivalents currently include stock options and warrants.  Unexercised warrants and stock options topurchase shares of common stock as of December 31, 2004 and 2003 areapproximately 64,043 and 62,443 respectively.

 

**Income Taxes ****- **The Company complies with SFAS No. 109, “Accountingfor Income Taxes,” which requires an asset and liability approach to financialaccounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differencesbetween the financial statement and tax bases of assets and liabilities thatwill result in future taxable or deductible amounts, based on enacted tax lawsand rates applicable to the periods in which the differences are

 

23

----

 

expected toaffect taxable income.  Valuationallowances are established, when necessary, to reduce deferred income taxassets to the amount expected to be realized.

 

**Casino Revenue ****- **Casinorevenue is the net win from gaming activities, which is the difference betweengaming wagers and the amount paid out to patrons.  Revenues generated from ancillary services,including sales of food, beverage, cigarettes, and casino logo merchandise,represent less than three percent of total revenues.

 

**Promotional Allowances ****- **Promotionalallowances primarily consist of food and beverages furnished gratuitously tocustomers.  For the years endedDecember 31, 2004 and 2003, revenues do not include the retail amount offood and beverage of $1,403 and $1,350, respectively, provided gratuitously tocustomers.  The cost of these items of$650 and $483, respectively, is included in cost of revenues.

 

**External Advertising****-** External advertising expenses arecharged to operations as incurred and were $753 and $527 for the years endedDecember 31, 2004 and 2003, respectively.

 

**Fair Value of Financial Instruments ****- **Thefair values of the Company’s assets and liabilities that qualify as financialinstruments under SFAS No. 107, “Disclosures about Fair Value of FinancialInstruments,” approximate their carrying amounts presented in the accompanyingconsolidated balance sheet at December 31, 2004.

 

**Use of Estimates ****- **Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements as well as the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

 

**Impairment of Long-Lived Assets ****- **TheCompany periodically reviews the carrying value of its long-lived assets inrelation to historical results, as well as management’s best estimate of futuretrends, events and overall business climate. If such reviews indicate that the carrying value of such assets may notbe recoverable, the Company would then estimate the future cash flows(undiscounted and without interest charges). If such future cash flows are insufficient to recover the carryingamount of the assets, then impairment is triggered and the carrying value ofany impaired assets would then be reduced to fair value.

 

**Stock-basedcompensation** - TheCompany complies with the disclosure-only provisions of SFAS No. 123, “Accountingfor Stock-Based Compensation”, as amended by SFAS No. 148.

 

The Company applies Auditing Practices Board (“APB”) No. 25 andrelated interpretations in accounting for its stock option plans and,accordingly, no compensation cost has been recognized because stock optionsgranted under the plans were at exercise prices which were equal to or abovethe market value of the underlying stock at date of grant.  Had compensation expenses been determined asprovided by SFAS No. 123 using the Black-Scholes option pricing model, thepro forma effect on the Company’s net income and income per share would havebeen the following for the years ended December 31, 2004 and 2003,respectively:

 

24

----

 
| ** **                                                                                                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net income, as reported                                                                                     |       | $        | 1,247      |     | $          | 238 |   |
| Stock-based employee compensation expense  included in net income, net of related tax effects               |       | —   |       | —   |       |
| Stock-based employee compensation  determined under the fair value-based method, net of related tax effects |       | (9       | )          | (13      | )          |
| Pro forma net income                                                                                        |       | $        | 1,238      |     | $          | 225 |   |
| Income per common share, basic and diluted                                                                  |       |     |       |     |       |
| As reported                                                                                                 |       | $        | 0.25       |     | $          | 0.08 |   |
| Pro forma                                                                                                   |       | $        | 0.25       |     | $          | 0.08 |   |

 

The fair value of each option grant is calculated using the followingweighted average assumptions:

 
| ** **            | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------|------------|----------|------------|----------|------------|
|                  |       |     |       |     |       |
| Expected life (years) |       | 10       |       | 10       |       |
| Risk-free rate        |       | 4.2      | %          | 4.0      | %          |
| Volatility            |       | 143      | %          | 152      | %          |
| Dividend yield        |       | 0        | %          | 0        | %          |

 

**New Accounting Pronouncement**-In December 2004, the FASB issued SFAS No. 123R, “Share-BasedPayment.” SFAS No. 123R is a revision of SFAS No. 123, “Accountingfor Stock Based Compensation,” and supersedes APB Opinion No. 25 (“APBNo. 25”). Among other items, SFAS No. 123R eliminates the use of APBNo. 25 and the intrinsic value method of accounting, and requirescompanies to recognize the cost of employee services received in exchange forawards of equity instruments, based on the grant date fair value of those awards,in the financial statements. The effective date of SFAS No. 123R for theCompany is the first quarter of 2006. SFAS No. 123R permits companies toadopt its requirements using either a “modified prospective” method, or a “modifiedretrospective” method. Under the “modified prospective” method, compensationcost is recognized in the financial statements beginning with the effectivedate, based on the requirements of SFAS No. 123R for all share-basedpayments granted after that date, and based on the requirements of SFASNo. 123 for all unvested awards granted prior to the effective date ofSFAS No. 123R. Under the “modified retrospective” method, the requirementsare the same as under the “modified prospective” method, but also permitsentities to restate financial statements of previous periods, either for allprior periods presented or to the beginning of the fiscal year in which thestatement is adopted, based on previous pro forma disclosures made inaccordance with SFAS No. 123. The Company has not yet determined which ofthe methods it will use upon adoption.

 

The Company currently utilizes the Black-Scholes option pricing modelto measure the fair value of stock options granted to employees. While SFASNo. 123R permits entities to continue to use such a model, it also permitsthe use of a “lattice” model. The Company expects to continue using theBlack-Scholes option pricing model upon adoption of SFAS No. 123R tomeasure the fair value of stock options.

 

The adoption of this statement will have the effect of reducing netincome and income per share as compared to what would be reported under thecurrent requirements. These future amounts cannot be precisely estimatedbecause they depend on, among other things, the number of options issued in thefuture, and accordingly, the Company has not determined the impact of adoptionof this statement on its results of operations.

 

25

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**NOTE 3** - **Property and Equipment**

 

At December 31, 2004, property andequipment consists of the following:

 
| Land                                            |   | $      | 2,242  |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Building and improvements                       |   | 10,353 |   |
| Gaming equipment                                |   | 237    |   |
| Furniture, fixtures and other equipment         |   | 4,758  |   |
|                                            |   |   |   |
|                                            |   | 17,590 |   |
| Less accumulated depreciation and  amortization |   | (3,673 | )      |
|                                            |   |   |   |
|                                            |   | $      | 13,917 |   |

 

**NOTE 4** - **Long-Term Debt**

 

On June 26, 2003, the Company completed an exchange agreement (the“June 2003 Exchange Agreement”) with the holders of its $20,000, 12%Senior Secured Notes (the “Senior Notes”), whereby $18,450 of note principal,or 92.25%, was exchanged for 452,797,000 shares (or 4,527,970 shares after giving effect to the April 2004 one(1) for one hundred (100) reverse stock split – see Note 7) of the Company’scommon stock, $.001 par value per share (“Common Stock”) and $1,550 wasexchanged for seven-year, unsecured, variable rate promissory notes (the “ReplacementNotes”).  In addition, approximately$2,500 in pre-September 18, 2001 accrued and unpaid interest was convertedinto three-year, unsecured, promissory notes (the “Interest Notes”) bearing 8%interest and approximately $5,200 of post-September 17, 2001 interest waswaived and forgiven by the holders of the Senior Notes.

 

The debt****to equity conversion price ofapproximately $0.04 per share (or $4.00 per share after giving effect to theApril 2004 one (1) for one hundred (100) reverse stock split) was a product ofthe terms of the June 2003 Exchange Agreement, which was designed toprovide the noteholders who tendered in the exchange approximately 90%ownership of the Company’s issued and outstanding Common Stock.  The Company believes the approximate $0.04 pershare conversion price (or $4.00 per share after giving effect to the April2004 one (1) for one hundred (100) reverse stock split) was representative ofthe fair value of the Company’s Common Stock, which was supported by a reportfrom an independent financial advisor. Accordingly, the transaction was accounted for as an even exchange ofvalue, with no gain or loss recognized. Further, the Company believes the post-September 17, 2001 interestforgiven was an inseparable component of the June 2003 Exchange Agreementand has accounted for this forgiveness as part of the overall transaction (e.g.an increase to additional paid in capital). The completion of the June 2003 Exchange Agreement, the exchange ofthe Replacement Notes, the conversion of the unpaid and accrued interest intoInterest Notes and waiver and forgiveness of post September 17, 2001interest on Senior Notes are collectively referred to as the “2003Recapitalization.”

 

26

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At December 31, 2004, long-term debtconsists of the following:

 
| Interest Notes (a)                     |   | $      | 1,311  |   |
|----------------------------------------|--------|--------|--------|--------|
| Replacement Notes (b)                  |   | 1,550  |   |
| Route 59 building acquisition loan (c) |   | 1,026  |   |
| Route 55 construction term loan (d)    |   | 447    |   |
|                                   |   |   |   |
|                                   |   | $      | 4,334  |   |

 

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| (a)    |   | The Interest Notes, which have three-year  terms, provide for monthly payments of principal and interest of  approximately $78 through June 2006.                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (b)    |   | The Replacement Notes, which have  seven-year terms, have tiered, simple interest rates: 6% for the first three  years, 9.3% for the fourth year and 10% for the fifth through the seventh  year. For the first three years of the term, one half of the accrued annual  interest is payable, beginning on July 26, 2004, with the accrued interest  balance payable at maturity. For the last four years of the term, all annual  interest accrued will be payable in full on July 26 of each of these  last four years.      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (c)    |   | In March 2002, the Company exercised  its right to buyout (purchase) the Route 59 building lease. The building  lease buyout (purchase), 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 Route 59  building, the Company’s Rozvadov casino and employee housing buildings.                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (d)    |   | In December 2004, the Company drew 10  million CZK (approximately $447) from the 60 million CZK, 5.95% per annum,  58-month term loan it received from GE Capital Bank a.s. for the construction  of Casino Route 55. The Company expects to draw down the loan until  March 2005 and to commence repayment, as per the loan agreement, in  May 2005 to February 2010. The loan is collaterized by the Company’s  land, building, furniture, fixtures and equipment in Dolni Dvoriste and its  land in Folmava. |

 

Principal payments due on long-term debt are as follows:

 
| **Year  ending December 31,** |   |   |   |
|------------------------------------|--------|--------|--------|
| 2005                               |   | $      | 1,415  |   |
| 2006                               |   | 1,076  |   |
| 2007                               |   | 93     |   |
| 2008                               |   | 93     |   |
| 2009                               |   | 93     |   |
| 2010                               |   | 1,564  |   |
|                               |   | $      | 4,334  |   |

 

27

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**NOTE 5**- **Accrued Expenses and Other Current Liabilities**

 

At December 31, 2004, accrued expensesand other current liabilities consist of the following:

 
| Accrued payroll             |   | $   | 699    |   |
|-----------------------------|--------|-----|--------|--------|
| Accrued  bonuses/incentives |   | 371 |   |
| Other operational  accruals |   | 328 |   |
|                        |   | $   | 1,398  |   |

 

**NOTE 6**- **Commitments and Contingencies**

 

***Lease Obligations* -** The Company is obligated under operatingleases primarily related to its various facilities expiring through 2010.  Future aggregate minimum annual rentalpayments under all of these leases for the next five years are as follows:

 
| **Year  ending December 31,** |   |   |   |
|------------------------------------|--------|--------|--------|
| 2005                               |   | $      | 118    |   |
| 2006                               |   | 115    |   |
| 2007                               |   | 111    |   |
| 2008                               |   | 98     |   |
| 2009                               |   | 100    |   |
|                                    |        |        |        |  |

 

Rent expense under these operating leases was approximately $109 and$106 for the years ended December 31, 2004 and 2003, respectively.

 

The Company is also obligated under operating leases relative to slotequipment.  Future rental payments underthese leases are entirely revenue based.

 

***Employment Agreements -***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, 2004, future annualcompensation under these employment agreements is as follows:

 
| **Year  ending December 31,** |   |   |   |
|------------------------------------|--------|--------|--------|
| 2005                               |   | $      | 350    |   |
| 2006                               |   | 150    |   |
| 2007                               |   | 150    |   |
|                                    |        |        |        |  |

 

***Consulting Agreements* - **The Company has entered into two consultingagreements in the Czech Republic until December 31, 2005.  Future annual payments under these consultingcontracts are $27 in aggregate.

 

***401 (k) and profitsharing plan*** - The Company maintains a contributory401(k) plan and a profit sharing plan. These plans are for the benefit of all eligible U.S. employees, who mayhave up to 15% of their salary withheld, not to exceed $13 (in the year endedDecember 31, 2004).  TheCompany  makes a matching contributionbased on a portion of salary withheld. The Company made 401(k) plan contributions of $31 in 2004 and $18 in2003.

 

28

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***Foreign activities***- The Company’soperations are entirely outside of the United States.  Operating internationally involves additionalrisks relating to such things as currency exchange rates, different legal andregulatory environments, political and economic risks relating to the stabilityor predictability of foreign governments, differences in the manner in whichdifferent cultures conduct business, difficulties in staffing and managingforeign operations, differences in financial reporting, operating difficulties,and different types of criminal threats, and other factors.  The occurrence of any of these risks, ifsevere enough, could have a material adverse effect on the consolidatedfinancial position, results of operations and cash flows of the Company.

 

***Taxing Jurisdiction*** - TheCzech Republic currently has a number of laws related to various taxes imposedby governmental authorities.  Applicabletaxes include VAT, charity tax, corporate tax, and payroll (social) taxes.  Tax declarations, together with other legalcompliance areas (as examples, customs and currency control matters) aresubject to review and investigation by a number of authorities, which areenabled by law to impose extremely severe fines, penalties and interestcharges, create tax risks in the Czech Republic.  Management believes that it has adequatelyprovided for tax liabilities.

 

**NOTE 7**- **Stockholders’ Equity**

 

In April 2004, the Board of Directors approved a one (1) forone hundred (100) reverse stock split. Stockholders’ equity was restated to give retroactive recognition to thestock split for all periods presented by reclassifying from common stock toadditional paid-in capital from the par value of the diminished shares arisingfrom the reverse split.  Additionally,all references in the consolidated financial statements to the number of sharesand per share amount were restated.  Aspart of the reverse stock split, the Company’s authorized shares of Common Stockwere effectively reduced from 950,000,000 to 9,500,000.  There were no changes to the Company’sauthorized preferred stock, which remains at 4,000,000 shares.

 

In June 2003, the Company completed the 2003 Recapitalization (seeNote 4 for further discussion).  Thetransaction, which increased the Company’s stockholder’s equity byapproximately $21,432, is detailed as follows:

 
| Senior Notes, gross                             |   | $      | 20,000 |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Unamortized debt discount                       |   | (1,535 | )      |
| Post-September 17, 2001 interest  forgiven |   | 5,179  |   |
| Issuance of Replacement Notes                   |   | (1,550 | )      |
| Transaction costs                               |   | (662   | )      |
|                                            |   | $      | 21,432 |   |

 

In September 2003, the Company’sManaging Director of Casino Operations exercised a portion of his exercisableoptions and purchased 200 shares of the Company’s Common Stock at the exerciseprice of $4.00 per share and, in March 2004, purchased 200 additionalshares at the exercise price of $2.00 per share.

 

**NOTE 8 -****Other Consolidated Balance Sheet Items**

 

**Other Assets** - Includedin other assets at December 31, 2004 is approximately $1,073 in restricteddeposits relating to Czech license bond requirements.

 

29

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**Other long-term liabilities** - AtDecember 31, 2004, long-term commitments consisted of $285, related to apromissory note associated with outstanding legal fees from the year endedDecember 31, 2000 owed by the Company. The note matured on January 1, 2005 and was extended throughJuly 1, 2006 in the principal amount of $285 at an interest rate of 7% perannum.  Under the terms of the note, theCompany must keep any future activity of its account in good standing, which ithas done.  Also included in long-termcommitments is $295 corresponding to deferred executive incentives, $400 for a compensationplan reserve and $46 for accrued interest related to the Replacement Notes,payable in June 2010.

 

**NOTE 9 -****Income Taxes**

 

At December 31, 2004, the Company had U.S. and foreign netoperating loss carry forwards (“NOL’s”) of approximately $25,915 and $2,079,respectively, available to offset certain future taxes payable.  However, based on limited analysis, theFebruary 2001 warrant exercise or earlier events may have triggeredsignificant limitations of preexisting U.S. NOL’s, pursuant to Internal RevenueCode Section 382, to the extent that substantially all of the Company’sexisting U.S. NOL’s prior to February 2001, aggregating approximately$17,172, may be significantly limited. The U.S. NOL’s generated subsequent to February 2001, aggregatingapproximately $8,743 resulted in an estimated $3,497 deferred tax asset atDecember 31, 2004 and the foreign NOL resulted in an estimated $624deferred tax asset at December 31, 2004. A full valuation allowance has been established for these deferred taxassets since its realization is considered unlikely.

 

The U.S. NOL’s expire between 2009 and 2024.  The foreign NOL’s expire between 2005 and2010.  The following table presents theU.S. and foreign components of pretax income for the years endedDecember 31, 2004 and 2003:

 

 
| ** ** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------|------------|----------|------------|----------|------------|
|       |       |     |       |     |       |
| U.S        |       | $        | (358       | )        | $          | (1,227 | ) |
| Foreign    |       | 1,605    |       | 1,465    |       |
|       |       | $        | 1,247      |     | $          | 238 |   |

 

The following table presents the principal reasons for the differencesbetween the effective tax rate and the U.S. federal statutory income tax ratefor the years ended December 31, 2004 and 2003:

 
| ** **                                                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                           |       |     |       |     |       |
| U.S federal statutory income tax rate                                          |       | (34.0    | )%         | (34.0    | )%         |
| U.S. State and local statutory  income tax rate (net of federal  benefit) |       | (11.3    | )%         | (11.3    | )%         |
| Effect of foreign tax rates,  foreign currency and other                       |       | 45.3     | %          | 45.3     | %          |
|                                                                           |       | —   | %          | —   | %          |

 

30

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**NOTE 10 -****Stock Options and Warrants**

 

***Options***

 

The activity in the stock option plans is as follows:

 
| ** **                                  | ** ** | **Number of  Options** | ** ** | **Range of  Exercise Price** | ** ** | **Weighted Average  Exercise Price** | ** ** |
|---------------------------------------------|------------|------------------------|------------|------------------------------|------------|--------------------------------------|------------|
|                                        |       |                   |       |                         |       |                                 |       |
| Balance outstanding, January 1, 2003   |       | 7,260                  |       | $3.00-83.00                  |       | $                                    | 33.00      |   |
|                                        |       |                   |       |                         |       |                                 |       |
| Granted                                     |       | 2,300                  |       | 3.00-15.00                   |       | 6.00                                 |       |
| Expired                                     |       |                   |       |                         |       |                                 |       |
| Exercised                                   |       | (200                   | )          | 4.00                         |       | 4.00                                 |       |
|                                        |       |                   |       |                         |       |                                 |       |
| Balance outstanding, December 31, 2003 |       | 9,360                  |       | $3.00-83.00                  |       | $                                    | 27.10      |   |
|                                        |       |                   |       |                         |       |                                 |       |
| Granted                                     |       | 3,000                  |       | 2.00-4.00                    |       | 3.06                                 |       |
| Expired                                     |       | (1,100                 | )          |                         |       | 56.55                                |       |
| Exercised                                   |       | (200                   | )          | 4.00                         |       | 4.00                                 |       |
|                                        |       |                   |       |                         |       |                                 |       |
| Balance outstanding, December 31, 2004 |       | 11,060                 |       | $2.00-83.00                  |       | $                                    | 18.32      |   |
|                                        |       |                   |       |                         |       |                                 |       |
| Exercisable, December 31, 2004         |       | 11,060                 |       | $2.00-83.00                  |       | $                                    | 18.32      |   |

 

The option exercise price per share was equal to or above the marketvalue 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.

 

31

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Additional information about the Company’s outstanding stock options atDecember 31, 2004 is as follows:

 
| **Range of  Exercise Prices** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Remaining  Contractual  Life  (in Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-------------------------------|------------|-----------------------|------------|-----------------------------------------------------------------|------------|----------------------------------------|------------|
|                          |       |                  |       |                                                            |       |                                   |       |
| $2.00                         |       | 500                   |       | 9.16                                                            |       | $                                      | 2.00       |   |
| $2.01 to $4.00                |       | 3,025                 |       | 9.03                                                            |       | $                                      | 3.46       |   |
| $5.00                         |       | 2,075                 |       | 7.52                                                            |       | $                                      | 5.00       |   |
| $5.01 to $10.00               |       | 1,725                 |       | 8.39                                                            |       | $                                      | 6.26       |   |
| $10.01 to $25.00              |       | 1,155                 |       | 6.16                                                            |       | $                                      | 17.48      |   |
| $25.01 to $50.00              |       | 420                   |       | 4.87                                                            |       | $                                      | 36.60      |   |
| $50.01 to $75.00              |       | 2,100                 |       | 0.97                                                            |       | $                                      | 61.62      |   |
| $83.00                        |       | 60                    |       | 4.75                                                            |       | $                                      | 83.00      |   |
|                          |       | 11,060                |       | 6.64                                                            |       | $                                      | 18.32      |   |

 

***Warrants***

 

For the years ended December 31, 2004 and 2003, warrant activityis as follows:

 
| **Exercise Price  per  Share** | ** ** | **Warrants  Expiring** | ** ** | **Balance,  January 1,  2003** | ** ** | **Exercised  2003** | ** ** | **Balance,  December 31,  2003** | ** ** | **Exercised  2004** | ** ** | **Balance,  December 31,  2004** | ** ** |
|--------------------------------|------------|------------------------|------------|-------------------------------------|------------|---------------------|------------|---------------------------------------|------------|---------------------|------------|---------------------------------------|------------|
|                           |       |                   |       |                                |       |                |       |                                  |       |                |       |                                  |       |
| $                              | 150.00     |                   |       | 12/31/2005                          |       | 32,001              |       | —                                |       | 32,001              |       | —                                |       | 32,001 |   |
| 100.00                         |       |                   | 12/31/2005 |                                | 9,600      |                |       |                                  | 9,600      |                |       |                                  | 9,600      |   |
| 1.00                           |       |                   | 3/31/2008  |                                | 11,382     |                |       |                                  | 11,382     |                |       |                                  | 11,382     |   |
|                           |       |                   |       | 52,983                              |       | —              |       | 52,983                                |       | —              |       | 52,983                                |       |

 

All warrants outstanding at December 31,2004 are exercisable.

 

***2004 Equity Incentive Plan***

 

In May 2004, TWC’s Board of Directors(the “Board”) unanimously adopted the 2004 Equity Incentive Plan, (“2004 EquityPlan”) which was subsequently approved by the shareholders of the Company atits Annual Meeting held in June 2004. The 2004 Equity Plan stipulates that no further grants will be madeunder the 1998 Stock Option Plan (the “1998 Plan”) and the 10,800 shares ofCommon Stock remaining available for grant under the 1998 Plan were added tothose available for grant under the 2004 Equity Plan.

 

32

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Further, the 2004 Equity Plan provides thatcertain awards made under the plan will be eligible to be “qualifiedperformance-based compensation” that are exempt from the $1,000 deduction limitimposed on publicly-held corporations by Section 162(m) of the InternalRevenue Code and 262,383 shares of Common Stock will be authorized andavailable for issuance pursuant to awards granted under the 2004 Equity Plan,including 10,800 shares previously available for grant under the 1998 Plan.

 

Under the 2004 Equity Plan, any employee ofthe Company or the Company’s affiliates who is not a member of the CompensationCommittee may be designated by the Compensation Committee as a participant andreceive awards thereunder.  Non-employeedirectors of the Company are not eligible to receive awards under the 2004Equity Plan.  Type of awards which may begranted include stock options, stock appreciation rights, restricted stocks andrestricted stock units, other stock-based awards and performance awards.

 

The 2004 Equity Plan contains the followingprovisions:  (i) No stock optionrepricings (without the approval of the Company’s shareholders);(ii) limitations on shares other than for stock options; (iii) nodiscounts on stock options: (iv) minimum one year vesting periods for allawards (including stock options); (v) minimum three year vesting periodsfor restricted stock and other stock-based awards; and (vi) no “evergreen”provisions.

 

**NOTE 11- Subsequent Events**

 

In January 2005, a short-term promissorynote obligation in the amount of $285 (including accrued interest of $70),originally due in January 2005, was extended to July 2006.

 

In February 2005, the Company drew downadditional monies from its 60 million CZK (or approximately $2,684) termloan.  The draw down of approximately$1,957, together with the amount outstanding at December 31, 2004 ofapproximately $447 and a residual of $280 (to be drawn by the end of April 2005)are due as follows:

 
| **Year ending December 31,** |   |
|-----------------------------------|--------|
|                              |   |
| 2005                              |   | $ | 370 |   |
| 2006                              |   | 555 |   |
| 2007                              |   | 555 |   |
| 2008                              |   | 555 |   |
| 2009                              |   | 555 |   |
| 2010                              |   | 94 |   |
|                                   |        |  |  |  |

 

33

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**Item 8.  Changes In and Disagreements with Accountants onAccounting and Financial Disclosure.**

 

None.

 

**PART III**

 

**Item9.  Directors and Executive Officers, Promoters and Control Persons;Compliance with Section 16(A) of the Exchange Act.**

 

The following table provides information asof March 14, 2005 with respect to each of the Company’s directors and eachExecutive Officer:

 
| **Name**                          | ** ** | **Age** | ** ** | **Position in the Company**      | ** ** | **Director or Executive Since** |
|-----------------------------------|------------|---------|------------|----------------------------------|------------|---------------------------------|
| Rami S. Ramadan                   |       | 55      |       | CEO, CFO, President and Director |       | 1999                            |
| Julio E. Heurtematte, Jr.(1) |       | 69      |       | Director                         |       | 1998                            |
| Malcolm M.B. Sterrett (1)         |       | 62      |       | Director                         |       | 1998                            |
| Geoffrey B. Baker (1),(2)         |       | 55      |       | Director                         |       | 1999                            |
| Timothy G. Ewing (1)              |       | 44      |       | Director                         |       | 2004                            |

 

----

| (1) |   | Member of each Audit, Nominating and Compensation Committees.                                                                                                                                               |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 sinceAugust 2000. His most recent prior position had been Executive VicePresident of Finance for the Ian Schrager Hotels from November 1997 toJuly 1999. Prior to that, Mr. Ramadan held senior financial positionswith Hyatt Hotels from January 1994 to November 1997, Euro Disneyfrom October 1990 to December 1993 and Meridien Hotels fromSeptember 1975 to September 1990.

 

***Julio E. Heurtematte, Jr.***Mr. Heurtematte is a private consultant, specializing in internationalprojects, trade and investments and has acted in such capacity since 1989. From1963 to 1989, Mr. Heurtematte served with the Inter-American DevelopmentBank in several capacities, most recently as its Deputy Manager for ProjectAnalysis.

 

***Malcolm M. B. Sterrett***.Mr. Sterrett is a private investor. From 1989 to 1993, he was a partner atthe law firm of Pepper Hamilton & Scheetz, in Washington, D.C. From1988 to 1989, he served as General Counsel to the U.S. Department of Health andHuman Services and from 1982 to 1988 he was a Commissioner on the U.S.Interstate Commerce Commission. Before that, he was Vice President and GeneralCounsel to the United States Railway Association and served as Staff Directorand Counsel to the U.S. Senate Committee on Commerce, Science andTransportation.

 

***Geoffrey B. Baker. *** Mr. Baker is a private investor.  From 1983 to the present, Mr. Baker hasbeen a member of the private investment firm, Baker & Donaldson.  From 1977 to 1982, he was LegislativeDirector to former U.S. Senator Lowell P. Weicker, Jr., and from 1975 to1977 he served on the Senate Committee on Commerce as a minority staff memberfor surface transportation.

 

34

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***Timothy G. Ewing. *** Mr. Ewing is a Chartered FinancialAnalyst and the managing partner of Ewing & Partners, the manager ofValue Partners, Ltd., a private investment partnership formed in 1989. ValuePartners, Ltd. is the majority shareholder and minority debt holder of theCompany, and of the Endurance Partnerships, formed in 2001.  Mr. Ewing sits on the board of directorsof Harbourton Capital Group in McLean, Virginia and Cherokee, Inc. in VanNuys, California.  In addition, he isChairman of the governing board of the Dallas Museum of Natural History andsits on the Board of Trustees of the Baylor Health Care System Foundation andthe Dallas Opera, and the advisory board of the University of Texas at DallasHolocaust Studies Program.

 

**Information about the Board and its Committees:**

 

The Company’s Board of Directors, which is chaired by Mr. Sterrettin a non-executive role, manages the business and affairs of the Company.Meetings of the Board are held quarterly and on an as-needed basis.  The Board has established several committees,described below, which also meet on an as-required basis during the year.  The Board held two meetings and acted byconsent through weekly conference calls conducted during the Company’s fiscalyear ended December 31, 2004.  Nodirector of the Company attended fewer than 75% of the total number of meetingsof the Board or meetings of committees of the Board during the year endedDecember 31, 2004.

 

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, the Company’spolicies regarding conflicts of interest and such other matters as may bedelegated by the Board. The Audit Committee, composed of Mr. Baker, theCommittee’s Chairman Messrs. Heurtematte, Sterrett and Ewing, allnon-employee, “independent” directors, met once and acted by consent throughfive conference calls in 2004.

 

***Compensation Committee***

 

The Compensation Committee sets the compensation for executive officersof the Company and sets the terms of grants of awards under the 1999Non-Employee Director Stock Option Plan (the “1999 Plan”), the 2004 Equity Planand any other equity-based compensation plans adopted by the Company. The CompensationCommittee, composed of Mr. Heurtematte, the Committee’s Chairman,Messrs. Baker, Sterrett and Ewing, met three times in 2004 and acted byconsent through one conference call in 2004.

 

***Nominating Committee***

 

The Nominating Committee has the responsibilities set forth in itsCharter, including recommending Board nominees, determining the qualificationsfor such nominees and assisting the Board of Directors in interpreting andapplying the Company’s Corporate Governance Guidelines.  The Nominating Committee, which wasestablished at the Company’s Annual Meeting held on June 14, 2004, iscomposed of Mr. Ewing, its Chairman, Messrs. Baker, Heurtematte andSterrett, and did not convene during the remaining six months of 2004.

 

# **Section 16(a) Beneficial OwnershipReporting Compliance**

# ** **

Section 16(a) of the Exchange Act requires the Company’sofficers, directors and persons who own more than 10% of the Company’s CommonStock to file reports of ownership and changes in ownership with the Securitiesand

 

35

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Exchange Commission (“SEC”) and the National Association of SecuritiesDealers, Inc. by certain dates. The Company’s directors and executiveofficer satisfied these filing requirements for the fiscal year ended December 31,2004.  Prior to June 2003, ValuePartners held a controlling 57.5% of the Company’s issued and outstandingCommon Stock.  Further, as part of itsparticipation in the 2003 Recapitalization, Value Partners received anadditional 3,270,104 shares.  AtDecember 31, 2004, Value Partners owned 70.7% of the Company’s issued andoutstanding Common Stock, and owned 26,000 warrants which, upon exercise, wouldresult in Value Partner’s beneficial ownership of Common Stock equaling 70.9%of the Company’s issued and outstanding shares of Common Stock,

 

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

 

**Item 10.****                                      ExecutiveCompensation.**

 

**Summary of Cash and Certain Other Compensation:**

 

The following table sets forth the cash and non-cash compensationearned during the fiscal years ending December 31, 2004, 2003 and 2001 bythe Chief Executive Officer and Chief Financial Officer of the Company (the “NamedOfficer”) during those periods.

 

**Summary Compensation Table**

 
| ** **             | ** ** | ** **              | ** ** | ** **       | ** ** | ** **  | ** ** | **Long Term  Compensation** | ** ** |
|------------------------|------------|-------------------------|------------|------------------|------------|-------------|------------|-----------------------------|------------|
| ** **             | ** ** | ** **              | ** ** | ** **       | ** ** | ** **  | ** ** | **Other Annual**            | ** ** | **Stock** | ** ** | **All Other** | ** ** |
| ** **             | ** ** | **Annual Compensation** | ** ** | **Compensation** | ** ** | **Options** | ** ** | **Compensation**            | ** ** |
| ** **             | ** ** | **Year**                | ** ** | **Salary**       | ** ** | **Bonus**   | ** ** | **(2)**                     | ** ** | **(3)** | ** ** | **(4)** | ** ** |
|                   |       |                    |       |             |       |        |       |                        |       |   |   |   |   |
|                   |       |                    |       |             |       |        |       |                        |       |   |   |   |   |
| Rami Ramadan (1)       |       | 2004                    |       | $                | 400,000    |        | $          | 150,000                     |       | $ | 100,000 |   | 1,500 |   | $ | 8,268 |   |
| President, CEO and CFO |       | 2003                    |       | 400,000          |       | 168,000     |       | 300,000                     |       | 1,500 |   | 5,616 |   |
|                   |       | 2002                    |       | 350,000          |       | 126,000     |       | —                      |       | 1,500 |   | 5,616 |   |
|                   |       | 2001                    |       | 300,000          |       | 39,900      |       | —                      |       | 1,000 |   | 5,556 |   |
|                        |            |                         |            |                  |            |             |            |                             |            |  |  |  |  |  |  |  |  |

 

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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)    |   | The amounts shown represent accruals for a compensation plan reserve  of $100,000 per year for the years 2000 through 2002, which was accrued in  2003, and $100,000 for the year 2003, which was accrued in 2004 and an  additional $100,000 for the year 2004 to be accrued in 2005.                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (3)    |   | Amounts in year 2001 through 2004 represent the number of qualified  stock options granted each year. These options listed are exercisable, and  the option exercise price per share for 2001 was set forth in  Mr. Ramadan’s original 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 1,500 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. |

 

36

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| (4) |   | The amounts represent the cost of a leased automobile provided to  Mr. Ramadan for each year indicated. |
|-----|--------|--------------------------------------------------------------------------------------------------------------|

 

***Option Grants and Exercises***

 

The following table summarizes certaininformation concerning individual grants of options during fiscal 2004 to theexecutive officer named in the Summary Compensation Table above and thepotential realizable value of the options held by such person atDecember 31, 2004.

 

**Options Granted in Fiscal 2004Individual Grants**

 
| ** **           | ** ** | **Shares of Common  Stock Underlying  Options Granted** | ** ** | **% of Total Options  Granted to Employees  in Fiscal Year** | ** ** | **Base  Exercise Price  ($/SH)** | ** ** | **Expiration  Date** | ** **   |
|----------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------|------------|----------------------|--------------|
| ** **           | ** ** | ** **                                              | ** ** | ** **                                                   | ** ** | ** **                       | ** ** | ** **           | ** **   |
| **Rami S.  Ramadan** | ** ** | **1,500**                                               | ** ** | **52**                                                       | **%**      | **$**                            | **3.30**   | ** **           | **07/12/14** | ** ** |
|                      |            |                                                         |            |                                                              |            |                                  |            |                      |              |  |

 

No options were exercised by the executive officer named in the SummaryCompensation Table during fiscal 2004.

 

The following table summarizes the optionvalues held by the executive officer named in the Summary Compensation Table asof December 31, 2004.

 

**Aggregate Option Exercises in Fiscal 2004 andFiscal 2004 Year-End Option Value Table**

 
| ** **           | ** ** | ** **             | ** ** | ** **        | ** ** | **Number of Unexercised**  | ** ** | **Value of Unexercised in the** | ** ** |
|----------------------|------------|------------------------|------------|-------------------|------------|----------------------------|------------|---------------------------------|------------|
| ** **           | ** ** | **No. of Shares** | ** ** | **Value**         | ** ** | **Options At**             | ** ** | **Money Options at**            | ** ** |
| ** **           | ** ** | **Acquired on**        | ** ** | **Realized Upon** | ** ** | **December 31, 2004** | ** ** | **December 31, 2004**      | ** ** |
| **Name**             | ** ** | **Exercise**           | ** ** | **Exercise**      | ** ** | **Exercisable**            | ** ** | **Unexercisable**               | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| ** **           | ** ** | ** **             | ** ** | ** **        | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Rami S.  Ramadan** | ** ** | **—**             | ** ** | **$**             | **—** | ** **                 | **6,500**  | ** **                      | **—** | ** ** | **$** | **—** | ** ** | **$** | **—** | ** ** |
|                      |            |                        |            |                   |            |                            |            |                                 |            |  |  |  |  |  |  |  |

 

***Directors’ Compensation***

 

As of July 2000, non-employee directorsare entitled to receive a cash retainer fee of $2,500 per quarter, plus $1,000per Board meeting and $750 per Committee meeting.  Effective beginning the quarter ending September 30,2003, non-employee directors’ compensation was amended by the Board to includea cash retainer fee of $6,250 per quarter, per member.  In addition, the non-executive chairman ofthe Board will receive an additional $1,250 per quarter, while each chairman ofits three Committees will receive $625 per quarter.  All members of the Board are reimbursed forout-of-pocket expenses in connection with attending Board meetings.  Pursuant to the 1999 Plan adopted at the 1999Annual Meeting and amended by the Board in July 2000, each non-employeedirector is provided with an automatic grant of a non-qualified option topurchase 25 shares of Common Stock on the date following each fiscal quarter inwhich the director serves. Each such option (i) has a 10-year term,(ii) has an

 

37

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exercise price per share equal to 100% of thefair market value of one share of Common Stock on the date of 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-yearemployment agreement with Mr. Ramadan pursuant to which he will continueto serve as the Company’s CEO, CFO and President at an annual salary of$400,000. Mr. Ramadan is eligible to participate in the 2004 Equity Planand any present or future employee benefit plans. He also will be reimbursedfor reasonable travel and out-of-pocket expenses necessarily incurred in theperformance of his duties. Mr. Ramadan will also receive three separate,equal installments annually of options to acquire the Company’s Common Stock,each of which shall have a 10-year term commencing on the date each installmentis granted. Upon commencement of the renewal agreement, Mr. Ramadanreceived 1,500 options exercisable at a per share price equal to the fairmarket value of such share, as determined by the average of the bid and askprice of such share at the close of the market on the date of the grant.  In the event the employment agreement is terminatedother than for cause, as defined in the agreement, Mr. Ramadan willreceive two years’ salary.  In addition,upon the expiration of the employment agreement, if TWC elects not to renewMr. Ramadan’s employment, TWC shall continue to pay to him his base salaryand his medical insurance benefits then in effect in semi-monthly incrementsuntil the date of the earlier of the commencement of his full time employmentwith another employer, or the first anniversary date of the expiration date ofthe employment agreement. Mr. Ramadan is currently involved in anegotiation for an amendment to his employment agreement with the CompensationCommittee of the Board of Directors.  Asof the date hereof, no amendment has been entered into; however, theCompensation Committee and the Board have approved the Company’s accrual of a “compensationplan reserve” of $100,000 per year, for the years ended 2000, 2001, 2002, 2003and 2004.  The Company accrued $300,000for this purpose in 2003, $100,000 in 2004 and $100,000 to be deferred in 2005,subject to the adoption of a deferred compensation plan, which is anticipatedduring 2005.

 

***Code of Ethics***

 

The Board of Directors adopted a Code of Ethics which covers allexecutive officers of TWC and its subsidiaries. The Code of  Ethics requires thatsenior management avoid conflicts of interest; maintain the confidentiality ofinformation relating to the Company; engage in transactions in the Common Stockonly in compliance with applicable laws and regulations and the requirementsset forth in the Code of Ethics; and comply with other requirements which areintended to ensure that such officers conduct business in an honest and ethicalmanner and otherwise act with integrity and in the best interest of TWC.  All executive officers of the Company arerequired to affirm in writing that they have reviewed and understand the Codeof Ethics.

 

A copy of the Company’s Code of Ethics will be furnished to any personupon written request from any such person. Requests should be sent to:  RamiS. Ramadan, President, Chief Executive Officer and Chief Financial Officer,Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York10017.

 

**Item 11.  Security Ownership ofCertain Beneficial Owners and Management.**

 

The following table sets forth informationregarding the beneficial ownership of the Common Stock as of March 14,2005 (the “Calculation Date”), unless otherwise noted, (a) by eachshareholder who is known by the Company to own beneficially more than 5.0% ofthe outstanding Common Stock, (b) by each director, (c) by eachexecutive officer named in the Summary Compensation Table above and by allexecutive officers and directors as a group. Unless otherwise noted, each ofthe shareholders listed in the table or included within a group listed in thetable possesses sole voting and investment power with respect to the sharesindicated, subject to community property laws where applicable. The businessaddress for each director and officer of the Company is 545 Fifth Avenue, Suite 940,New York, New York 10017.

 

38

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| **Name of Beneficial Owner**                                        | ** ** | **Number of Shares of  Common Stock  Beneficially Owned (1)** | ** ** | **Percentage of  Ownership (1)** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------|------------|
|                                                                |       |                                                          |       |                             |       |
| Value Partners, Ltd. (2)                                            |       | 3,585,388                                                     |       | 70.9                             | %          |
| Rami S. Ramadan (3)                                                 |       | 6,500                                                         |       | *                                |       |
| Julio E. Heurtematte, Jr. (4)                                  |       | 25,046                                                        |       | *                                |       |
| Malcolm M.B. Sterrett (5)                                           |       | 25,046                                                        |       | *                                |       |
| Geoffrey B. Baker (6)                                               |       | 25,006                                                        |       | *                                |       |
| Timothy G. Ewing (7)                                                |       | 3,585,388                                                     |       | 70.9                             |       |
| All directors and the executive officer as  a group (5 persons) (8) |       | 3,666,986                                                     |       | 72.4                             | %          |

 

----

*                                         Lessthan 1%.

 

(1)   The percentage of outstandingshares is based on 5,031,681 shares outstanding as of March 14, 2005 and,for certain individuals and entities, on reports filed with the SEC or oninformation provided directly to the Company by such individuals or entities. Aperson is deemed to be the beneficial owner of securities that can be acquiredby such person within 60 days from March 14, 2005 upon the exercise ofoptions or warrants. Each beneficial owner’s percentage ownership is determinedby assuming that options or warrants that are held by such person (but notthose held by any other person) are exercisable within 60 days fromMarch 14, 2005 have been exercised. Included are shares of Common Stockissuable upon the exercise of options or warrants to purchase the Company’sCommon Stock.

 

(2)   Value Partners, Ltd. is a Texaslimited partnership, managed by Ewing & Partners, whose businessaddress is 4514 Cole Avenue, Suite 808, Dallas, Texas 75205. Includes3,559,388 shares of Common Stock; warrants to purchase: 6,000 shares of CommonStock at an exercise price of $100.00, expiring December 31, 2005 and20,000 shares of Common Stock at an exercise price of $150.00 per share,expiring December 31, 2005.

 

(3)   Consists of shares subject toincentive options granted to Mr. Ramadan on July 12, 1999 and eachsubsequent year through 2004, all of which were fully vested on the date ofgrant.

 

(4)   Includes warrants to purchase417 shares of Common Stock at an exercise price of $1.00 per share expiringMarch 31, 2008; 10 shares of Common Stock subject to non-qualified optionsgranted to Mr. Heurtematte under the 1998 Plan at the end of each calendarquarter ended June 30, 1998 through December 31, 1998 and 20 sharesof Common Stock subject to non-qualified options granted under the 1999 Plan atthe end of each calendar quarter ended March 31, 1999 throughJune 30, 2000, and 25 shares of Common Stock subject to non-qualifiedoptions granted under the 1999 Plan at the end of each calendar quarter endedSeptember 30, 2000 through December 31, 2004, all of which were fullyvested on the dates of grant.  Mr. Heurtematte was also a participant of the June 2003Exchange Agreement, for which he received 2,403 shares of the Company’s issued andoutstanding Common Stock.

 

(5)   Includes warrants to purchase417 shares of Common Stock at an exercise price of $1.00 per share expiringMarch 31, 2008; 10 shares of Common Stock subject to non-qualified optionsgranted to Mr. Sterrett under the 1998 Plan at the end of each calendarquarter ended June 30, 1998 through December 31, 1998 and 20 sharesof Common Stock, subject to non-qualified options, granted under the 1999 Planat the end of each calendar quarter ended since March 31, 1999 throughJune 30, 2000, and 25 shares of Common Stock subject to non-qualifiedoptions granted under the 1999 Plan at the end of each calendar quarter endedSeptember 30, 2000 through December 31, 2004, all of which were fullyvested on the dates of grant. Mr. Sterrett was also a participant of the June 2003 ExchangeAgreement, for which he received 2,403 shares of the Company’s issued andoutstanding Common Stock.

 

39

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(6)   Includes warrants to purchase417 shares of Common Stock at an exercise price of $1.00 per share expiringMarch 31, 2008; 10 shares of Common Stock subject to non-qualified optionsgranted to Mr. Baker under the 1993 Incentive Stock Option Plan atDecember 31, 1998, 20 shares of Common Stock, subject to non-qualifiedoptions, granted under the 1999 Director Plan for the calendar quarter endedMarch 31, 1999 and 20 shares of Common Stock subject to non-qualifiedoptions granted under the 1999 Director Plan at the end of each quarter endedsince September 31, 1999 through June 30, 2000, and 25 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, 2004, all of which were fully vested on the dates ofgrant.  Mr. Baker was also aparticipant of the June 2003 Exchange Agreement, for which he received2,403 shares of the Company’s issued and outstanding Common Stock.

 

(7)   Mr. Timothy G. Ewing isthe managing partner of Ewing & Partners, which manages ValuePartners, Ltd.  His beneficial ownershipincludes 3,559,388 shares of Common Stock, held by Value Partners, Ltd., aswell as warrants, also held by Value Partners, Ltd., to purchase: 6,000 sharesof Common Stock at an exercise price of $100.00, expiring December 31,2005 and 20,000 shares of Common Stock at an exercise price of $150.00 pershare, expiring December 31, 2005. (See also Note (2) above)

 

(8)   See Notes (3), (4), (5),(6) and (7) above.

 

**Item 12.  Certain Relationshipsand Related Transactions.**

 

As part of itsparticipation in the 2003 Recapitalization, Value Partners received 3,270,104shares of the Company’s issued and outstanding Common Stock, and with theexercise of its 26,000 warrants, holds a controlling 70.9% of the Company’s issuedand outstanding Common Stock.  Further,Value partners received one of the Interest Notes as part of thisexchange.  As of December 31, 2004,Value Partners holds 24.8% of the Company’s long term debt.

 

**Item 13.  Exhibits and Reports onForm 8-K.**

 

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

 

Reference is made to the Exhibit Index hereinafter contained.

 

A copy of any exhibits listed or referred to herein will be furnishedat a reasonable cost to any person who was a shareholder of the Company as ofMarch 14, 2005, upon written request from any such person. Requests shouldbe sent to: Rami S. Ramadan, President, Chief Executive Officer and ChiefFinancial Officer, Trans World Corporation, 545 Fifth Avenue, Suite 940,New York, New York 10017.

 

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

 

During the last quarter of the year ended December 31, 2004, theCompany did not file a Periodic Report on Form 8-K with the SEC.

 

40

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**TRANSWORLD CORPORATIONEXHIBIT INDEX TO ANNUAL REPORT ONFORM 10-KSBFOR THE YEAR ENDED DECEMBER 31, 2004**

 
| **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) |
|        |       |                                                                                                                                                                                                                                                   |       |                                                                                                                                                       |
| 3.1 (c)     |       | Certificate of Amendment to Articles of Incorporation                                                                                                                                                                                                  |       | Filed herewith.                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                   |       |                                                                                                                                                       |
| 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).                        |
|        |       |                                                                                                                                                                                                                                                   |       |                                                                                                                                                       |
| 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).                     |
|        |       |                                                                                                                                                                                                                                                   |       |                                                                                                                                                       |
| 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)                     |

 

41

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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)                                                      |

 

42

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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) |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 10.14  |   | Agreement and Plan of Recapitalization dated June 25, 2003  between the Company and the named Holders                                                   |   | Incorporated by reference to Exhibit 4.9 contained in the Registration  Statement on Form S-4  (File No. 333-101028)   |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 10.15  |   | Form of 8% Rate Promissory Note due 2006                                                                                                                |   | Incorporated by reference to Exhibit 4.10 contained in the Registration  Statement on Form S-4  (File No. 333-101028)  |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 10.16  |   | Form of Variable Rate Promissory Note due 2010                                                                                                          |   | Incorporated by reference to Exhibit 4.11 contained in the Registration  Statement on Form S-4  (File No. 333-101028)  |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 10.17  |   | 2004 Equity Incentive Plan                                                                                                                                   |   | Filed herewith                                                                                                                        |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 21.0   |   | Subsidiaries                                                                                                                                                 |   | Filed herewith                                                                                                                        |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 31.0   |   | Section 302 Certification of Chief Executive Officer and Chief  Financial Officer                                                                       |   | Filed herewith                                                                                                                        |
|   |   |                                                                                                                                                         |   |                                                                                                                                  |
| 32.0   |   | Section 906 Certification of Chief Executive Officer and Chief  Financial Officer                                                                       |   | Filed herewith                                                                                                                        |

 

43

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**SIGNATURES**

 

Pursuant to the requirements ofSection 13 or 15 of the Securities Exchange Act of 1934, the Issuer hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 
| ** **                  | ** ** | **TRANS WORLD CORPORATION**                                     |
|-----------------------------|------------|-----------------------------------------------------------------|
|                        |       | (registrant)                                                    |
|                        |       |                                                            |
|                        |       |                                                            |
| Dated:*March 30, 2005* |       |                                                            |
|                        | 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 theSecurities Exchange Act of 1934, this Report has been signed by the followingpersons on behalf of the Issuer on *March 30, 2005*in the capacities indicated.

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

 

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