**SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C.  20549**

 

**FORM 10-KSB**

 
| **ý** | **ANNUAL REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------|

 

**For the Year Ended December 31, 2001**

 
| **o** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For the transition period from                              to                               .**

 

**Commission FileNo.:  0-25244**

 

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**TRANS WORLD CORPORATION**

 

(Exact name of registrant as specified in its charter)

 

| **Nevada**                                                                        |   | **13-3738518**                       |
|-----------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization)                    |   | (I.R.S. Employer Identification No.) |
|                                                                              |   |                                 |
| **545 Fifth Avenue, Suite 940  New York, New York**                               |   | **10017**                            |
| (Address of principal executive offices)                                          |   | (Zip Code)                           |
|                                                                              |   |                                 |
| Registrant’s telephone number, including area code:  **(212) 983-3355** |
|                                                                              |
| Securities registered pursuant to Section 12(b) of the Act: **None**              |
| Securities registered pursuant to Section 12(g) of the Act:                       |
|                                                                              |   |                                 |
| **Common Stock, $.001 par value  Warrants to Purchase Common Stock**              |

 

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Indicate by check mark whether the Registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  YES  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 inPart III of this Form 10-KSB or any amendment to this Form 10-KSB.   o

 

The issuer’srevenues for the year ended December 31, 2001 were approximately $12,773,000.

 

As of March19, 2002, 11,022,902 shares of Common Stock of the Registrant were deemedoutstanding, and the aggregate market value of the Common Stock of theRegistrant as of that date (based upon the $0.14 closing price of the CommonStock at that date as reported by the OTC Bulletin Board), excludingoutstanding shares beneficially owned by directors and executive officers, wasapproximately $1.543 million.

 

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

 

 

**TRANS WORLD CORPORATIONFORM IO-KSB**

 

**TABLE OF CONTENTS**

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

 

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

 

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

 

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**Item 1. Description of Business.**

 

**General Development of Business**

 

Trans World Corporation (herein referred to as the “Company” or “TWC”),was organized as a Nevada corporation in October 1993 to acquire, develop andmanage, to the extent permitted by applicable local laws, gaming establishmentsfeaturing live and mechanized gaming, including video gaming devices such asvideo poker machines.  With the 1994acquisition of several Louisiana-based entities, TWC conducted operations underthese guidelines.  In 1998, faced with aclosing date of June 30, 1999 for its Louisiana operations as a result ofchanges in laws governing the legality of operating video gaming devices in theState of Louisiana, TWC amended its operating strategy by shifting its focus tothe casino market in Europe and acquired three casinos, one located in Spain,Casino de Zaragoza, S.A. (“CDZ”), which includes a hotel, and two casinoslocated in the Czech Republic, as well as a parcel of land also located in theCzech Republic.  The Company alsoentered into a joint activity agreement relative to a fourth casino located inAzerbaijan Republic and signed a management contract with regard to a fifthcasino located in Kyrgyz Republic.  TWChas since closed two of those casinos due to gaming law changes in AzerbaijanRepublic and Kyrgyz Republic and has opened an additional casino on the parcelof land that was purchased in 1998.  OnDecember 31, 2001, the Company sold its interest in CDZ, the casino/hotel inSpain that it had acquired in 1998. Presently, TWC owns a total of three casinos, which are located in CeskaKubice (“Ceska”), Rozvadov (“Rozvadov”), and Hate (near Znojmo) (“Znojmo”) inthe Czech Republic.  The casinos, whichoperate under the brand name American Chance Casinos (“ACC”) and showcasethemes portraying recognizable eras of American history, are located at borderlocations and draw the majority of their clients from Germany and Austria.  One of the Company’s casinos has aProhibition era theme and another casino has a Southern Antebellum theme.  ACC’s operating strategy centers ondifferentiation of its products from the alternative German and Austriancasinos, which have very formal atmospheres. Management has endeavored to create gaming environments with casual andexciting atmospheres that emphasize relaxed entertainment.  Further, as part of its ACC operatingformula, management has striven to highlight the integrity and professionalismof its American owned operations as a means of allaying any concerns thatGerman and Austrian clients might have about gambling abroad.

 

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

 

## **Current Operations**

 

On March 31, 1998, the Company consummated a Stock Purchase Agreement(“Stock Purchase Agreement”) with 21st Century Resorts a.s., an owner-operatorof two casinos, and the owner of property to build a third casino, in the CzechRepublic (“Resorts”), and Gameway Leasing Limited (“Gameway”) and MonarchLeasing Limited (“Monarch Leasing”), two off-shore affiliates of Resorts whichleased equipment to Resorts and the stockholders of Resorts (the “SellingStockholders”).  Pursuant to the StockPurchase Agreement, the Company acquired 100% of the equity interests ofResorts, its two operating subsidiaries and all of the assets of Gameway andMonarch Leasing for the purchase price of $12.6 million, including the cost ofinitial improvements to the acquired assets. On March 31, 1998, the Company, with the assistance of LibraInvestments, Inc., Los Angeles, California (“Libra”) acting as placement agent,borrowed $17.0 million from fourteen sophisticated, accredited lenders in aprivate placement (the “Private Placement”). The loan is represented by 12% Senior Secured Notes (the “Senior Notes”)issued pursuant to indentures (the “Indentures”) by and among TWC, TWGInternational U.S. Corporation (“TWGI”), TWG Finance Corp. (“TWGF”),wholly-owned subsidiaries of TWC), and U.S. Trust Company of Texas, N.A., Dallas,Texas, which has since been replaced by Bank of New York Company, Inc., actingas indenture trustee.  The Senior Notesrequire mandatory prepayments based upon excess cash flow generated by TWGIfrom the operation of Resorts and bear interest at the rate of 12% per annum.(See Periodic Reports Form 8-K and the Amended Periodic Report on Form 8-K/Afiled with the Securities and Exchange Commission (“SEC”) on April 14, 1998 andJune 15, 1998, respectively.) The proceeds of the Senior Notes were used to paythe net acquisition costs of, and improvements to, Resorts totalingapproximately $12.6 million, to repay the First Amended Loan Agreement in theamount of $1.3 million, to cover costs and expenses of $1.4 million relating tothe Private Placement and to provide working capital of $1.7 million.  See Item 6. “Management’s Discussion andAnalysis or Plan of Operations – Liquidity and Capital Resources.”

 

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The assets acquired with thepurchase of Resorts consist of the Ceska casino, which is located near theborder with Germany.  Ceska ispatronized, primarily, by Germans and currently has 15 gaming tables and 60slot machines as well as a bar/restaurant area.  The purchase also included the Rozvadov casino, which is locatedapproximately four miles from the region’s main highway, not far from theGerman border and caters, as in Ceska, to a predominantly Germanclientele.  This casino currently haseleven gaming tables and 30 slot machines, and includes a bar/restaurantarea.  The final piece of the purchaseis a parcel of land near Znojmo upon which a third Czech Republic casino wasconstructed.  The Znojmo casino openedin December 1999.  It has a SouthernAntebellum theme and draws the bulk of its customers from the northern suburbsof Vienna, Austria.  Pursuant to anexpansion project in May 2001, the casino currently has 17 gaming tables and 50slot machines, and includes a bar/restaurant area.

 

During the quarter ended June 30, 1998, the Czech Republic House ofDeputies passed an amendment to Czech gaming law, which effectively bannedforeign ownership of casinos.  Inresponse, the Company restructured its subsidiaries and Czech legal entities tocomply with the amendment through the use of a new Czech limited liabilitycompany and amended the indentures accordingly (the “Amended Indentures”).  The Amended Indentures relate to, but do notalter, the Senior Notes.

 

On October 15, 1999, the Company borrowed $3.0 in a private placement(“October 1999 Private Placement”).  Theloan is represented by 12% Senior Secured Notes (“October 1999 Senior Notes”)issued pursuant to indentures by and among the Company and an independentindenture trustee.  The October 1999Senior Notes, which are due March 2005, require mandatory prepayments based onexcess cash flow generated from Resorts. The October 1999 Senior Notes are collateralized, primarily, by all ofResort’s gaming equipment and a majority interest in the capital stock of allof the Company’s subsidiaries.  In additionto the October 1999 Senior Notes, each investor received a proportionate shareof warrants to purchase 1,250,728 shares of the Company’s common stock, $.001par value per share (“Common Stock”). The proceeds of the October 1999 Senior Notes were used to retire a $1.0million short-term debt obligation related to the acquisition of CDZ, to makean interest payment of approximately $250,000 on said debt, and to finance theequipping, working capital, and pre-opening costs associated with the opening ofthe Znojmo casino.

 

## **Terminated Ventures**

 

On April 17, 1998, the Company acquired 90% of CDZ, which is a companyincorporated in Zaragoza, Spain that holds the exclusive casino license in theregion of Aragon, for approximately $780,000, excluding related acquisitioncosts of approximately $678,000, and assumed its outstanding debt obligationsof approximately $4.9 million.  The debtobligations consisted of taxes payable to the Diputacion de Aragon (“DGA”), theSpanish Social Security Authorities and the City Council of Alfajarin(collectively, the “Spanish Taxing Authorities”) for which continuation ofdeferrals were granted as part of the terms of acquisition.  In accordance with Spanish law, a casinocompany must have a minimum capitalization of approximately $1.1 million inorder for it to remain solvent and be permitted to continue to conductbusiness.  Because CDZ’s capital wasbelow that minimum requirement, the approval of both the CDZ’s Board ofDirectors, which was received in July 1998, and the Council of Ministers inSpain, which was received in October 1999, were required to permit therecapitalization to proceed.  The ownerof the remaining 10% of CDZ declined to participate in the recapitalization.  Under Spanish law, that 10% interest was dilutedto zero once the recapitalization was approved by the Council ofMinisters.  The resulting CDZshareholder distribution was as follows: TWC, 2,403 shares; Jaime De Vaca, a Director of CDZ, one share; andAndrew Tottenham, the former President and Chief Operating Officer of TWC, oneshare.  The single share held by AndrewTottenham was purchased by TWC in conjunction with the 1998 acquisition of CDZand was transferred to him solely for administrative purposes as required bylocal Spanish law.  The Company hasdemanded return of this share from Mr. Tottenham as part of the legalproceedings relating to Mr. Tottenham’s June 16, 2000 dismissal from theCompany (See:  Item 3.  “Legal Proceedings”.)

 

As part of theterms of the April 1998 acquisition of CDZ, the Company negotiated an agreementwith the local representatives of the DGA to allow the casino to relocate fromits present position to the center of downtown Zaragoza, subject to adecree.  Instead of a decree, the DGAintroduced a law in February 2000, which would allow

 

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the casino torelocate upon issuance of a formal approval by the DGA.  This law was passed by the local parliamentin June 2000, and the Company petitioned the DGA for permission to relocate thecasino.

 

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

 

**Accountingand Financial Issues**

 

The Company has, from time totime, been in technical default of the Amended Indentures and is so as ofDecember 31, 2001.  TWC has relied uponthe forbearance and waivers from a majority interest of the holders of theSenior Notes. Value Partners, Ltd., a Texas limited partnership (“ValuePartners) represents this majority in interest of the holders of the SeniorNotes.  On February 23, 2001, ValuePartners converted 5,657,453 $0.01 warrants that it held.  With the exercise of those warrants, ValuePartners holds a controlling 51.3% of the Company’s issued and outstandingCommon Stock.  At December 31, 2001,Value Partners owned 59% of the Company’s long-term debt and owned 2,600,000warrants which, upon exercise, would result in Value Partner’s beneficialownership of Common Stock equaling 60.6% of the Company’s issued andoutstanding shares of common stock.

 

At December 31, 2001, theCompany has a nominal working capital surplus and a stockholders’ deficit of$19.0 million.  Further,****in spite of the recent debt conversioninitiative, the Company is highly leveraged and, from time to time, hasbeen unable to pay its interest and accounts payable obligations when theybecome due.  The Company was unable tomeet its September 2000, March 2001, and September 2001 interest payments infull *(see Note 4 of the Notes toConsolidated Financial Statements and “Management Discussion and Analysis orPlan of Operations – Plan of Operations and Important Factors to Consider –Need for Additional Financing”)**.* Waivers of default for nonpayment of interest have been received fromthe majority holder of the Senior Notes through the earlier of: (i) Ten dayssubsequent to the receipt of in excess of $5.0 million from any source by TWCor any of its subsidiaries; or (ii) January 1, 2003.  If the Company receives a sum in excess of$5.0 million on or before September 17, 2002, the accrued and unpaidinterest as of September 17, 2002 shall become due on September 17, 2002.

 

The Company has taken severalsignificant steps to improve its financial position, including (i) the December2001 sale of CDZ, its under-performing Spanish casino, which reduced the Company’sliabilities by 23% ($1.3 million of the net proceeds have been earmarked forinvestment in a hotel or casino project); (ii) the March 2002 $4.8 million debt(and related accrued interest) conversion of the 12% senior secured bonds dueDecember 31, 2005 issued by the Company and its subsidiary Trans World Gamingof Louisiana, Inc. to 37,233,234 shares of Company Common Stock (hence reducinglong-term liabilities by $6.7 million, or 25%) (hereinafter referred to as the“LA Bond Exchange”)(see Notes 4 and 12 of the Notes to Consolidated FinancialStatements); (iii) the 2001 expansion of its facility in Znojmo, Czech Republic(from 11 to 17 gaming tables, five of which were added in May 2001); (iv) therenovation of its casino in Ceska Kubice, Czech Republic, which was completedin July 2001; and (v) the March 2002 buyout (purchase) of the Hate casinobuilding lease.

 

Further, management believesthat, subsequent to these improvements to its consolidated statements ofoperations and balance sheet, the Company is in a better position to seekadditional financing, the proceeds from which would be used to (i) provide theCompany with additional working capital to preserve and enhance the Company’sexisting assets and (ii) acquire additional business units, includinghotels.  Additionally, the Company isstudying the potential benefits of relocating one of its existing casinos aswell as a proposed project to develop a fourth casino in Europe.  There can be no assurances that management’splans will be realized.

 

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The Company believes that its cash resources at December 31, 2001,together with 2002 developments and anticipated cash provided by 2002operations, are sufficient to fund its operating activities for the year endingDecember 31, 2002; however, long-term liquidity is dependent on the Company’sability to attain profitable operations and to secure additional financing.

 

**CorporateInformation**

 

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

 

**OTCBulletin Board**

 

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

 

**Descriptionof Business**

 

The Company is engaged in the acquisition, development and managementof niche casino operations in Europe, which feature gaming tables andmechanized gaming devices, such as slot and video poker machines, as well asthe development and management of small to midsize hotels, which may includecasino facilities.  On March 31, 1998,the Company acquired two casinos in the Czech Republic and land upon which athird casino was built and opened in December 1999.  The Czech Republic casinos are located close to major bordercrossings with Germany in Ceska Kubice and Rozvadov and near the bordercrossing with Austria close to Znojmo. (See “- General Development of Business” and  “Current Operations,” above, and “Future Operations,” below.)

 

In anticipation of its diversification into the hotel industry, in July2000, the shareholders voted to amend the Company’s Articles of Incorporationby changing its name from Trans World Gaming Corp. to “Trans WorldCorporation”.  The Company’s name changewas based on the importance of the Company’s name accurately conveying itsdesired identity as not solely an owner/operator of gaming operations.  TWC’s planned expansion into the hotelindustry is founded on management’s belief that hotels in the small to midsizeboutique class are complementary to the Company’s brand of casinos, thatopportunities in one of these two industries often lead to, or are tied to,opportunities in the other industry, and that a more diversified portfolio ofassets will give the Company greater stability and make it more attractive topotential investors.  Further, some ofthe Company’s top management is experienced in the hotel industry.

 

**Industry Overview**

 

Prior to the amendments to the Czech gaming regulations in December1998, local municipalities were empowered to grant casino licenses in theirregions. The amendments to the gaming legislation removed that right from thelocal governments and effectively eliminated exclusivity. Since this licensingchange, four casinos have opened in Folmava, Czech Republic, which operate indirect competition with the Company’s Ceska casino due to their proximity.  The Znojmo casino currently has three localcompetitors, none of which are located in the duty free zone between the borderposts, as is the case with TWC’s casino. In addition to the current competitors, two casinos are in thedevelopment stages, one of which is planned to be located in the duty freezone.  In early 2000, in response toincreased competition from casinos located in the Czech Republic, the Germangovernment issued 12 new gaming licenses in the Bavarian region ofGermany.  Since being opened in thespring of 2000, two of the Bavarian casinos that went into operation as aresult of issuance of the additional licenses have operated in directcompetition with TWC’s casinos in Ceska and Rozvadov.

 

The casinos in Germany and Austria have formal atmospheres and an airof exclusivity.  ACC’s brand of casinosoffers a relaxed but exciting, informal atmosphere, which has proven to be adesirable alternative to the local German and Austrian casinos.  Further, ACC has established itself as areputable casino company in the

 

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Czech Republic through its consistent policies, professional service,and strict adherence to all local gaming regulations.

 

**The Company’s Facilities**

 

The Ceska Kubice casinocurrently has 15 gaming tables, including seven card tables, seven roulettetables, and one electro-mechanical, eight-position roulette game.  It also has 60 slot machines, including 28newer-style Novomatic machines; and parking for approximately 60 cars.  In Rozvadov, there are 11 gaming tables,including five card tables, five roulette tables, and one electro-mechanicalroulette game; 30 slot machines, six of which are newer-style Novomatics; andparking for 40 cars.  In Znojmo, thereare 17 gaming tables, which consist of eight card tables, eight roulettetables, and one electro-mechanical roulette game; 50 slot machines, 36 of whichare newer-style Novomatic machines; and parking for approximately 120 cars.

 

**Future Operations**

 

In an effort to improve the product and further differentiate the Ceskacasino from its competition, the facility underwent an extensive renovation ofits bar/restaurant and gaming areas, which was completed in July 2001.  In conjunction with the renovation, aProhibition era theme was introduced at the casino, which gives the property anidentity that is consistent with its ACC branding.  The final stages of the property’s renovation, the reception andmain entrance areas, are scheduled to be completed in 2002.  Management is also contemplatingconstruction of a VIP lounge area and a covered parking lot for VIPs.

 

One of the biggest challenges for Rozvadov is its limited size.  The casino has been expanded from nine to 11gaming tables, which represents the maximum number of tables that its mainfloor space can accommodate.  Managementis planning to expand the casino’s parking lot by 20 spaces in the spring of2002 and may pursue additional slot machine upgrades during the year.

 

In May 2001, the Znojmo facility expanded from 11 to 16 gaming tablesand an electro-mechanical roulette table was added in the fall of 2001.  Based on the casino’s improved attendanceand revenue totals for the year ended December 31, 2001 versus the prioryear, the expansion has proven management’s strategy to retain existingcustomers and increase Znojmo’s customer base. If Znojmo continues to meet its business volume targets in 2002,management may introduce four additional card tables sometime in mid-to-late2002.  Further, the design phase of aproject to construct an employee housing building and VIP apartments on theCompany’s property adjacent to the casino has been completed, and constructionis expected to begin in the spring of 2002 and take approximately six months tocomplete.

 

Management is also considering the possibility of adding a fourthbusiness unit in the region and is in the process of evaluating severalpotential development sites.  Such anaddition would allow the Company to take advantage of its existinginfrastructure, thereby benefiting from economies of scale.

 

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

 

**LongRange Objectives**

 

TWC’s experience in the gamingindustry is evidence of the volatile nature of this business.  The Company has suffered significantfinancial setbacks as a result of unexpected decisions of voters in Louisianaand foreign governmental authorities in Eastern Europe and Spain, which forcedthe closure of profitable gaming operations and, in the case of Spain, delayedtransfer of the casino operation to a potentially more profitable location and,ultimately, prompted its sale. Moreover, it is management’s view that the poor past performance of theCompany, combined

 

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with the fact that it is in thegaming industry, the fact that its operations are overseas, and the fact thatit is highly leveraged has hampered efforts to secure additional financing forgrowth in the gaming industry.

 

The Company’s seniorcorporate-level management, some of whose backgrounds are in the hotelindustry, has endeavored to rid the Company of unprofitable business units,maximize the potential of the Company’s Czech Republic operations, and exploreexpansion of the Company through the addition of new business units, includinghotels.  In addition to evaluatingexpansion opportunities in the Czech Republic, management is pursuing severalpotential hotel acquisition projects in the United States, subject to the availabilityof the necessary financing.  Managementintends to use the greater part of the net proceeds from the sale of CDZ asinvestment capital for an expansion project.

 

Management’s long-term goal isto create two hotel divisions, a Europe-based division and a U.S.-baseddivision, while pursuing conservative expansion of the casino division.  Hotel acquisitions will be based on anevaluation of the potential return of projects that arise and the availabilityof financing to purchase additional assets. Management is hopeful that this strategy will result in growth of theCompany to approximately five to ten business units, which, coupled withbenefits of debt reduction initiatives, may be enough to provide the Companywith a stable cash position.  The hotelassets of the Company, however, will likely be an assortment of hotels withvarying brand names and classifications.

 

Assuming that TWC achieves cashflow stability, the Company will seek to establish or develop a signatureproperty and will create a brand name for this prototype hotel, the décor ofwhich will reflect the theme concept of the Company’s casinos.  Thereafter, the Company will expand itsnewly created chain by adding hotels that, and transforming hotels to, conformto the Company’s established brand image. Management’s long-term goal is to endeavor to expand the TWC hotel chainto 40-60 units and to expand its casino division to 10-12 units.  There can be no assurances that management’splans and long range objectives will be realized.

 

# **Marketing**

 

The Company employed a number ofmarketing strategies in 2001, some of which applied to all ACC business unitsand some of which were casino specific. In an effort to further recognize and reward VIP players, a rewardprogram, which has Gold and Platinum membership levels that are based onclients’ volume of play levels, was introduced in the Company’s three CzechRepublic casinos.  Similar to theeligibility requirements of the program, the program’s reward system is basedon points that members accumulate according to their volume of play.  The prizes given to individual players whosevolume of play earn them awards are based on their responses to surveys, whichhave been designed to gain better understanding of the players’ personalinterests.  The 2001 marketing plans ofthe casinos were split into internal and external components, and casinomanagement was given responsibility for developing in house promotionscustomized to each facility.  Inaddition, a tracking system that gauges the success of promotions in terms ofrepeat visitation was implemented.  Overthe course of the year ended December 31, 2001, a number of theme and holidayrelated parties were held, which, in addition to boosting attendance on thenights of the events, gave the casinos significant media and word of mouthexposure.  Some of the party themesincluded Brazilian dance, Halloween, October fest, Prohibition (Ceska), andfashion shows.

 

In Ceska, which has seen thegreatest influx of local area competition of the three properties and has thehighest marketing cost of the Company’s properties, marketing efforts focusedon retaining and increasing the number of regular high volume players.  A direct mail campaign, which targetedowners of small-to-midsize business in the region, was launched.  In July 2001, Ceska completed an extensiverenovation of its gaming area and introduced a Prohibition era theme to thecasino in conjunction with the renovation. Further, additional German speaking line and management employees were addedto the staff.  In short, the marketingstrategy for Ceska was to improve the product and service, better recognize thecasino’s high volume players, and seek to expand the base of larger volumeplayers through marketing campaigns.  In2002, Ceska will continue this strategy and will seek to penetrate the largelyuntapped Regensberg, Germany market, which is located approximately 53 milesfrom the casino.  Further, management isconsidering creation of a private lounge and a covered parking area for VIPs.

 

6

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To an even greater degree thanCeska, Rozvadov is dependent upon a core group of gamblers.  In 2001, management strove to offerpromotions that were designed to appeal to these key clients and to improve thepersonalized service offered to VIPs. In conjunction with efforts to fulfill the desires of its key clientele,management increased the table limits of the casino in 2001.

 

In Znojmo, marketing focused ondevelopment of the Vienna market.  TheCompany’s billboard, bus, and video wall advertising campaign was continued andexpanded.  In addition, a large sign waserected along the border road and the lighting and landscaping on the accessroad to the casino were enhanced. Further, the access road was extended, giving potential clients a secondaryingress to the casino.  In 2002,management’s plans include further penetration of the Vienna market as well asconstruction of an employee housing building.

 

# **Regulations and Licensing**

 

During the quarter ended June30, 1998, the Czech Republic House of Deputies passed an amendment to thegaming law, which restricted foreign ownership of casino licenses.  In response thereto, the Companyrestructured its subsidiaries and Czech legal entities to comply with theamendment and was subsequently granted a ten-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 andoperations.  Further, there has beenincreased competition in the areas where the Company operates because localmunicipalities no longer have control over the issuance of casino licenses,thereby effectively eliminating exclusivity.

 

**Application of Future or AdditionalRegulatory Requirements**

 

In the future, the Companyintends to seek the necessary licenses, approvals and findings of suitabilityfor the Company and its personnel in other jurisdictions; however, there can beno assurance that such licenses, approvals or findings of suitability will beobtained or will not be revoked, suspended or conditioned or that the Companywill be able to obtain the necessary approvals for its future activities.  If a license, approval or finding ofsuitability is required by a regulatory authority and the Company fails to seekor does not receive the necessary license or finding of suitability, theCompany may be prohibited from owning or operating gaming establishments inthat jurisdiction.

 

**GamingTaxes**

 

Gaming tax rates in the Czech Republic, which were revised by the localMinistry of Finance, in June of 2001, averaged approximately 16.7% of totalgaming revenues for the year ended December 31, 2001 and currently consist ofgaming taxes of 11% of total gaming revenue, charity taxes of 10% of totalgaming revenue net of gaming taxes, and 6% of slot revenue net of slotlicensing fees.  There can be noassurances that tax rates, fees, or other payments applicable to the Company’sgaming operations will not be increased in the future.

 

**Competition**

 

The Company’s operations in theCzech Republic compete with a number of local and foreign casinos.  The Ceska unit competes with four casinos inthe immediate vicinity and two additional casinos in the greater region, one ofwhich is located in Germany.  TheRozvadov casino competes with one casino in the local area and four othercasinos in the greater region, one of which is located in Germany.  The Znojmo casino faces competition fromthree local casinos, none of which is located in the duty free zone, as isTWC’s facility.  (See “IndustryOverview”.)

 

7

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**Employees**

 

As of March 19, 2002, theCompany had a total of 370 employees, including 128 in its casino in Ceska, 86in its casino in Rozvadov, 141 in its casino in Znojmo, 11 in its regionaloffice in the Czech Republic, and four in the Company’s headquarters in NewYork.  The Company believes that itsemployee relations are excellent.

 

**Item 2.  Description of Property.**

 

**CorporateOffices**

 

The Company’s corporate offices are located at 545 Fifth Avenue, Suite940, New York, New York, occupying 1,559 square feet of office space under alease at the rental rate of $5,662.17 per month expiring in December 2004.

 

**CzechRepublic**

 

The Company leases a 5,000square foot casino facility in Ceska Kubice at a rent of approximately $1,400per month.  The casino building leaseexpires in 2010. ** **The Company alsoleases a hotel from a local bank in nearby Krasnahorska for staffaccommodations at the rate of approximately $1,800 per month.

 

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

 

As part of the acquisition ofResorts (See Item 1. “Description of Business - General Development ofBusiness”), TWC acquired approximately 10 acres of land near Znojmo, close tothe border in Austria, on which the Company constructed and operates a casino.TWC negotiated an agreement with a local building contractor who financed andbuilt a 5,000 square foot casino facility and leased it to the Company underthe terms of a ten-year lease for approximately $27,000 per month.  In March 2002, the Company exercised itsright to buyout (purchase) the Hate building lease.  The building lease buyout (purchase), the cost of which wasapproximately $1.4 million was financed by a loan from a local Czech Republicbank.  The bank note, which is payable in monthly installments through December2006, bears interest at 6.2% per annum and is collateralized by the Znojmocasino building, the Company’s Rozvadov casino and employee housing buildings,and the Company’s land in Folmava.

 

**Item3.**  **Legal Proceedings.**

** **

**Former President and Chief Operating Officer**

 

On October 6, 2000, the Company’s former President and Chief OperatingOfficer, Andrew Tottenham (“former President”), commenced an action against theCompany in the United States District Court for the Southern District of NewYork.  The former President seeks torecover for alleged wrongful conduct in connection with his separation ofemployment from the Company.  The formerPresident has amended his complaint twice, most recently on January 26, 2001 tointerpose a Second Amended Complaint. In the Second Amended Complaint, the former President alleges claims for(1) Approximately $1.2 million for breach of an employment contract, (2)Approximately $93,000 for breach of an oral contract, (3) equitable andmonetary damages in an unspecified amount based on a derivative stockholder’ssuit/breach of fiduciary duty, (4) monetary damages in an unspecified amountfor conversion, (5) monetary damages in an unspecified amount for fraud, and(6) indemnification in an unspecified amount. On February 23, 2001, the Company answered denying the materialallegations of the former President’s claims, as well as asserting severalcounterclaims.  The Company believes ithas meritorious defenses to the former President’s claims and intends to defendagainst them vigorously.  Discovery is underwaywith the deadline for completion of depositions being March 29, 2002.  There have been no other motions orproceedings in the case.  Accordingly,no provision for liability to the Company that may result upon adjudication hasbeen made in the accompanying consolidated financial statements.

 

8

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In July 2001, TWCcommenced an action in Spanish court against the Company’s former President(Juicio Verbal 530/01) claiming ownership and demanding the return of one CDZshare that was transferred to him for administration purposes in conjunctionwith the Company’s April 1998 acquisition of CDZ.  In this case, the “First Instance Court” declared on July 31,2002 that it does not have territorial competence to decide the matter, andthat court resolution was appealed by TWC. The Company won its appeal on February 28, 2002, and a decision on theshare ownership dispute by the “First Instance Court” is expected sometime laterin 2002.  The Company, based on adviceof its Spanish legal counsel, believes its case against the Company’s formerPresident is strong and accordingly, no provision for liability to the Companythat may result upon adjudication has been made in the accompanyingconsolidated financial statements.

 

In October 2001, theCompany’s former President filed a suit in Spanish court against the Company,CDZ, and CDZ’s former President (“Juicio Ordinario 878/01”) applying for theannulment of the recapitalization of CDZ agreed in September 2000 and executedin April 2001 and claiming for his right as holder and alleged owner of one CDZshare to subscribe and pay all the shares subscribed and paid by the Companyand CDZ’s former president.  This casehas been suspended until a final sentence has been announced in Juicio Verbal530/01.  However, the former Presidentappealed the decision, and the Company has contested that appellation.  The Company, based on advice of its Spanishlegal counsel, believes that a favorable outcome of Juicio Verbal 530/01 will impactJuicio Ordinario 878/01 in that Juicio Ordinario 878/01 would also be ruled inthe Company’s favor.  Nevertheless, theCompany believes it has meritorious defenses to the former President’s claimswith respect to Juicio Ordinario 878/01 and intends to defend against themvigorously as well as to vigorously pursue its claims against the formerPresident.  Accordingly, no provisionfor liability to the Company that may result upon adjudication has been made inthe accompanying consolidated financial statements.

 

**Choice Capital Corporation**

 

In October 2001,the Company filed a “Complaint for Damages” against Choice Capital Corporation,a/k/a Choice International Corporation (“Choice”) and Jude Onukuwa in theSuperior Court of Fulton County, Georgia. The Company seeks to recover payments made to Choice in connection witha potential financing deal that Choice did not consummate.  In addition, the Company seeks to win awardsfor interest, attorney fees, damages for lost profits, and punitive damages.  In November 2001, Choice answered to thecomplaint, denying the material allegations of the complaint.  Further, Choice’s response includes acounterclaim against the Company, which seeks punitive damages of $1.2 millionfor lost commissions related to the unconsummated deal.  The discovery period is underway and willrun until June 1, 2002.  The Companybelieves that it has a strong case against Choice and that it has meritoriousdefenses to Choice’s counterclaims and intends to pursue the Company’s claimsvigorously as well as to defend against Choice’s claims vigorously.  Accordingly, no provision for liability tothe Company that may result upon adjudication has been made in the accompanyingconsolidated financial statements.

 

The Company is not currentlyinvolved in any other material legal proceeding nor was it involved in anyother material litigation during the year ended December 31, 2001.

 

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

 

No matter was submitted to avote of security holders during the fourth quarter of the fiscal year coveredby this Report.

 

9

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## **PART II**

 

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

 

TheCompany’s Common Stock is currently quoted on the OTC Bulletin Board under thesymbol TWCP.OB.  As of March 19, 2002,the Company’s stock price was $0.14. The following table sets forth the high and low prices of the Company’s CommonStock for fiscal years 2000 and 2001: 

 
| **Common Stock** |   | **High** |    | **Low** |   |
|------------------|--------|----------|---------|---------|--------|
| 2000             |   |     |    |    |   |
| First Quarter    |   | 0.53     | *       | 0.38    | *      |
| Second Quarter   |   | 0.39     | *  | 0.28    | *      |
| Third Quarter    |   | 0.28     | *       | 0.19    | *      |
| Fourth Quarter   |   | 0.28     | *       | 0.12    | *      |
| 2001             |   |     |    |    |   |
| First Quarter    |   | 0.17     | *       | 0.12    | *      |
| Second Quarter   |   | 0.12     | *       | 0.04    | *      |
| Third Quarter    |   | 0.05     | *       | 0.03    | *      |
| Fourth Quarter   |   | 0.05     | *       | 0.03    | *      |

 

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*  Quoted on OTC Bulletin Board

 

There were no quotations forthe $8.50 warrants.

 

As of March 19, 2002, there were (a) 11,022,902 outstanding shares ofCommon Stock held of record by approximately 78 accounts; (b) outstandingoptions to purchase an aggregate of 523,500 shares of Common Stock; (c)outstanding $1.00 Series A Warrants to purchase an aggregate of 960,000 sharesof Common Stock issued in connection with the sale of certain debt instruments;(d) outstanding $1.50 Series B Warrants to purchase an aggregate of 3,200,000shares of Common Stock issued in connection with the restructuring of certainlong-term debt; (e) outstanding $0.01 Series C Warrants to purchase anaggregate of 1,013,090 shares of Common Stock issued in connection with theMarch 1998 Private Placement, with 6,074,362 of this series having beenexercised; (f) outstanding $0.01 Series D Warrants to purchase an aggregate of2,051,912 shares of Common Stock issued in connection with the March 1996financing; (g) outstanding $0.01 Series G warrants to purchase an aggregate125,073 shares of Common Stock issued in connection with the October 1999Private Placement and the October 1999 Senior Notes.  (See Item 6. “Management’s Discussion and Analysis or Plan ofOperation - Liquidity and Capital Resources”.); and (h) outstanding $.5938Warrants to purchase an aggregate of 250,000 shares of Common Stock issued inconnection with the acquisition of Tottenham & Co., which have sinceexpired. (see Item 1. “Description of Business - Acquisition Agreements”.)

 

10

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

** **

**Forward-Looking Statements**

 

This Form 10-KSB contains certain forward-looking statements. For thispurpose, any statements contained in this Form 10-KSB that are notstatements of historical fact may be deemed to be forward-looking statements.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 Factors toConsider.”

** **

**ExchangeRates**

 

Due to the fact that the Company’s operations are all located overseas,the results of the Company are subject to the impact of fluctuations inexchanges rates.  Pursuant to theJanuary 2002 adoption of the Euro as the sole trading currency by all EuropeanUnion member nations that had previously tied their local currencies to it, theCompany’s operations conducted business exclusively in Euros and Czech Korunas,which is the currency in which payroll and some payable items are paid in theCzech Republic.  The impact of exchangerate fluctuations can be measured through comparison of the rates of exchangefor these two currencies to the United States Dollar (“USD”), which aredepicted on a quarterly basis in the following table.

 
| **Period**               |   | **USD** |   | **Czech  Koruna 2001** |    | **Czech  Koruna 2000** |    | **Euro  2001** |   | **Euro  2000** |   |
|--------------------------|--------|---------|--------|------------------------|---------|------------------------|---------|----------------|--------|----------------|--------|
| January through March    |   | $       | 1.00   |                   | 37.6635 |                   | 36.5027 |           | 1.0832 |           | 1.0132 |   |
| April through June       |   | $       | 1.00   |                   | 39.2593 |                   | 38.8697 |           | 1.1399 |           | 1.0708 |   |
| July through September   |   | $       | 1.00   |                   | 38.4135 |                   | 39.1083 |           | 1.1135 |           | 1.1045 |   |
| October through December |   | $       | 1.00   |                   | 37.2265 |                   | 40.1016 |           | 1.1169 |           | 1.1506 |   |

 

The balance sheet totals of the Company’s foreign subsidiaries atDecember 31, 2001 were converted to USDs using the prevailing exchange rates atDecember 31, 2001, which are depicted in the following table.

 
| **As Of**         |   | **USD** |   | **Czech Koruna** |    | **Euro** |   |
|-------------------|--------|---------|--------|------------------|---------|----------|--------|
| December 31, 2001 |   | $       | 1.00   |             | 36.1250 |     | 1.1289 |   |
|                   |        |         |        |                  |         |          |        |  |

** **

11

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**Resultsof Operations**

 

The following discussion andanalysis relates to the financial condition and results of continuingoperations of the Company for the year ended December 31, 2001 and comparisonof those results to the year ended December 31, 2000 (“2000”, “previous year”,or “prior year”).  In December 2001, asa result of excessive delays by the local Spanish authorities in granting CDZfinal permission to relocate, together with the business unit’s mountinglosses, the Company divested itself of the casino by selling its interest inCDZ to a local Spanish casino operator, for a net gain of $8.5 million.  CDZ related results, which include theproperty’s net operating loss of $1.5 million, are presented in the followingtable as discontinued operations and, as such, are not included in thesubsequent discussion and analysis.

 

This information should be read in conjunction with the Company’sConsolidated Financial Statements and notes appearing elsewhere herein. Allamounts in the following discussions have been rounded to the nearest thousandexcept where indicated.

 

**Year Ended December31, 2001 Compared to Year Ended December 31, 2000**

 
| **Results of  Operations**                                     |   | **For the  Years Ended  December 31,** |   |
|----------------------------------------------------------------|--------|----------------------------------------|--------|
|                                                           |   | **2001**                               |   | **2000** |   |
| Revenue                                                        |   | $                                      | 12,773 |   | $ | 10,460 |   |
| Loss from continuing operations                                |   | (4,638                                 | )      | (4,845 | ) |
| Income/(loss) from discontinued operations  (1)                |   | 7,084                                  |   | (1,421 | ) |
| Net income (loss)                                              |   | 2,446                                  |   | (6,266 | ) |
| Earnings/(loss) per common share; basic and  diluted           |   | $                                      | 0.24   |   | $ | (1.17 | ) |
| Weighted average common shares outstanding;  basic and diluted |   | 10,201,000                             |   | 5,365,000 |   |

 

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(1)  Discontinued operations consist of CDZ.

 

**Revenues**

 

At $12.8 million, total revenuefor continuing operations for the year ended December 31, 2001 improved by $2.3million, or 22.1%, over total revenue for the year ended December 31, 2000 andreinforced ACC’s position as the top revenue producing casino company in theCzech Republic, based on information provided by the Czech Republic Ministry ofFinance, a market position that it has held since 2000.  The overall revenue improvement was theresult of revenue gains in all of the Company’s Czech Republic casinos.  Znojmo, the Company’s newest facility, whichopened in December 1999, realized 51.5% revenue growth in the year endedDecember 31, 2001 and finished the year with total revenue of  $5.537 million versus the prior year totalof $3.654 million.  In 2001, Znojmoimproved in the key performance indicators of attendance and Drop per Head(“DpH”), the per guest average dollar value of gaming chips purchased.  Rozvadov achieved 15.6% revenue growth inthe same period due to Drop per Head and win percentage (“WP”), the ratio oftable game revenues to the value of all gaming chips purchased, gains.  Ceska, which faced the greatest influx ofdirect competition, realized a modest 2.3% revenue growth in 2001 versus theprior year despite the negative impact of a 15% decline in attendance.  Further, as a result of changeover of aportion of the slot machine inventory from outdated Aristocrat machines tonewer-style Novomatics in all of the casinos, overall slot revenues grew to$1.093 million in the year ended December 31, 2001 versus $.632 million in theprior year, an increase of $461,000, or 72.9 %.

 

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**Costof Revenues**

 

Cost of Revenues, which consists of directoperating expenses such as labor and operating supplies, increased 32% to$6.208 million in the year ended December 31, 2001 versus $4.691 million in theprior year.  The increase, whichoutpaced revenue gains during the year, can be attributed, in part, to theincreased volume and table additions in Znojmo.  In addition, recent law changes regarding vacation, overtime, andnight differential pay served to increase labor expenses in all of theCompany’s casinos.  Further,in June 2001, the Czech Republic Ministry of Finance issued a pronouncement,whereby the tax treatment of reception revenue changed, which significantlyincreased the tax rate for this type of revenue.  In addition, the Company entered into revenue based leaseagreements for replacements for a number of its older Aristocrat slot machines,which were not popular with the casinos’ clients, with new Novomaticmachines.  Despite the fact thatNovomatics have proven to generate net income in excess of the replacedAristrocrats, the related revenue based lease expense has served to negativelyimpact the operating margin percentage.

 

**Selling, General and Administrative**

 

Selling, general and administrative(“SG&A”) expenses were $5.3 million in 2001, which represents a 7.8%increase over 2000.  This increase isthe net result of cost reductions and increases in several areas, includingincreased marketing expenditures in the face of greater competition and toexpand the Znojmo casino’s client base, increased repairs and maintenanceexpenses related to the Ceska property renovation, and reduced managementcompany expenditures that were mainly attributable to savings in payrollexpenses, development costs, and audit fees.

 

At $1.2 million, Income fromOperation Exclusive of Interest and Depreciation and Amortization, whichrepresents revenues minus cost of revenues and selling, general andadministrative expenses, in the year ended December 31, 2001 improved by$411,000, or 50.1%, versus the year ended December 31, 2000 and represented9.6% of total revenue, an improvement of 2.1 percentage points over the prioryear.

 

Depreciation and amortization,which consists, primarily, of amortization of assets acquired during 1998 and1999, increased from $1.8 million in 2000 to $1.9 million in 2001 due toequipment purchases in the Czech Republic.

 

Interest expense for the yearended December 31, 2001 was $4.0 million compared to $3.8 million for the yearended December 31, 2000.  The slightincrease can be attributed to increased operating loan related interestexpenditures in the Czech Republic.

 

**Net Loss From Continuing Operations**

 

The Company incurred a lossfrom continuing operations of approximately $4.6 million for the year endedDecember 31, 2001 as compared to $4.9 million in the year ended December 31,2000, an improvement of 5.4%.

 

13

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**Business Units:**

 

The Company’s results in 2001are derived from a full year of activity of the European operations and theCorporate Headquarters in New York.  Thefollowing table depicts the operating results by business unit based on actualexchange rates:

 
|                                                                                   |   | **Year Ended December 31**        |       |
|----------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                   |   | **2001**                          |       | **2000** |   | **Variance** |   |
|                                                                                   |   | **Ceska, Czech Republic**         | ** ** |
| Total number of guests                                                                 |   | 52,867                            |       | 62,232 |   | (9,365 | ) |
| Average DpH (1)                                                                        |   | $                                 | 349        |   | $ | 338 |   | $ | 11 |   |
| Total drop ($000) (2)                                                                  |   | 18,472                            |       | 21,040 |   | (2,568 | ) |
| WP (3)                                                                                 |   | 19.8                              | %          | 18.2 | % | 1.6 |   |
| Total revenue ($000)                                                                   |   | 4,841                             |       | 4,732 |   | 109 |   |
| Operating expenses ($000)                                                              |   | (3,852                            | )          | (3,003 | ) | (849 | ) |
| Management fees ($000) (4)                                                             |   | (671                              | )          | (890 | ) | 219 |   |
| Income from operations exclusive of interest and depreciation and  amortization ($000) |   | 318                               |       | 839 |   | (521 | ) |
|                                                                                   |   | **Rozvadov,  Czech Republic**     | ** ** |
| Total number of guests                                                                 |   | 33,623                            |       | 34,270 |   | (647 | ) |
| Average DpH (1)                                                                        |   | $                                 | 288        |   | $ | 269 |   | $ | 19 |   |
| Total drop ($000) (2)                                                                  |   | 9,688                             |       | 9,202 |   | 486 |   |
| WP (3)                                                                                 |   | 19.2                              | %          | 16.9 | % | 2.3 |   |
| Total revenue ($000)                                                                   |   | 2,396                             |       | 2,071 |   | 325 |   |
| Operating expenses ($000)                                                              |   | (1,857                            | )          | (1,439 | ) | (418 | ) |
| Management fees ($000) (4)                                                             |   | (335                              | )          | (322 | ) | (13 | ) |
| Income from operations exclusive of interest and depreciation and  amortization ($000) |   | 204                               |       | 310 |   | (106 | ) |
|                                                                                   |   | **Znojmo,  Czech Republic**       | ** ** |
| Total number of guests                                                                 |   | 62,766                            |       | 53,634 |   | 9,132 |   |
| Average DpH (1)                                                                        |   | $                                 | 339        |   | $ | 285 |   | $ | 54 |   |
| Total drop ($000) (2)                                                                  |   | 21,302                            |       | 15,310 |   | 5,992 |   |
| WP (3)                                                                                 |   | 15.7                              | %          | 16.2 | % | (0.5 | ) |
| Total revenue ($000)                                                                   |   | 5,537                             |       | 3,654 |   | 1,883 |   |
| Operating expenses ($000)                                                              |   | (4,022                            | )          | (3,027 | ) | (995 | ) |
| Management fees ($000) (4)                                                             |   | (718                              | )          | (595 | ) | (123 | ) |
| Income from operations exclusive of interest and depreciation and  amortization ($000) |   | 797                               |       | 32 |   | 765 |   |
|                                                                                   |   | **Management  Company, New York** | ** ** |
| Total revenue ($000)                                                                   |   | —                            |       | 3 |   | (3 | ) |
| Eliminations ($000) (5)                                                                |   | 245                               |       | 169 |   | 76 |   |
| Operating expenses ($000)                                                              |   | (2,057                            | )          | (2,340 | ) | 283 |   |
| Management fees ($000) (4)                                                             |   | 1,724                             |       | 1,807 |   | (83 | ) |
| Loss from operations exclusive of interest and depreciation and  amortization ($000)   |   | (88                               | )          | (361 | ) | 273 |   |
|                                                                                   |   | **Grand  Total**                  | ** ** |
| Total number of guests                                                                 |   | 149,256                           |       | 150,136 |   | (880 | ) |
| Average DpH (1)                                                                        |   | $                                 | 331        |   | $ | 303 |   | $ | 28 |   |
| Total drop ($000) (2)                                                                  |   | 49,463                            |       | 45,552 |   | 3,911 |   |
| WP (3)                                                                                 |   | 17.9                              | %          | 17.3 | % | 0.6 |   |
| Total revenue ($000)                                                                   |   | 12,773                            |       | 10,460 |   | 2,313 |   |
| Operating expenses ($000)                                                              |   | (11,542                           | )          | (9,640 | ) | (1,902 | ) |
| Management fees ($000) (4)                                                             |   | —                            |       | — |   | — |   |
| Income from operations exclusive of interest and depreciation and  amortization ($000) |   | 1,232                             |       | 820 |   | 412 |   |

 

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(1)  The per guest averagedollar value of gaming chips purchased.

(2)  The total value of allgaming chips purchased.

(3)  The ratio of table gamerevenues to the value of all gaming chips purchased.

(4)  Eliminated inconsolidation.

(5)  Consists of gamingequipment leases and other business unit billbacks that are eliminated inconsolidation.

 

Note:  The above table containsvariances that can be attributed to the rounding of numbers.

 

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***Ceska, Czech Republic***

 

In the year ended December 31,2001, competition in Ceska’s local market increased dramatically as threecasinos opened in the area.  In response,management sought to combat market challengers through a threefold strategy,which included upgrade of the casino facility, improvement of its service, andbetter recognition of the casino’s key high volume players.  Despite a 15% decline in attendance in theyear ended December 31, 2001, Ceska managed to achieve a 2.3% revenue growthover the prior year.  The attendancereduction served to eliminate some overcrowding and to reduce the number ofnovice players in attendance.  These twofactors helped to accelerate the pace of the games and contributed to therealization of an $11 DpH increase and a 1.6 percentage point increase in thecasino’s 2001 total year WP.  As aresult, total revenues in Ceska for the year ended December 31, 2001 were $4.8million versus $4.7 million for the 2000 calendar year.  Operating expense increases served to morethan offset the modest revenue gain as labor law changes, increased gamingtaxes, slot machine related profit share payouts, increased marketingexpenditures to combat competition, and increased repairs and maintenanceexpenditures related to the gaming area renovation all contributed to an$849,000 increase in total operating expenditures in the year ended December31, 2001 versus the prior year.  As aresult, the business unit’s Income from Operations Exclusive of Interest andDepreciation and Amortization was $318,000 in the year ended December 31, 2001,a decline of  $521,000 versus 2000.  In 2002, management’s plans includecompletion of the final stage of the property’s renovation, the reception and mainentrance areas, and introduction of a card room, which will represent a newsource of revenue for the casino and will require development of a differentclientele base.

 

***Rozvadov, Czech Republic***

 

Rozvadov experienced a slight1.9% decline in attendance in the year ended December 31, 2001, but the“quality” of its players improved, as evidenced by the realization of a $19increase in the DpH.  The DpH growth,coupled with a 2.3 percentage point improvement in WP, fueled revenue growth of15.7%, and the casino finished the year ended December 31, 2001 with totalrevenue of $2.4 million.  Management’s2001 operating strategy included introduction of a new VIP recognition program,the addition of more German speaking staff, expansion/upgrade of the facility’sgaming equipment, and increase of gaming table limits.  Further, management was more selective aboutthe types of in house promotions that were held in the 2001 calendar year,based on the goal of tailoring events to the likes of the casino’s key clients.  As in Ceska, labor law and tax changes aswell as profit share agreements significantly increased operating expenses inthe year ended December 31, 2001 versus the prior year, which served to morethan offset the unit’s revenue gains versus the prior year.  As a result, Rozvadov finished the yearended December 31, 2001 with Income from Operations exclusive of Interest andDepreciation and Amortization of $204,000, which represents a 34.1% declinefrom that of the year ended December 31, 2000. In 2002, management intends to continue to focus on its core group ofmajor players and, if successful in Ceska, to expand its gaming services toinclude a card room, which will allow the casino to better utilize the gamingspace on its lower level and provide it with a new potential source of revenue.

 

***Znojmo, Czech Republic***

 

Znojmo, which realized 51.5%revenue growth in the year ended December 31, 2001 and finished the year withtotal revenue of  $5.537 million versusthe prior year total of $3.654 million, enjoyed 17.0% attendance growth and18.9% improvement in its DpH.  Despite aslight .5 percentage point drop in WP, which can be attributed to the increasedvolume of players, the benefits of the attendance and DpH improvement resultedin revenue growth of $1.9 million. Further, Znojmo’s revenue growth more than offset labor law, gaming tax,and other increases in expenses, and the casino realized flow through of$765,000, or 40.6%, of the $1.9 million revenue improvement in the year ended December 31, 2001 versus 2000 toIncome from Operations Exclusive of Interest and Depreciation and Amortization,which increased to $797,000 in the year ended December 31, 2001 from $32,000 inthe prior year.

 

Znojmo’s attendance and DpHgrowth in the year ended December 31, 2001 reflected the success ofmanagement’s efforts to penetrate the Vienna market, the residents of whichhave the highest disposable income of any of Znojmo’s potential markets.  ACC’s product offers a more relaxedalternative to the Viennese casinos and has proven to be popular with Austriangamblers in the region.  In May 2001,five additional gaming tables were put

 

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into operation, and inconjunction with this expansion, the casino’s weekend operating hours wereexpanded to “nonstop” action from Thursday afternoons through Monday mornings.

 

In 2002, management intends tofocus on further expansion of its client base, the addition of four cardtables, and improved personalized service for VIP players.  In January 2002, a new casino manager, whois fluent in German, was appointed, and it is anticipated that his presencewill advance the quality of guest relations.

 

**Liquidityand Capital Resources**

 

The Company’s working capitaldeficit, defined as current assets minus current liabilities, decreased $8.3million to a surplus of $94,000 at December 31, 2001 from a working capitaldeficit at December 31, 2000 of $8.2 million. The decrease was due, primarily, to the sale of CDZ, the elimination oftaxes payable to the DGA, and the reclassification of bond interest payable tolong-term (as some of the interest will be converted to equity in 2002 and theresidual interest is not expected to be paid in 2002.)

 

For the year ended December 31,2001, the Company had net cash provided by continuing operations of$806,000.  This was primarily a $4.6million loss from continuing operations, $1.9 million of depreciation andamortization, $767,000 of non-cash interest related to the amortization of debtdiscount recorded in connection with the warrants issued with the March 1998and October 1999 Private Placements, other non-cash items of $283,000, and a$2.5 million net increase in cash attributable to changes in operating assetsand liabilities.  For the year endedDecember 31, 2001, net cash from investing activities was $1.5 million andcame, primarily, from the sale of CDZ. For the year ended December 31, 2001, net cash from financing activitiesof $213,000 included proceeds from short-term obligations of $1.8 million, $1.6million of repayments of short-term obligations and proceeds from the exerciseof warrants of $56,575.

 

The Company has, from time totime, been in technical default of the Amended Indentures and is so as ofDecember 31, 2001.  TWC relies upon theforbearance and waivers on the default of certain covenants from ValuePartners, which represents a majority in interest of the holders of the SeniorNotes. The Company has borrowed other amounts from Value Partners from time totime (some of which have been in technical default for which forbearance orwaivers have been granted).  On February23, 2001, Value Partners converted 5,657,453 of $0.01 warrants held by it.  With the exercise of those Warrants, ValuePartners holds a controlling 51.32% of the Company’s issued and outstandingCommon Stock with warrants to acquire up to 60.6% of such Common Stock.  At December 31, 2001, Value Partners owned66% of the Company’s long-term debt.

 

Despite improvement in theresults over the past three years, including net income of $2.4 million for theyear ended December 31, 2001, the Company has a nominal working capital surplusand a stockholders’ deficit of $19.0 million as of December 31, 2001.  Further, the Company is highly leveragedand, from time to time, has been unable to pay its interest and accountspayable obligations when they become due.  The Company was unable tomeet its September 2000, March 2001, and September 2001 interest payments infull *(see Note 4 to the notes toConsolidated Financial Statements)**.* Waivers of default for non-payment of interest have been receivedfrom the majority holder of the Senior Notes through the earlier of:  (i) Ten days subsequent to the receipt of inexcess of $5.0 million from any source by TWC or any of its subsidiaries; or(ii) January 1, 2003.  Under theconditions of the waivers, if the Company receives a sum in excess of $5.0million on or before September 17, 2002, the accrued and unpaid interest as ofSeptember 17, 2002 shall become due on September 17, 2002.

 

The Company has taken severalsignificant steps to improve its financial position, including (i) the December2001 sale of CDZ, its under-performing Spanish casino, which reduced theCompany’s liabilities by 23% ($1.3 million of the net proceeds have been earmarkedfor investment in a hotel or casino project); (ii) the March 2002 LA BondExchange of $4.8 million debt (and related accrued interest) for 37,233,234shares of Company Common Stock (hence reducing long-term liabilities by $6.7million, or 25%) (see Notes 4 and 12 of the Notes to Consolidated FinancialStatements); (iii) the 2001 expansion of its facility in Znojmo, Czech Republic(from 11 to 17 gaming tables, five of which were added in May 2001); (iv) therenovation of its casino in Ceska Kubice, Czech Republic, which was completedin July 2001;

 

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and (v) the March 2002 buyback(purchase) of the lease of the Znojmo casino building, which effectivelyreduced the interest rate by 13 percentage points.

 

Further, management believesthat, subsequent to these improvements to its consolidated statements ofoperations and balance sheet, the Company is in a better position to seekadditional financing, the proceeds from which would be used to (i) provide the Companywith additional working capital to preserve and enhance the Company’s existingassets and (ii) acquire additional business units.  Additionally, the Company is studying the potential benefits ofrelocating one of its existing casinos as well as a proposed project to developa fourth casino in Europe.  There can beno assurances that management’s plans will be realized.

 

The Company believes that its cash resources at December 31, 2001,together with 2002 developments (waivers and debt conversion discussed in Note12 to the Consolidated Financial Statements) and anticipated cash provided by2002 operations, are sufficient to fund its activities for the year endingDecember 31, 2002.  However, long-termliquidity is dependent on the Company’s ability to attain profitable operationsand to secure additional financing.

 

In March 2001, Value Partners,Ltd, the majority holder of the Senior Notes, granted TWC forbearance andwaiver of restrictions regarding incurrence of additional indebtedness in orderto enable TWC’s subsidiaries in the Czech Republic to secure an operatingloan.  On March 20, 2001 said operatingloan was secured in the amount of approximately $792,000 and is collateralizedby the Company’s parcel of land in Folmava, Czech Republic and the casino andstaff buildings in Rozvadov, Czech Republic. Proceeds from the loan were used to pay the approximately $231,000remaining balance of an existing operating loan in the Czech Republic and topay approximately $561,000 in gaming taxes owed to the local authorities forthe year ended December 31, 2001.  Theloan, which has an 18-month term and bears interest at a rate of 6.9% perannum, is being repaid in monthly installments through December 20, 2002.

 

In March 2002, the Companyexercised its right to buyout (purchase) the Hate building lease.  The building lease buyout (purchase), thecost of which was approximately $1.4 million, was financed by a loan from alocal Czech Republic bank.  The bank note, which is payable in monthlyinstallments through December 2006, bears interest at 6.2% per annum and iscollateralized by the Znojmo casino building, the Company’s Rozvadov casino andemployee housing buildings, and the Company’s land in Folmava.

 

**Plan of Operations****and Important Factors to Consider:**

 

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

 

In 2001, the Company renovatedthe gaming area of the Ceska casino and added one electro-mechanical roulettetable casino and replaced 24 of its existing Aristocrat slot machines withnewer-style Novomatic slots.  InRozvadov, one card table and one electro-mechanical roulette table wereintroduced, which leaves the casino with a total of 11 tables currently inoperation.  In Znojmo, an additionalfive gaming tables were added in May 2001, which, coupled with the recentaddition of one electro-mechanical roulette machine, leaves the facility with atotal of 17 gaming tables currently in operation.  Also, 22 of Znojmo’s existing slot machines were replaced in 2001with newer machines of a type that are generally preferred by the casino’starget client.

 

The Company is also studying aproposed project to develop a fourth casino in Europe.

 

17

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***Accumulated Deficit; Operating Losses***

 

On December 31, 2001, theCompany had an accumulated deficit of approximately $34.1 million and astockholders’ deficit of $19.0 million. For the year ended December 31, 2001, the Company earned a net income ofapproximately $2.4 million, primarily, as a result of the sale of CDZ, andincurred a loss from continuing operations of $4.6 million.  Further, the Company is highly leveragedand, from time to time, has been unable to pay its interest and accountspayable obligations when they become due. The ability of the Company to achieve profitability from its continuingoperations depends upon the successful management of gaming establishments inthe Czech Republic, their expansion and possible relocation, the addition ofbusiness units, and the diversification of its operations to include othersources of revenue.  There can be noassurance that the Company will achieve profitability as a result of theseoperations or otherwise.

 

***Need to Diversify***

 

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

 

***Taxation of Gaming Operations***

 

Gaming operators are typicallysubject to significant taxes and fees in addition to federal and statecorporate income taxes, and such taxes and fees are subject to increase at anytime.  Any material increase in thesetaxes or fees would adversely affect the results of operations of theCompany.  The Czech Republic currentlyhas a number of laws related to various taxes imposed by governmentalauthorities.  Applicable taxes includevalue added tax, corporate tax, charity tax, and payroll (social) taxes,together with others.  In addition, lawsrelated to these taxes have not been in force for significant periods, incontrast to more developed market economies; therefore, implementingregulations are often unclear or nonexistent. Accordingly, few precedents with regard to issues have beenestablished.  Often, differing opinionsregarding legal interpretations exist both among and within governmentministries and organizations, creating uncertainties and areas ofconflict.  Tax declarations, togetherwith other legal compliance areas (for example, customs and currency controlmatters) are subject to review and investigation by a number of authorities,which are authorized by law to impose extremely severe fines, penalties andinterest charges.  These facts createtax risks in the Czech Republic substantially more significant than typicallyfound in countries with more developed tax systems.  Management believes that it has adequately provided for taxliabilities; however, the risk remains that relevant authorities in the CzechRepublic could take differing positions with regard to interpretive issues andthe effect on amounts paid for taxes, fines, penalties, and interest could besignificant.

 

***Dependence upon Key Personnel***

 

The Company’s ability tosuccessfully implement its strategy of expansion and diversification, managethe Czech casinos, and maintain a competitive position will continue to depend,in large part, on the ability of Mr. Rami S. Ramadan, the Company’s President,Chief Executive Officer (“CEO”), and Chief Financial Officer (“CFO”).  Prior to joining TWC in 1999, Mr. Ramadan servedas Executive Vice President of Finance for the Ian Schrager Hotels and alsoheld 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.

 

***Need for Additional Financing***

 

Given the Company’s receipt ofa conditional waiver regarding nonpayment of interest for the 2002 calendaryear, management believes, although there can be no assurance, that existingcash, together with anticipated cash flows from operations, will be sufficientto satisfy its current obligations for the next twelve months.  The expected cash

 

18

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flow will not be sufficient tosettle existing past due interest.  Further,the Company will require additional capital for expansion.  If such additional financing does notmaterialize, this would have a materially adverse effect on the financialcondition and operations of the Company. The Company requires additional debt and/orequity financing for the acquisition of other businesses.  The Company’s ability to obtain additionalfinancing may be limited for a number of reasons, including the fact that theCompany is highly leveraged and more vulnerable to extended economic downturns.  This high leverage may adversely impact theholders of the Company’s equity and debt securities by impairing the Company’sability to obtain additional financing needed for working capital, capitalexpenditures, acquisitions or general corporate purposes.  There can be no assurance that suchfinancing will be available on terms favorable to the Company or at all.

 

In an effort to make theCompany more attractive to potential investors, in addition to the continuedimprovement of the Company’s operations, management has also focused onimprovement of the Company’s balance sheet through debt reductioninitiatives.  In March 2002, managementcompleted negotiation of the LA Bond Exchange, whereby the principal sum of$4.8 million dollars together with approximately $1.9 million in unpaidinterest will be converted to 37,233,234 shares of Common Stock.  The issuance of additional shares will havea dilutive effect on potential future net income of the Company.  Under the terms of the LA Bond Exchange, whichwas approved by the holders of this debt in March 2002, the exchanged debt willbe converted to Common Stock at a per share price of $0.18 (see Note 12 of theNotes to Consolidated Financial Statements).

 

With the issuance of the 37,233,234 shares ofCommon Stock in connection with the LA Bond Exchange, only 1,743,864 shares ofthe Company’s Common Stock remain available for issuance.  Of these 1,743,864 shares, 1,600,000 havebeen reserved for issuance upon the exercise of employee and non-employee directorstock options.  With 7,350,075 warrantsoutstanding, there are not sufficient shares available for issuance in theevent more than 143,864 warrants are exercised.  The Company will need to amend its Articles of Incorporation toprovide for additional authorized shares to cover these outstanding warrants aswell as for other general corporate purposes, including potential debt forequity exchanges.  It is anticipatedthat a proposal to amend the Articles of Incorporation of the Company toincrease the number of authorized shares of capital stock will be presented tothe stockholders for their consideration at the Company’s 2002 Annual Meetingbeing scheduled for this summer.

 

***International Activities***

 

Since July 1, 1999, theCompany’s operations were totally 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 of these risks, ifsevere enough, could have a material adverse effect on the financial conditionor results of operations of the Company.

 

***Licensing and Regulation***

 

The Company’s operations aresubject to regulation by each local jurisdiction in which it operates or plansto operate business, as well as federal laws and the laws of any foreigncountry.  Each of the Company’sofficers, and directors, and in certain instances, persons who have more than a5% income or profit interest in, or who exercise significant influence over theactivities of the Company, may be subject to strict scrutiny and approval fromthe gaming commission or other regulatory body of each jurisdiction in whichthe Company may conduct gaming operations.

 

The failure to obtain anylicense for properties upon which the Company plans to operate or manage agaming establishment in the future would have a materially adverse effect onthe Company’s business.  Obtaining requiredlicenses can be time consuming and costly 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 the event that a required license is notgranted for any particular location, the

 

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Company’s options would includeeffecting a transfer of substantially all of its related gaming assets to adifferent location or selling its interest in the gaming operations at thatlocation to a third party. There can be no assurance that the Company would beable to relocate gaming assets or sell its interests on acceptable terms or atall, and the inability to do so would have a materially adverse effect upon thebusiness and prospects of the Company.

 

***Liability Insurance***

 

The Company currently maintainsand intends to maintain general liability insurance in each of those locationsin which it operates.  There can be noassurance that liability claims will not exceed the coverage limits of suchpolicies or that such insurance will continue to be available on commerciallyreasonable terms or at all.  There canbe no assurance that such insurance will be adequate to cover unanticipatedliabilities.

 

***NoDividends***

 

The Company has not paid anydividends to date on its Common Stock, and does not expect to declare or payany dividends in the foreseeable future. The Company intends to retain future earnings, if any are generated, forinvestment in its operations.

 

***Possible Adverse Effect of Issuance ofPreferred Stock***

 

The Company’s Articles ofIncorporation authorize the issuance of 2,000,000 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 of Directors is empowered, withoutfurther stockholder approval, to issue Preferred Stock with dividend,liquidation, conversion, voting or other rights that could adversely affect thevoting power or other rights of the holders of the Common Stock.  In the event of issuance, the PreferredStock could be used, under certain circumstances, as a method of discouraging,delaying or preventing a change in control of the Company.  The Company has no current plans to issueany shares of Preferred Stock.  However,there can be no assurance that Preferred Stock will not be issued at some timein the future.

 

***Dilutive Effect of Warrants***

 

In March 1998, in connectionwith the completion of the Private Placement, the Company issued warrants topurchase approximately 9.5 million shares of the Company’s Common Stock.  In addition, in connection with therestructuring of the Senior Notes, in March 1998 the Company issuedapproximately 3.2 million warrants to purchase the Company’s Common Stock.  The Company also issued approximately 1.25million warrants to purchase the Company’s Common Stock in connection with theOctober 1999 Private Placement.  Theissuance of such securities will have a dilutive effect on any earnings thatthe Company might generate when the earnings are evaluated on a dilutedbasis.  At December 31, 2001, a total of7,350,075 warrants are outstanding, which, if exercised, would represent 40.0%of the 18,372,977 shares of Common Stock that would be outstanding.

 

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

 

The following items areincluded in this Report:

 

ConsolidatedFinancial Statements

 

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

 

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INDEPENDENT AUDITORS’ REPORT

 

Board of DirectorsTrans World Corporation

 

We have audited the accompanying consolidated balance sheet of TransWorld Corporation and Subsidiaries as of December 31, 2001, and the relatedconsolidated statements of operations and comprehensive income (loss),stockholders’ deficit and cash flows for the years ended December 31, 2001 and2000.  These consolidated financialstatements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these consolidated financial statements based on our audits.  We did not audit the financial statements ofa former majority-owned subsidiary, which statements reflect total revenues ofapproximately $2.6 million and $3.9 million for the ten-month period endedOctober 31, 2001 and the year ended December 31, 2000, respectively.  Those financial statements were audited byother auditors, whose report has been furnished to us, and our opinion, insofaras it relates to the amounts included for the former majority-owned subsidiary,is based solely on the report of the other auditors.

 

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

 

In our opinion, based on our audits and thereport of other auditors, the consolidated financial statements referred toabove present fairly, in all material respects, the financial position of TransWorld Corporation and Subsidiaries as of December 31, 2001, and the results oftheir operations and their cash flows for the years ended December 31, 2001 and2000, in conformity with accounting principles generally accepted in the UnitedStates of America.

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

 

 

Roseland, New JerseyFebruary 16, 2002, except for Note 12, which is as of March 27, 2002

 

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

CONSOLIDATED BALANCE SHEETDecember 31, 2001(In thousands, except for per share data)

 
| **ASSETS**                                                            |   |    |       |
|-----------------------------------------------------------------------|--------|---------|------------|
| **CURRENT ASSETS**                                                    |   |    | ** ** |
| Cash                                                                  |   | $       | 3,250      |   |
| Other current assets                                                  |   | 205     |       |
| **Total current assets**                                              |   | 3,455   |       |
| **PROPERTY AND  EQUIPMENT**,  less accumulated depreciation of $1,756 |   | 3,866   |       |
|                                                                  |   |    |       |
| **OTHER ASSETS**                                                      |   |    | ** ** |
| Goodwill, less accumulated  amortization of $4,415                    |   | 3,579   |       |
| Deposits and other assets                                             |   | 873     |       |
|                                                                  |   | 4,452   |       |
|                                                                  |   | $       | 11,773     |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                        |   |    | ** ** |
| **CURRENT  LIABILITIES**                                              |   |    | ** ** |
| Short-term debt                                                       |   | $       | 709        |   |
| Accounts payable                                                      |   | 278     |       |
| Accrued expenses and other  current liabilities                       |   | 2,374   |       |
| **Total current  liabilities**                                        |   | 3,361   |       |
| **LONG-TERM  LIABILITIES**                                            |   |    | ** ** |
| Long-term debt, less  unamortized debt discount of $2,749             |   | 22,051  |       |
| Interest payable                                                      |   | 5,341   |       |
| **Total  long-term liabilities**                                      |   | 27,392  |       |
|                                                                  |   |    |       |
| **COMMITMENTS  AND CONTINGENCIES**                                    |   |    | ** ** |
|                                                                  |   |    |       |
| **STOCKHOLDERS’  DEFICIT**                                       |   |    | ** ** |
| Preferred stock, $.001 par  value, 2,000 shares authorized,           |   |    |       |
| none issued                                                           |   |    |       |
| Common stock $.001 par value,  50,000 shares authorized,              |   |    |       |
| 11,022 shares issued and  outstanding                                 |   | 11      |       |
| Additional paid-in capital                                            |   | 15,067  |       |
| Accumulated other  comprehensive income                               |   | 62      |       |
| Accumulated deficit                                                   |   | (34,120 | )          |
| **Total  stockholders’ deficit**                                 |   | (18,980 | )          |
|                                                                  |   | $       | 11,773     |   |

 

*See accompanyingnotes to consolidated financial statements*

 

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF OPERATIONSANDCOMPREHENSIVE INCOME (LOSS)Years Ended December 31, 2001 and 2000(In thousands, except for per share data)

 
|                                                                                                                                                              |   | **2001** |       | **2000** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| **REVENUES**                                                                                                                                                      |   | $        | 12,773     |     | $          | 10,460 |   |
|                                                                                                                                                              |   |     |       |     |       |
| **COSTS AND  EXPENSES**                                                                                                                                           |   |     | ** ** |     | ** ** |
| Cost of revenues                                                                                                                                                  |   | 6,208    |       | 4,691    |       |
| Depreciation and amortization                                                                                                                                     |   | 1,920    |       | 1,775    |       |
| Selling, general and  administrative                                                                                                                              |   | 5,333    |       | 4,949    |       |
|                                                                                                                                                              |   | 13,461   |       | 11,415   |       |
| **LOSS FROM  OPERATIONS**                                                                                                                                         |   | (688     | )          | (955     | )          |
|                                                                                                                                                              |   |     |       |     |       |
| **OTHER INCOME  (EXPENSE)**                                                                                                                                       |   |     | ** ** |     | ** ** |
| Interest income                                                                                                                                                   |   | 32       |       | 30       |       |
| Interest expense                                                                                                                                                  |   | (3,969   | )          | (3,805   | )          |
| Loss on sale of assets                                                                                                                                            |   | (8       | )          |     |       |
| Foreign exchange loss                                                                                                                                             |   | (5       | )          | (115     | )          |
|                                                                                                                                                              |   |     |       |     |       |
|                                                                                                                                                              |   | (3,950)  |       | (3,890   |       |
| **LOSS FROM  CONTINUING OPERATIONS**                                                                                                                              |   | (4,638   | )          | (4,845   | )          |
|                                                                                                                                                              |   |     |       |     |       |
| **DISCONTINUED  OPERATIONS,**  net of tax of $0

Loss from operations of  discontinued Casino de Zaragoza                                                         |   | (1,456   | )          | (1,421   | )          |
| Gain on sale of Casino de  Zaragoza                                                                                                                               |   | 8,540    |       |     |       |
|                                                                                                                                                              |   |     |       |     |       |
| **INCOME/(LOSS) FROM DISCONTINUED OPERATIONS**                                                                                                                    |   | 7,084    |       | (1,421   | )          |
|                                                                                                                                                              |   |     |       |     |       |
| **NET  INCOME/(LOSS)**                                                                                                                                            |   | $        | 2,446      |     | $          | (6,266 | ) |
|                                                                                                                                                              |   |     |       |     |       |
| **WEIGHTED  AVERAGE COMMON SHARES OUTSTANDING**,

basic and diluted                                                                                               |   | 10,201   |       | 5,365    |       |
| **INCOME (LOSS)  PER COMMON SHARE**, basic and diluted                                                                                                            |   |     | ** ** |     | ** ** |
| From continuing operations                                                                                                                                        |   | $        | (0.45      | )        | $          | (0.91 | ) |
| From discontinued operations                                                                                                                                      |   | 0.69     |       | (0.26    | )          |
| Net income/(loss)                                                                                                                                                 |   | $        | 0.24       |     | $          | (1.17 | ) |
| **COMPREHENSIVE  INCOME/(LOSS)**                                                                                                                                  |   |     | ** ** |     | ** ** |
|                                                                                                                                                              |   |     |       |     |       |
| **Net  income/(loss)**                                                                                                                                            |   | $        | 2,446      |     | $          | (6,266 | ) |
| **Other  comprehensive income**, foreign currency translation adjustment, net of a $1,807  reclassification adjustment in 2001 for gains recognized in net income |   | (1,446   | **)**      | 473      | ** ** |
| **Comprehensive  income/(loss)**                                                                                                                                  |   | $        | 1,000      |     | $          | (5,793 | ) |

 

*See accompanyingnotes to consolidated financial statements*

 

24

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICITYears EndedDecember 31, 2001 and 2000(In thousands, except for per share data)

** **
|                                              |   | **Common Stock** |   | **Additional Paid-in Capital** |   | **Accumulated Other Comprehensive Income** |   | **Accumulated Deficit** |   | **Total Stockholders’********Deficit** |   |
|---------------------------------------------------|--------|------------------|--------|--------------------------------|--------|--------------------------------------------|--------|-------------------------|--------|---------------------------------------------|--------|
| **Shares**                                        |   | **Amount**       |
| **Balances,**January 1,  2000                |   | 5,365            |   | $                              | 5      |                                       | $      | 15,016                  |   | $                                           | 1,035  |   | $ | (30,300 | ) | $ | (14,244 | ) |
| **Foreign  currency translation adjustment**      |   |             |   |                           |   |                                       |   | 473                     |   |                                        |   | 473 |   |
| **Net loss**                                      |   |             |   |                           |   |                                       |   |                    |   | (6,266                                      | )      | (6,266 | ) |
| **Balances,**December  31, 2000                   |   | 5,365            |   | 5                              |   | 15,016                                     |   | 1,508                   |   | (36,566                                     | )      | (20,037 | ) |
| **Exercise of  warrants**                         |   | 5,657            |   | 6                              |   | 51                                         |   |                    |   |                                        |   | 57 |   |
| **Foreign  currency translation adjustment, net** |   |             |   |                           |   |                                       |   | (1,446                  | )      |                                        |   | (1,446 | ) |
| **Net income**                                    |   |             |   |                           |   |                                       |   |                    |   | 2,446                                       |   | 2,446 |   |
| **Balances,**December 31, 2001                    |   | 11,022           |   | $                              | 11     |                                       | $      | 15,067                  |   | $                                           | 62     |   | $ | (34,120 | ) | $ | (18,980 | ) |

 

*See accompanyingnotes to consolidated financial statements*

 

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**TRANS WORLDCORPORATION AND SUBSIDIARIES**

CONSOLIDATED STATEMENTSOF CASH FLOWSYears EndedDecember 31, 2001 and 2000(In thousands, except for per share data)

 
|                                                                                                     |   | **2001** |       | **2000** |       |
|----------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|------------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                     |   |     |       |     |       |
| Net income/(loss)                                                                                        |   | $        | 2,446      |     | $          | (6,266 | ) |
| Adjusted for discontinued operations                                                                     |   | (7,084   | )          | 1,421    |       |
| Loss from continuing operations                                                                          |   | (4,638   | )          | (4,845   | )          |
| Adjustments to reconcile loss from  continuing operations to net cash provided by continuing operations: |   |     |       |     |       |
| Depreciation and amortization                                                                            |   | 1,920    |       | 1,775    |       |
| Non-cash interest                                                                                        |   | 767      |       | 735      |       |
| Other non-cash items                                                                                     |   | 283      |       |     |       |
| Increase (decrease) in cash attributable to  changes                                                     |   |     |       |     |       |
| in operating assets and liabilities:                                                                     |   |     |       |     |       |
| Other current assets                                                                                     |   | (54      | )          | 650      |       |
| Other assets                                                                                             |   | (83      | )          | 7        |       |
| Accounts payable, accrued expenses and  other liabilities                                                |   | 2,611    |       | 2,741    |       |
| Net cash provided by continuing operations                                                               |   | 806      |       | 1,063    |       |
| Net cash used in discontinued operations                                                                 |   | (640     | )          | (250     | )          |
| NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                |   | 166      |       | 813      |       |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                     |   |     |       |     |       |
| Proceeds from the sale of Casino de  Zaragoza, net                                                       |   | 1,643    |       |     |       |
| Proceeds from the sale of other property                                                                 |   | 13       |       |     |       |
| Purchases of property and equipment                                                                      |   | (161     | )          | (284     | )          |
| NET CASH PROVIDED BY (USED IN) INVESTING  ACTIVITIES                                                     |   | 1,495    |       | (284     | )          |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                     |   |     |       |     |       |
| Proceeds from short-term debt                                                                            |   | 1,792    |       | 600      |       |
| Payments of short-term debt                                                                              |   | (1,636   | )          | (426     | )          |
| Payments of deferred financing costs                                                                     |   |     |       | (330     | )          |
| Proceeds from exercise of warrants                                                                       |   | 57       |       |     |       |
| NET CASH PROVIDED BY (USED IN) FINANCING  ACTIVITIES                                                     |   | 213      |       | (156     | )          |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                                  |   | 91       |       | (22      | )          |
| NET INCREASE IN CASH                                                                                     |   | 1,965    |       | 351      |       |
| CASH                                                                                                     |   |     |       |     |       |
| Beginning of year                                                                                        |   | 1,285    |       | 934      |       |
| End of year                                                                                              |   | $        | 3,250      |     | $          | 1,285 |   |
| **SUPPLEMENTAL DISCLOSURES  OF CASH FLOW INFORMATION,**                                                  |   |     | ** ** |     | ** ** |
| Cash paid during the year for: Interest                                                                  |   | $        | 1,054      |     | $          | 2,078 |   |
| Income taxes, foreign                                                                                    |   | $        | —     |     | $          | 15 |   |
| **SUPPLEMENTAL DISCLOSURE OF  NONCASH INVESTING AND FINANCING ACTIVITIES**                               |   |     | ** ** |     | ** ** |
| Conversion of accounts payable to  short-term debt                                                       |   | $        | 216        |     | $          | — |   |

 

*See accompanyingnotes to consolidated financial statements*

 

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**TRANS WORLD CORPORATION AND SUBSIDIARIES**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Inthousands, except for per share data)

 

**NOTE1** - **Nature****of Businessand Liquidity**

 

**Overview**

 

Trans WorldCorporation and Subsidiaries (collectively the “Company”), a Nevadacorporation, is primarily engaged in the gaming business in the CzechRepublic.  The Company’s Spanishoperations were sold in December 2001.

 

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

 

The Companyowns and operates two casinos in the western Czech Republic, close to the borderof the German State of Bavaria.  Thelarger casino, located in Ceska Kubice, currently has 15 gaming tables and 60slot machines.  The smaller casino,located in Rozvadov, currently has 11 gaming tables and 30 slot machines.  Additionally, the Company owns and operatesa casino in the southern Czech Republic, close to the border of Austria.  This casino, located in Hate (near Znojmo),currently has 17 gaming tables and 50 slot machines.

 

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

 

The Companyheld a majority interest in Casino de Zaragoza S.A. (“CDZ”), which owns thelicense to operate the only casino in the Spanish province of Aragon.  The casino, which operated nine gamingtables and 24 slot machines, was situated 15 miles outside of Zaragoza, and hadbeen operating at a loss since its April 1998 acquisition by the Company.  As part of the terms of that acquisition,the Company had negotiated an agreement with the local representatives of anagency of the provincial government, the Diputacion General de Aragon (“DGA”),to allow the casino to relocate from its present position to the center ofdowntown Zaragoza, subject to a decree. As a result of excessive delays by the local Spanish authorities inauthorizing the casino’s relocation, coupled with the business unit’s mountinglosses, the Company elected to divest itself of the casino, and in December2001, the Company sold its interest in CDZ to a local Spanish casino operator (*see Note 11*).

 

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***Liquidity***

 

At December 31, 2001, the Company has a nominal working capital surplusand a stockholders’ deficit of $18,980. Further,****in spite of therecent debt conversion initiative discussed below, the Company is highlyleveraged with debt and was unable to meet its September 2000, March 2001, andSeptember 2001 interest payments in full *(seeNote 4)**.*  The Company hastaken several steps to improve its consolidated financial position, including(i) the December 2001 sale of its under-performing Spanish casino ($1,300 ofthe net proceeds have been earmarked for potential investment in a hotel orcasino project); (ii) the March 2002 debt (and related accrued interest)conversion to equity (hence reducing liabilities by $6,700) (see Notes 4 and12); (iii) the 2001 expansion of its facility in Znojmo, Czech Republic (from11 to 17 gaming tables, five of which were added in May 2001); (iv) therenovation of its casino in Ceska Kubice, Czech Republic, which was completedin July 2001; and (v) the March 2002 buyout (purchase) of the Hate casinobuilding lease.

 

In light of the steps taken by management (discussed in the precedingparagraph), management believes that the Company is in a better position toseek additional financing, the proceeds from which would be used to (i) providethe Company with supplementary working capital to preserve and enhance theCompany’s existing assets and (ii) acquire new business units.  Additionally, the Company is studying thepotential benefits of relocating one of its existing casinos as well as aproposed project to develop a fourth casino in Europe.  There can be no assurances that management’splans will be realized.

 

The Company believes that its cash resources at December 31, 2001,together with 2002 developments (waivers and debt conversion discussed in Note12) and anticipated cash provided by 2002 operations, are sufficient to fundits activities for the year ending December 31, 2002.  However, long-term liquidity is dependent on the Company’s abilityto attain profitable operations and to secure additional financing.

 

**NOTE2** - **Summary of Significant Accounting Policies**

 

**Principles ofConsolidation ****- **Theconsolidated financial statements include the accounts of the Company and itswholly owned and majority-owned subsidiaries. All significant intercompany balances and transactions have beeneliminated in consolidation.

** **

**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 totaled $2,852 atDecember 31, 2001.  The Company has notincurred any losses in such accounts and believes it is not exposed to anysignificant credit risk on cash.

 

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**Property andEquipment **- Theproperty and equipment total is stated at cost less accumulated depreciationand amortization.  The Company providesfor depreciation and amortization using the straight-line method over thefollowing estimated useful lives:

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

 

**Pre-openingand development costs **- Pre-openingand development costs incurred in connection with the pursuit and developmentof new gaming projects in various jurisdictions are expensed as incurred.

 

**Goodwill **- Goodwill,which represents the excess of cost of acquired companies over the fair valueof their net assets at dates of acquisition, was being amortized on astraight-line basis over 7 years through December 31, 2001 (see New AccountingPronouncements).

 

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

 

**Earnings/(Loss)Per Common Share **- Earnings/(loss)per common share is based on the weighted average number of common sharesoutstanding.

 

The Company complies with Statement of Financial Accounting Standards(“SFAS”) 128, “Earnings Per Share,” which requires dual presentation of basicand diluted earnings per share.  Basicearnings per share excludes dilution and is computed by dividing incomeavailable to common stockholders by the weighted-average common sharesoutstanding for the year.  Dilutedearnings per share reflects the potential dilution that could occur ifsecurities or other contracts to issue common stock were exercised or convertedinto common stock or resulted in the issuance of common stock that then sharedin the earnings of the entity.

 

As the Company had a net loss from continuing operations for the yearsended December 31, 2001 and 2000, diluted earnings per share equals basicearnings per share as potentially dilutive common stock equivalents (*see Note 10*) are antidilutive.  The average market price per share of theCompany’s common stock for the years ended December 31, 2001 and 2000 was $0.07and $0.29, respectively.  If the Companywould have had income from continuing operations for the years ended December31, 2001 and 2000, the denominator (weighted average common shares outstanding)in the diluted earnings per share calculation would have increased, throughapplication of the treasury stock method, for each class of option or warrantfor which the average market price per share of the Company’s common stockexceeded the common stock equivalents’ exercise price.

 

**Income Taxes ****- **The Company complies with SFAS 109,“Accounting for Income Taxes,” which requires an asset and liability approachto financial accounting and reporting for income taxes.  Deferred income tax assets and liabilitiesare computed for differences between the financial statement and tax bases ofassets and liabilities that will result in future taxable or deductible

 

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amounts, based on enacted tax laws and ratesapplicable to the periods in which the differences are expected to affecttaxable income.  Valuation allowancesare established, when necessary, to reduce deferred tax assets to the amountexpected to be realized.

 

**CasinoRevenue ****- **Casino revenue is the net win fromgaming activities, which is the difference between gaming wagers and the amountpaid out to patrons, plus revenue generated from ancillary services.

 

**PromotionalAllowances ****- **Promotional allowances primarilyconsist of food and beverages furnished gratuitously to customers.  For the years ended December 31, 2001 and2000, revenues do not include the retail amount of food and beverage of $502and $373, respectively, provided gratuitously to customers.  The cost of these items of $349 and $259,respectively, is included in cost of revenues.

 

**FairValue 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 consolidatedbalance sheet at December 31, 2001.

 

**Useof Estimates ****- **The preparation of financial statementsin conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

**Impairmentof 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.

 

**New Accounting Pronouncements****-**In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFASNo.’s 141 and 142, “Business Combinations” and “Goodwill and Other Intangibles.”  SFAS No. 141 requires all businesscombinations initiated after June 30, 2001 to be accounted for using thepurchase method.  Under SFAS No. 142,effective the first quarter of the year ending December 31, 2002, goodwill willno longer be subject to amortization over its estimated useful life; rather,goodwill will be subject to at least an annual assessment for impairmentapplying a fair-value based test. Additionally, an acquired intangible asset will be separately recognizedif the benefit of the intangible asset is obtained through contractual or otherlegal rights, or if the intangible asset can be sold, transferred, licensed,rented, or exchanged, regardless of the acquirer’s intent to do so.  The Company is in the process of determiningthe impact of these pronouncements on its consolidated financial position andresults of operations.

 

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In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairmentor Disposal of Long-Lived Assets”.  Thisstatement established a single accounting model, based upon the frameworkestablished in SFAS 121, “Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to be Disposed of,” for long-lived assets to bedisposed of by sale and to address significant implementation issues.  In light of its December 2001 sale of CDZ,the Company has elected early adoption of this standard.  Accordingly, the Company has presented theoperations of its Spanish casino as discontinued operations for the years endedDecember 31, 2001 and 2000.

 

**Reclassifications ****- **Certainprior year amounts have been reclassified to conform to the 2001 presentation.

 

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

 

At December 31, 2001, property and equipment consists of the following:

 
| Land                                            |   | $      | 1,038  |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Building and improvements                       |   | 908    |   |
| Gaming equipment                                |   | 1,703  |   |
| Furniture, fixtures and other  equipment        |   | 1,961  |   |
| Construction in progress                        |   | 12     |   |
|                                            |   |   |   |
|                                            |   | 5,622  |   |
| Less accumulated depreciation  and amortization |   | (1,756 | )      |
|                                            |   |   |   |
|                                            |   | $      | 3,866  |   |

 

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

 

At December 31, 2001, long-term debt consists of the following:

 
| 12% Senior Secured Promissory  Notes (a) (d) |   | $      | 17,000 |   |
|----------------------------------------------|--------|--------|--------|--------|
| 12% Secured Senior Bonds (b)                 |   | 4,800  |   |
| 12% Senior Secured Note (c)  (d)             |   | 3,000  |   |
|                                         |   | 24,800 |   |
| Less unamortized debt discount               |   | (2,749 | )      |
|                                         |   | $      | 22,051 |   |

 

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(a)       In March 1998, the Company borrowed$17,000 ($9,000 from Value Partners, Ltd. — “Value Partners”) in a 

privateplacement (“March 1998 Private Placement”). The loan is represented by 12% Senior Secured Notes (“the March 1998Senior Notes”) issued pursuant to indentures by and among the Company and anindependent indenture trustee.  TheMarch 1998 Senior Notes, which are due March 2005, require mandatory prepaymentsbased upon excess cash flows generated from the Company’s Czech subsidiary 21stCentury Resorts a.s. (“Resorts”).  TheMarch 1998 Senior Notes are collateralized by substantially all of Resort’sgaming equipment and a majority interest in the capital stock of all of theCompany’s subsidiaries.  In addition tothe March 1998 Senior Notes, each investor received a proportionate share ofwarrants to purchase 7,087 shares of the Company’s common stock.

 

Of the $17,000 principal amount of notes andwarrants issued in the March 1998 Private Placement, the Company allocatedapproximately $4,700 as the estimated value of the warrants issued with thenotes.  This amount is being amortizedas additional interest expense with a corresponding increase to notes payableover the lives of the respective notes using the effective interest methoduntil such notes are repaid.  AtDecember 31, 2001, approximately $2,340 has been amortized and the remainingbalance of approximately $2,360 at December 31, 2001 is reflected as areduction of notes payable.

 

(b)      In March 2002, an exchange agreement,whereby these bonds (and related interest payable of approximately 

$1,902) willbe converted into shares of the Company’s common stock, was approved by theholders of this debt (*see Note 12*).

 

(c)       In October 1999, the Company borrowed$3,000 ($2,700 from Value Partners) in a private placement (“October 

1999 PrivatePlacement”).  The loan is represented by12% Senior Secured Notes (“October 1999 Senior Notes”) issued pursuant toindentures by and among the Company and an independent indenture trustee.  The October 1999 Senior Notes, which are dueMarch 2005, require mandatory prepayments based upon excess cash flowsgenerated from Resorts.  The October1999 Senior notes are collateralized by primarily all of Resort’s gamingequipment and a majority interest in the capital stock of all of the Company’ssubsidiaries (except CDZ).  In additionto the October 1999 Senior Notes, each investor received a proportionate shareof warrants to purchase 1,251 shares of the Company’s common stock.

 

Of the $3,000 principal amount of notes andwarrants issued in the October 1999 Private Placement, the Company allocatedapproximately $625 as the estimated value of the warrants issued with thenotes.  This amount is being amortizedas additional interest expense with a corresponding increase to notes payableover the lives of the respective notes using the effective interest methoduntil such notes are repaid.  At December31, 2001, approximately $236 has been amortized and the remaining balance ofapproximately $389 at December 31, 2001 is reflected as a reduction of notespayable.

 

(d)      The Company was not in compliance withcertain covenants (nonpayment of interest and the incurrence of 

additional indebtedness –*see Notes 1 and 12*) of its long-term debtobligations.  In March 2002, the Companyreceived waivers on the defaults from the holder of the majority interest ofthose debt instruments (Value Partners)*(see Note 12)*.

 

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

 

At December 31, 2001, accrued expenses and other current liabilitiesconsists of the following:

 
| Accrued Czech gaming and  charity taxes |   | $   | 1,348  |   |
|-----------------------------------------|--------|-----|--------|--------|
| Accrued compensation                    |   | 251 |   |
| Other                                   |   | 775 |   |
|                                    |   | $   | 2,374  |   |

** **

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

*** ***

***Lease Obligations* -** The Company is obligated under operatingleases relative to its various facilities expiring through 2010.  Future aggregate minimum annualrental payments under all of these leases (excluding Hate’s building lease – *see Note 12*) for the next five years are asfollows:

 
| **Year ending December 31,** |   |   | ** ** |
|------------------------------|--------|--------|------------|
| 2002                         |   | $      | 103        |   |
| 2003                         |   | 85     |       |
| 2004                         |   | 85     |       |
| 2005                         |   | 68     |       |
| 2006                         |   | 17     |       |
|                              |        |        |            |  |

 

Rent expense under these leases (including Hate’s building lease)amounted to approximately $437 and $465 for the years ended December 31, 2001and 2000, respectively.

 

***EmploymentAgreements -*** The Company has entered intoemployment agreements with certain of its executives, which provide for annualcompensation plus, in most cases, participation in future benefit programs andstock options plans.  As of December 31,2001, future annual compensation under these employment agreements is asfollows:

 
| **Year ending December 31,** |   |   |   |
|------------------------------|--------|--------|--------|
| 2002                         |   | $      | 422    |   |
| 2003                         |   | 272    |   |
| 2004                         |   | 272    |   |
|                              |        |        |        |  |

 

In addition, the Company has entered intoseverance agreements with certain executives through December 2002.  Future payments under these agreements (allof which have been accrued as of December 31, 2001) approximate $251 for theyear ending December 31, 2002.

 

***ConsultingAgreements* - **The Company has entered into consulting agreements in Czech Republicuntil 2005.  Future annual paymentsunder these consulting contracts are $27 for each of the next four years.

 

***Foreign activities***- During the yearsended December 31, 2001 and 2000, the Company’s operations were entirelyoutside of the United States.  Operatinginternationally involves additional risks relating to such things as currencyexchange rates, different legal and regulatory environments, political and

 

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economicrisks relating to the stability or predictability of foreign governments,differences in the manner in which different cultures do business, difficultiesin staffing and managing foreign operations, differences in financialreporting, operating difficulties, different types of criminal threats andother factors.  The occurrence of any ofthese risks, if severe enough, could have a material adverse effect on theconsolidated financial position, results of operations and cash flows of theCompany.

 

***Litigation (formerPresident and Chief Operating Officer)* –** OnOctober 6, 2000, the Company’s former President and Chief Operating Officer,Andrew Tottenham (“former President”), commenced an action against the Companyin the United States District Court for the Southern District of New York.  The former President seeks to recover foralleged wrongful conduct in connection with his separation of employment fromthe Company.  The former President hasamended his complaint twice, most recently on January 26, 2001 to interpose aSecond Amended Complaint.  In the SecondAmended Complaint, the former President alleges claims for (1) $1,153 forbreach of an employment contract, (2) $93 for breach of an oral contract, (3)equitable and monetary damages in an unspecified amount based on a derivativestockholder’s suit/breach of fiduciary duty, (4) monetary damages in anunspecified amount for conversion, (5) monetary damages in an unspecifiedamount for fraud, and (6) indemnification in an unspecified amount.

 

On February 23, 2001, the Company answered denying the materialallegations of the former President’s claims, as well as asserting severalcounterclaims.  The Company believes ithas meritorious defenses to the former President’s claims and intends to defendagainst them vigorously.  Discovery isunderway with the deadline for completion of depositions being March 29,2002.  There have been no other motionsor proceedings in the case. Accordingly, no provision for liability to the Company that may resultupon adjudication has been made in the accompanying consolidated financialstatements.

 

***Litigation (formerPresident and Chief Operating Officer)*** – In July 2001,the Company commenced an action in Spanish court against the Company’s formerPresident (“Juicio Verbal 530/01”) claiming ownership and demanding the returnof one CDZ share that was transferred to him for administration purposes inconjunction with the Company’s April 1998 acquisition of CDZ.  In this case, the “First Instance Court”declared on July 31, 2002 that it does not have territorial competence todecide the matter, and that court resolution was appealed by the Company.  The Company won its appeal on February 28,2002, and a decision on the share ownership dispute by the “First InstanceCourt” is expected sometime later in 2002. The Company, based on advice of its Spanish legal counsel, believes itscase against the Company’s former President is strong and accordingly, noprovision for liability to the Company that may result upon adjudication hasbeen made in the accompanying consolidated financial statements.

 

***Litigation (formerPresident and Chief Operating Officer)*** – In October 2001,the Company’s former President filed a suit in Spanish court against theCompany, CDZ, and CDZ’s former President (“Juicio Ordinario 878/01”) applyingfor the annulment of the recapitalization of CDZ agreed in September 2000 andexecuted in April 2001 and claiming for his right as holder and alleged ownerof one CDZ share to subscribe and pay all the shares subscribed and paid by theCompany and CDZ’s former president. This case has been suspended until a final sentence has been announcedin Juicio Verbal 530/01.  However, theformer President appealed the decision, and the Company has contested thatappellation.  The Company, based onadvice of its Spanish legal counsel, believes that

 

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a favorable outcome of Juicio Verbal 530/01 will impact Juicio Ordinario878/01 in that Juicio Ordinario 878/01 would also be ruled in the Company’sfavor.  Nevertheless, the Companybelieves it has meritorious defenses to the former President’s claims withrespect to Juicio Ordinario 878/01 and intends to defend against themvigorously as well as to vigorously pursue its claims against the formerPresident.  Accordingly, no provisionfor liability to the Company that may result upon adjudication has been made inthe accompanying consolidated financial statements.

 

***Litigation (ChoiceCapital Corporation)***In October 2001, the Company filed a“Complaint for Damages” against Choice Capital Corporation, a/k/a ChoiceInternational Corporation (“Choice”) and Jude Onukuwa in the Superior Court ofFulton County, Georgia.  The Companyseeks to recover payments made to Choice in connection with a potentialfinancing deal that Choice did not consummate. In addition, the Company seeks to win awards for interest, attorneyfees, damages for lost profits, and punitive damages.  In November 2001, Choice answered to the complaint, denying thematerial allegations of the complaint. Further, Choice’s response includes a counterclaim against the Company,which seeks punitive damages of $1,200 for lost commissions related to theunconsummated deal.  The discoveryperiod is underway and will run until June 1, 2002.  The Company believes that it has a strong case against Choice andthat it has meritorious defenses to Choice’s counterclaims and intends topursue the Company’s claims vigorously as well as to defend against Choice’sclaims vigorously.  Accordingly, noprovision for liability to the Company that may result upon adjudication hasbeen made in the accompanying consolidated financial statements.

 

***Otherlitigation***-The Company is not currently involved in any other material legal proceedingnor was it involved in any other material litigation during the year endedDecember 31, 2001.

 

**Taxing Jurisdiction** - TheCzech Republic currently has a number of laws related to various taxes imposedby governmental authorities.  Applicabletaxes include value added tax (“VAT”), charity tax, corporate tax, and payroll(social) taxes, together with others. In addition, laws related to these taxes have not been in force forsignificant periods, in contrast to more developed market economies; therefore,regulations are often unclear or nonexistent. Accordingly, few precedents with regard to issues have beenestablished.  Often, differing opinionsregarding legal interpretations exist both among and within governmentministries and organizations, thus, creating uncertainties and areas ofconflict.  Tax declarations, togetherwith other legal compliance areas (as examples, customs and currency controlmatters) are subject to review and investigation by a number of authorities,which are enabled by law to impose extremely severe fines, penalties andinterest charges.  These facts createtax risks in the Czech Republic substantially more significant than typicallyfound in countries with more developed tax systems.  Management believes that it has adequately provided for taxliabilities.

 

**NOTE7**-          **Stockholders’Deficit**

 

In February 2001, Value Partners exercised warrants to purchase 5,657shares of the Company’s common stock at $0.01 per share.

 

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**NOTE8 -**          **OtherBalance Sheet Items**

 

**Deposits and OtherAssets** - Includedin deposits and other assets at December 31, 2001 are approximately $609 inrestricted deposits relating to Czech license bond requirements, $200 indeferred financing costs and other items aggregating $64.

 

**Short-term Debt** - AtDecember 31, 2001, short-term debt primarily consisted of an approximate $476bank note payable in installments through December 2002.  The debt, which is collateralized by theCompany’s casino in Rozvadov, the Company’s land in Folmava, Czech Republic andguaranteed by Resorts, bears interest at approximately 7% and is subject tocertain covenants.  Also included in theDecember 31, 2001 short-term debt balance was $233 (including accrued interestof $17) related to a short-term promissory note associated with outstandinglegal fees from the year ended December 31, 2000 owed by the Company.  The note, which bears interest at a rate of8% per annum, matured on December 31, 2001 and was extended through January 1,2003 in the principal amount of $233 at an interest rate of 7% per annum.  Under the terms of the note, the Companymust keep any future activity of its account in good standing, which it hasdone.

 

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

 

At December 31, 2001, the Company had U.S. and foreign net operatingloss carry forwards (“NOL’s”) of approximately $29,656 and $1,456,respectively, available to offset certain future taxes payable.  However, the February 2001 warrant exerciseto approximately 5,657 shares of the Company’s common stock triggered delaysand significant limitations of preexisting U.S. NOL’s, pursuant to InternalRevenue Code Section 382, to the extent that substantially all of the Company’sexisting U.S. NOL’s can not be utilized. Further, based on limited analysis, the Company believes that the March2002 Exchange Agreement (see Note 12) creates further delays andlimitations.  Hence, disclosure of theCompany’s U.S. deferred tax asset position (which is fully reserved) is deemedto be insignificant.  The foreign NOLresulted in an estimated $450 deferred tax asset at December 31, 2001.  A full valuation allowance has beenestablished for this deferred tax asset since its realization is consideredunlikely.

 

The U.S. NOL’s expire between 2009 and 2021.  The foreign NOL’s expire between 2003 and 2008.  The following table presents the U. S. andforeign components of pretax loss from continuing operations before incometaxes for the years ended December 31, 2001 and 2000:

 
|    |   | **2001** |    | **2000** |   |
|---------|--------|----------|---------|----------|--------|
| U.S.    |   | $        | (6,180  | )        | $      | (5,689 | ) |
| Foreign |   | 1,542    |    | 844      |   |
|    |   | $        | (4,638) |     | $      | (4,845 | ) |

 

36

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The following table presents the principal reasons for the differencesbetween the effective tax rate and the U.S. federal statutory income tax rateattributable to continuing operations for the years ended December 31, 2001 and2000:

 
|                                                                        |   | **2001** |   | **2000** |   |
|-----------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| U.S federal statutory income  tax rate                                      |   | (34      | )%     | (34      | )%     |
| Effect of differences in  foreign tax rates                                 |   | (19      | )      | (14      | )      |
| Effect of non-deductibility of  goodwill amortization                       |   | 8        |   | 8        |   |
| Effect of NOL’s (including  limitations) and valuation allowances, net |   | 45       |   | 40       |   |
| Other                                                                       |   |     |   |     |   |
|                                                                        |   | —   | %      | —   | %      |

** **

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

 

***Warrants***

 

For the years ended December 31, 2001 and 2000, warrant activity is asfollows:

 
| **Price Per Share** |   | **Balances,  January 1,  2000 and  2001 (a)** |   | **Granted****200****1** |   | **Exercised  2001** |   | **Expired  2001** |   | **Balance,  December 31,  2001** |   |
|---------------------|--------|-----------------------------------------------|--------|-------------------------|--------|---------------------|--------|-------------------|--------|----------------------------------|--------|
| $1.50               |   | 3,200                                         |   |                    |   |                |   |              |   | 3,200                            |   |
| 1.00                |   | 960                                           |   |                    |   |                |   |              |   | 960                              |   |
| 0.59                |   | 250                                           |   |                    |   |                |   | (250              | )      |                             |   |
| 0.01                |   | 8,848                                         |   |                    |   | (5,657              | )      |              |   | 3,191                            |   |
|                |   | 13,258                                        |   |                    |   | (5,657              | )      | (250              | )      | 7,351                            |   |

 

----

(a)  There was no warrant activity during the year ended December 31,2000.

 

All warrants outstanding at December 31, 2001 are exercisable.

 

***Stock Option Plans***

 

The Company has incentive and non-statutory stock option plans underwhich certain key employees may purchase up to a total of 2,000 common sharesof the Company.  Under the incentivestock option plan, the exercise price can not be less than the fair marketvalue of a share on the date of grant or at 110

 

37

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percent of the fair market value on the date of grant, if, any employeeowns more than ten percent of the total combined voting power of all classes ofoutstanding stock of the Company.  Inaddition, the incentive stock option plan provided for automatic grant of anoption to purchase 2 shares of common stock to non-employee directors on aquarterly basis.  In the case of anon-statutory stock option, the exercise price may be any amount determined bythe Board on the date of grant, but not less than the par value of the stocksubject to the option.

 

During 1999, in light of diminishing shares remaining available forgrant to non-employee directors, the Company’s Board of Directors approved the1999 Non-Employee Director Stock Option Plan (the “1999 Plan”), which wasamended in July 2000.  Under the 1999Plan, an aggregate of 250 shares of the Company’s common stock were reserved forissuance pursuant to options issued pursuant to the 1999 Plan.  The 1999 Plan provides for an automaticgrant of an option to purchase 2 shares of common stock to non-employeedirectors on a quarterly basis through the second quarter of 2000 and 2.5 sharesof common stock on a quarterly basis thereafter.  Under the 1999 Plan, the exercise price shall equal the fairmarket value of the Company’s common stock on the date of grant.  Options issued under the 1999 Plan shall beimmediately exercisable over ten years.

 

The activity in the stock option plans is as follows:

 
|                                      |   | **Options** |   | **Range** |      | **Average** |   |
|-------------------------------------------|--------|-------------|--------|-----------|-----------|-------------|--------|
| Balance outstanding, January  1, 2000 (a) |   | 634         |   | $         | 0.24-9.00 |        | $      | 0.93 |   |
|                                      |   |        |   |      |      |        |   |
| Granted                                   |   | 227         |   | 0.17-0.55 |      | 0.35        |   |
| Expired (a)                               |   | (312        | )      | 0.24-3.13 |      | 0.63        |   |
|                                      |   |        |   |      |      |        |   |
| Balance outstanding, December  31, 2000   |   | 549         |   | 0.17-9.00 |      | 0.69        |   |
|                                      |   |        |   |      |      |        |   |
| Granted                                   |   | 250         |   | 0.03-0.61 |      | 0.27        |   |
|                                      |   |        |   |      |      |        |   |
| Expired                                   |   | (13         | )      | 9.00      |      | 9.00        |   |
|                                      |   |        |   |      |      |        |   |
| Balance outstanding, December  31, 2001   |   | 786         |   | $         | 0.03-2.00 |        | $      | 0.44 |   |
|                                      |   |        |   |      |      |        |   |
| Exercisable, December 31, 2001            |   | 786         |   | $         | 0.03-2.00 |        | $      | 0.44 |   |

 

----

(a)  Restated to reflect pre-2001option expirations related toterminated employees and directors.

 

38

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There were no options exercised during 2001 or 2000.  The option price per share was equal to orabove the market value of the underlying stock on the date of grant.  Options generally expire between five andten years after the date of grant or earlier upon termination, as defined inthe plans.

 

The Company complies with the disclosure-only provisions of SFAS 123,“Accounting for Stock-Based Compensation”.

 

The Company applies Accounting Principles Board Opinion 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 123 using the Black-Scholes option-pricing model, the proforma effect on the Company’s net loss and per share amounts would have been:

 
|                            |   | **2001** |   | **2000** |   |
|---------------------------------|--------|----------|--------|----------|--------|
| Net income/(loss)               |   |     |   |     |   |
| As reported                     |   | $        | 2,446  |     | $      | (6,266 | ) |
| Pro forma                       |   | 2,380    |   | (6,337   | )      |
|                            |   |     |   |     |   |
| Income/(loss) per common share, |   |     |   |     |   |
| basic and diluted               |   |     |   |     |   |
| As reported                     |   | $        | 0.24   |     | $      | (1.17 | ) |
| Pro forma                       |   | $        | 0.23   |     | (1.18  | ) |

 

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

 
|                  |   | **2001** |   | **2000** |   |
|-----------------------|--------|----------|--------|----------|--------|
| Expected life (years) |   | 5-10     |   | 5        |   |
| Risk-free rate        |   | 5.5      | %      | 6        | %      |
| Volatility            |   | 172      | %      | 140      | %      |
| Dividend yield        |   | 0        | %      | 0        | %      |

 

**NOTE11 -**        **DiscontinuedOperations**

 

In December 2001, the Company sold its majority interest in CDZ to anunrelated Spanish casino operator (the “Buyer”) for 11,119 Euros (including theBuyer’s assumption of CDZ’s liabilities of 7,505 Euros).  Of the gross sales amount, 1,955 Euros (orapproximately $1,736 using the exchange rate in effect at the time of the sale)was received directly by the Company (reduced by approximately $481 of closingcosts, some of which were paid prior to 2001 and some of which will be paid in2002) and 1,659 Euros (or approximately $1,473 using the exchange rate ineffect at the time of the sale) were paid by the Buyer directly to CDZ onbehalf of the Company to offset the Company’s existing liability to CDZ.  In connection with the transaction, theCompany realized a net gain of approximately $8,540 (including $1,807 ofpreviously unrealized foreign currency translation adjustments).  Summary operating results of discontinuedoperations for the years ended December 31, 2001 and 2000 are as follows:

 

39

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|                                          |   | **2001** |       | **2000** |       |
|-----------------------------------------------|--------|----------|------------|----------|------------|
| **Revenues**                                  |   | $        | 2,622      |     | $          | 3,905 |   |
|                                          |   |     |       |     |       |
| **Costs and  expenses**                       |   |     | ** ** |     | ** ** |
| Cost of revenues                              |   | 2,353    |       | 3,087    |       |
| Depreciation and amortization                 |   | 715      |       | 846      |       |
| Selling general and  administrative and other |   | 1,010    |       | 1,393    |       |
|                                          |   | 4,078    |       | 5,326    |       |
| **Net loss**                                  |   | $        | (1,456     | )        | $          | (1,421 | ) |

 

The Company is party to two actions in Spanish court relative to CDZ (*see Note 6*).

 

 

**NOTE12-**         **SubsequentEvents**

 

In March 2002, the Company received waivers on payment of interestrelated defaults under the March 1998 Senior Notes and October 1999 SeniorNotes through the earlier of:  (i) Tendays subsequent to the receipt of in excess of $5,000 from any source,including borrowing or the sale of equity; or(ii) January 1, 2003.  Asa result of the receipt of waivers, the Company has classified all interestpayable related to the March 1998 Senior Notes and the October 1999 SeniorNotes aggregating $3,439 as long-term on the accompanying December 31, 2001consolidated balance sheet.  In theevent that the Company obtains funds in excess of $5,000 on or before September17, 2002, the accrued unpaid interest due as of September 17, 2002 shall be dueon September 17, 2002.

 

In March 2002, the Company executed anExchange Agreement with the holders of $4,800 12% Secured Senior Bonds whereby this debt,together with $1,902 of accrued and unpaid interest, will be exchanged for37,233 shares of the Company’s common stock at a conversion price of $0.18 pershare.

 

In March 2002, the Company received waivers on incurrence of additionalindebtedness related defaults under the March 1998 Senior Notes and exercisedits right to buyout (purchase) the Hate building lease.  The building lease buyout (purchase), thecost of which was approximately $1,393, was financed by a loan from a localCzech Republic bank.  The bank note, which is payable in monthlyinstallments through December 2006, bears interest at 6.2% per annum and iscollateralized by the Hate casino building, the Company’s Rozvadov casino andemployee housing buildings, and the Company’s land in Folmava.

 

40

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**REPORT OF INDEPENDENT AUDITORS**

 

Board of Directors

Casino de Zaragoza, S.A.

 

We have audited the accompanying consolidatedbalance sheets of **CASINO DE****ZARAGOZA, S.A. AND SUBSIDIARIES**as of October 31, 2001 and December 31, 2000, and the related consolidatedstatements of operations, shareholders’ equity and cash flows for the ten monthperiod and year then ended.  Thesefinancial statements are the responsibility of Casino de Zaragoza, S.A.’smanagement.  Our responsibility is to expressan opinion on these financial statements based on our audits.

 

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

 

In our opinion, the financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of Casino de Zaragoza, S.A. and Subsidiaries as of October31, 2001 and December 31, 2000, and the consolidated results of its operationsand its cash flows for ten month period and year then ended  in conformity with generally accepted accountingprinciples in the United States of America.

 

The accompanying consolidated financialstatements have been prepared assuming that the Company will continue as agoing concern.  As more fully describedin Note 7, the Company suffered significant losses from operations and has aworking capital and stockholders’ deficit at October 31, 2001, that raisessubstantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these mattersare also described in Note 7.  The consolidatedfinancial statements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets or theamounts and classification of liabilities that might result from the outcome ofthis uncertainty.

 

ERNST & YOUNG

 

Represented by:

/s/ Juan Pedro Gómez Quiroga

 

Zaragoza, Spain

March 26, 2002

 

41

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**Item 8.  Changes In andDisagreements with Accountants on Accounting and Financial Disclosure.**

 

None.

** **

**PARTIII**

 

**Item 9.  Directors and ExecutiveOfficers, Promoters and Control Persons; Compliance with Section 16(A) of theExchange Act.**

 

The following table provides information as of March 7, 2002 withrespect to each of the Company’s directors and each Executive Officer:

 
| **Name**                     |   | **Age** | ** ** | **Position  in the Company**      | ** ** | **Director  or Executive Since** | ** ** |
|------------------------------|--------|---------|------------|-----------------------------------|------------|----------------------------------|------------|
| Rami S. Ramadan              |   | 52      |       | CEO, CFO,  President and Director |       | 1999                             |       |
| Julio E. Heurtematte, Jr (1) |   | 66      |       | Director                          |       | 1998                             |       |
| Malcolm M.B. Sterrett (1)    |   | 59      |       | Director                          |       | 1998                             |       |
| Geoffrey B. Baker (1,2)      |   | 53      |       | Director                          |       | 1999                             |       |

 

----

(1)  Memberof Audit Committee and Compensation Committee.

(2) Mr. Baker, who was appointed to a fill a vacancy on the Board ofDirectors on December 22, 1998, resigned from his position on May 13, 1999 and rejoinedthe Board on August 4, 1999.

 

***Rami S. Ramadan**** *has served as CEO/CFO since July12, 1999 and President since August 2000. His most recent prior position hadbeen Executive Vice President of Finance for the Ian Schrager Hotels fromNovember 1997 to July 1999.  Prior tothat, Mr. Ramadan held senior financial positions with Hyatt Hotels fromJanuary 1994 to November 1997, Euro Disney from October 1990 to December 1993and Meridien Hotels from September 1975 to September 1990.

 

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

 

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

 

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

 

42

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**Information about the Board and itsCommittees****:**

 

The Company’s Board ofDirectors manages the business and affairs of the Company.  Meetings of the Board are held quarterly andon an as-needed basis.  The Board hasestablished several committees, described below, which also meet on anas-required basis during the year.  TheBoard held three meetings and acted by consent through weekly conference callsconducted during the Company’s fiscal year ended December 31, 2001.  No director of the Company attended fewerthan 75% of the total number of meetings of the Board or meetings of committeesof the Board during the year ended December 31, 2001.

 

The Board of Directors hasestablished the following committees:

 

***AuditCommittee***

 

The Audit Committee reviews andapproves internal accounting controls, internal audit operations andactivities, the Company’s annual report and audited financial statements, theselection of the Company’s independent auditors, the activities andrecommendations of the Company’s independent auditors, material changes in theCompany’s accounting procedures, the Company’s policies regarding conflicts ofinterest and such other matters as may be delegated by the Board.  The Audit Committee, composed of Messrs.Baker, Heurtematte and Sterrett, all non-employee directors, met once and actedby consent through three conference calls in 2001.

***Compensation Committee***

 

The Compensation Committee setsthe compensation for executive officers of the Company and sets the terms ofgrants of awards under the Company’s 1993 Incentive Stock Option Plan (the“1993 Plan”), the Company’s 1998 Stock Option Plan (the “1998 Plan”), the 1999Non-Employee Director Stock Option Plan and any other equity-based compensationplans adopted by the Company. The Compensation Committee, composed of Messrs.Baker, Heurtematte and Sterrett, met once in 2001.

 

# **Section 16(a) BeneficialOwnership Reporting Compliance**

 

Section 16(a) of the ExchangeAct requires the Company’s officers, directors and persons who own more than10% of the Company’s Common Stock to file reports of ownership and changes inownership with the Securities and Exchange Commission (“SEC”) and the NationalAssociation of Securities Dealers, Inc. by certain dates.  The Company’s directors and executiveofficers satisfied these filing requirements for the fiscal year ended December31, 2001.  On February 23, 2001, ValuePartners, the Company’s majority bondholder, converted 5,657,453 of $0.01warrants held by it, which leaves Value Partners with a controlling 51.32% ofthe Company’s issued and outstanding Common Stock, based on its report ofownership filed with the SEC and forwarded to the Company.  The Company knows of no other person whoowns 10% or more of the Company’s Common Stock.

 

43

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**Item 10.             ExecutiveCompensation.**

 

**Summary of Cash and Certain OtherCompensation****:**

 

The following table sets forththe cash and non-cash compensation paid or earned during the fiscal yearsending December 31, 2001, 2000, and 1999 by the Chief Executive Officer(s) andChief Financial Officer of the Company (the “Named Officers”) during thoseperiods.

 

**Summary Compensation Table**

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

 

----

(1)  Mr. Ramadan joined theCompany as its CEO and CFO, July 12, 1999. He was elected the Company’s President in August 2000.

 

(2) Amounts shown represent the number of qualified stock options grantedeach year.  The options listed areexercisable, and the option price per share was set forth in Mr. Ramadan’semployment contract (See: Employment/Severance Agreements.)

 

(3)  The amounts shown representthe cost of a leased automobile provided to Mr. Ramadan for each yearindicated.

 

***Option Grants and Exercises***

 

The following table summarizes certain information concerningindividual grants of options during fiscal 2001 to the executive officer namedin the Summary Compensation Table above and the potential realizable value ofthe options held by such person at December 31, 2001.

 

**OptionsGranted in Fiscal 2001Individual Grants**

 
|                |   | **Shares of  Common  Stock Underlying  Options Granted** |   | **% of Total  Options  Granted to Employees  in Fiscal Year** |   | **Exercise  of  Base Price  ($/SH)** |   | **Expiration  Date** |       |
|---------------------|--------|----------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------|--------|----------------------|------------|
| **Rami S. Ramadan** |   | **100,000**                                              |   | **45%**                                                       |   | **$0.61**                            |   | **07/12/06**         | ** ** |

 

No options were exercised bythe executive officer named in the Summary Compensation Table during fiscal2001.

 

44

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The following table summarizes the option values held by the executiveofficers named in the Summary Compensation Table as of December 31, 2001.

**Aggregate OptionExercises in Fiscal 2001 andFiscal 2001 Year-End Option Value Table**

 
|                |   |                                            |   |                                |       | **Number of  Unexercised  Options At   December 31, 2001** |        | **Value of  Unexercised in the  Money Options at  December 31, 2001** |   |
|---------------------|--------|-------------------------------------------------|--------|-------------------------------------|------------|------------------------------------------------------------|-------------|-----------------------------------------------------------------------|--------|
| **Name**            |   | **No. of  Shares    Acquired on Exercise** |   | **Value   Realized  Upon Exercise** |       | **Exercisable**                                            |        | **Unexercisable**                                                     |   | **Exercisable** |   | **Unexercisable** |   |
| **Rami S. Ramadan** |   | **—**                                      |   | **$**                               | **—** |                                                       | **300,000** |                                                                  | **0**  |   | **$** | **—** |   | **$** | **—** | ** ** |
|                     |        |                                                 |        |                                     |            |                                                            |             |                                                                       |        |  |  |  |  |  |  |  |

*** ***

***Directors’ Compensation***

 

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

*** ***

***RamiS. Ramadan****. *EffectiveJuly 12, 1999, the Company entered into a three year employment agreement withMr. Ramadan pursuant to which he will serve as the Company’s CEO and CFO at anannual salary of $300,000. Mr. Ramadan is eligible to participate in the 1998Plan, Executive Compensation Plan and any present or future employee benefitplans.  He also will be reimbursed for reasonabletravel and out-of-pocket expenses necessarily incurred in the performance ofhis duties.  Mr. Ramadan will alsoreceive three separate equal annual installments of options to acquire theCompany’s Common Stock, each of which shall have a five-year term commencingupon the date on which each installment is granted.  Upon commencement of the employment agreement, Mr. Ramadanreceived 100,000 options exercisable at $0.50 per share; upon commencement ofthe second year of the employment agreement an additional 100,000 optionsexercisable at $0.55 per share were granted; and upon commencement of the thirdyear of the employment agreement, the final installment of 100,000 optionsexercisable at $0.61 per share will be granted.  Upon commencement of the second and third year of the employmentagreement, the exercise price for all unexercised options granted in thepreceding year will be increased to the current year’s exercise price up to$0.61.  In the event the employmentagreement is terminated other than for cause, as defined in the agreement,within six months of the commencement date, the Company shall pay to Mr.Ramadan one year’s salary in a lump sum within 30 days of the notice oftermination.  If the agreement isterminated other than for cause at anytime after six (6) months following commencementof the employment agreement, Mr. Ramadan will receive two years’ salary.

 

45

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**Item 11. Security Ownership of Certain Beneficial Owners and Management.**

 

The following table sets forth information regarding the beneficialownership of the Common Stock as of March 19, 2002 (the “Calculation Date”), unless otherwise noted, (a) byeach shareholder who is known by the Company to own beneficially more than 5.0%of the outstanding Common Stock, (b) by each director, (c) by each executiveofficer named in the Summary Compensation Table below and by all executiveofficers and directors as a group. Unless otherwise noted, each of the shareholders listed in the table orincluded within a group listed in the table possesses sole voting andinvestment power with respect to the shares indicated subject to communityproperty laws where applicable. The business address for each director andofficer of the Company is 545 Fifth Avenue, Suite 940, New York, New York10017.

 
| **Name of  Beneficial Owner**                                       |   | **Number of  Shares of  Common Stock  Beneficially Owned (1)** |   | **Percentage  of  Ownership (1)** |   |
|---------------------------------------------------------------------|--------|----------------------------------------------------------------|--------|-----------------------------------|--------|
| Value Partners, Ltd. (2)                                            |   | 8,257,453                                                      |   | 60.6                              | %      |
| Anasazi Partners Limited Partnership (3)                            |   | 1,352,333                                                      |   | 11.2                              | %      |
| Christopher P. Baker (4)                                            |   | 2,606,008                                                      |   | 20.7                              | %      |
| Rami S. Ramadan (5)                                                 |   | 300,000                                                        |   | 2.6                               | %      |
| Julio E. Heurtematte, Jr. (6)                                       |   | 71,691                                                         |   |                              | *      |
| Malcolm M.B. Sterrett (7)                                           |   | 71,691                                                         |   |                              | *      |
| Geoffrey B. Baker (8)                                               |   | 67,691                                                         |   |                              | *      |
| All  directors and the executive officer as a group (4 persons) (9) |   | 511,073                                                        |   | 4.4                               | %      |

 

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*              Less than 1%.

 
| (1)    | The percentage of outstanding shares is based on 11,022,902 shares  outstanding as of the Calculation Date and, for certain individuals and  entities, on reports filed with the SEC or on information provided directly  to the Company by such individuals or entities.  A person is deemed to be the beneficial owner of securities  that can be acquired by such person within 60 days from the Calculation Date  upon the exercise of options or warrants.   Each beneficial owner’s percentage ownership is determined by assuming  that options or warrants that are held by such person (but not those held by  any other person) are exercisable within 60 days from the date of the Voting  Record Date have been exercised.   Included are shares of Common Stock issuable upon the exercise of  options or warrants to purchase the Company’s Common Stock.                                                                                                                     |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (2)    | Value Partners, Ltd. is a Texas limited partnership, whose business  address is 4514 Cole Avenue, Suite 808, Dallas, Texas 75205. Includes  5,657,453 shares of Common Stock; warrants to purchase:  600,000 shares of Common Stock at an  exercise price of $1.00, expiring December 31, 2005; and 2,000,000 shares of  Common Stock at an exercise price of $1.50 per share, expiring December 31,  2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (3)    | Anasazi Partners, Ltd. is a Massachusetts limited partnership whose  business address is 303 Congress Street, Suite 301, Boston, Massachusetts  02210.  Includes 269,000 shares of  Common Stock; warrants to purchase 250,000 shares of Common Stock at an  exercise price of $1.00 per share, expiring December 31, 2005 (of these  warrants, 50,000 were acquired from New Generation, Ltd. in 1999); and  666,667 shares of Common Stock at an exercise price of $1.50 per share,  expiring December 31, 2005).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (4)    | The business address for Christopher P. Baker is 303 Congress Street,  Suite 301, Boston, Massachusetts 02210.   Includes:  1,058,000 shares of  Common Stock of which Mr. Christopher P. Baker, President of C.P. Baker &  Co., is the record holder; 10,000 shares of stock of which C.P. Baker &  Company, Ltd., an affiliate of Mr. Baker, holds of record; warrants to  purchase 1,504,675 shares of Common Stock at an exercise price of $0.01,  expiring June 30, 2002, that may be exercised by Mr. Baker and/or his  affiliates, C. P. Baker & Company, Ltd. and C. P. Baker Venture Fund I;  warrants to purchase 10,000 shares of Common Stock at an exercise price of  $1.00, expiring December 31, 2005; warrants to purchase 33,333 shares of  Common Stock at an exercise price of $1.50, expiring on December 31, 2005;  warrants to purchase 200,000 shares of Common Stock at an exercise price of  $1.00, expiring December 31, 2005, that may be exercised by Anasazi Partners, |

 

46

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|   | also an affiliate of C.P. Baker & Co.; and warrants to purchase  666,667 shares of Common Stock at an exercise price of $1.50, expiring  December 31, 2005, that may be exercised by Anasazi Partners.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (5)    | Consists of shares subject to incentive options granted to Mr.  Ramadan on July 12, 1999, 2000 and 2001, all of which were fully vested on  the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (6)    | Includes warrants to purchase 41,691 shares of Common Stock at an  exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of  Common Stock subject to non-qualified options granted to Mr. Heurtematte  under the 1998 Plan at the end of each calendar quarter ended June 30, 1998  through December 31, 1998 and 2,000 shares of Common Stock subject to  non-qualified options granted under the 1999 Director Plan at the end of each  calendar quarter ended March 31, 1999 through June 30, 2000, and 2,500 shares  of  Common Stock subject to  non-qualified options granted under the 1999 Director Plan at the end of each  calendar quarter ended September 30, 2000 through December 31, 2001, all of  which were fully vested on the dates of grant.                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (7)    | Includes  warrants to purchase 41,691 shares of Common Stock at an exercise price of  $.01 per share expiring March 31, 2008; 1,000 shares of Common Stock subject  to non-qualified options granted to Mr. Sterrett under the 1998 Plan at the  end of each calendar quarter ended June 30, 1998 through December 31, 1998  and 2,000 shares of Common Stock, subject to non-qualified options, granted  under the 1999 Director Plan at the end of each calendar quarter ended since  March 31, 1999 through June 30, 2000, and 2,500 shares of  Common Stock subject to non-qualified  options granted under the 1999 Director Plan at the end of each calendar  quarter ended September 30, 2000 through December 31, 2001, all of which were  fully vested on the dates of grant.                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (8)    | Includes warrants to purchase 41,691 shares of Common Stock at an  exercise price of $.01 per share expiring March 31, 2008; 1,000 shares of  Common Stock subject to non-qualified options granted to Mr. Baker under the  1993 Plan at December 31, 1998, 2,000 shares of Common Stock, subject to  non-qualified options, granted under the 1999 Director Plan for the calendar  quarter ended March 31, 1999 and 2,000 shares of Common Stock subject to  non-qualified options granted under the 1999 Director Plan at the end of each  quarter ended since September 31, 1999 through June 30, 2000, and 2,500  shares of  Common Stock subject to  non-qualified options granted under the 1999 Director Plan at the end of each  calendar quarter ended September 30, 2000 through December 31, 2001, all of  which were fully vested on the dates of grant. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (9)    | See Notes  (5), (6), (7) and (8) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

**Item 12. Certain Relationships and Related Transactions.**

 

On March 31, 1998, the Company,with the assistance of Libra, acting as placement agent, borrowed $17.0 millionfrom fourteen investors in the Private Placement.  The loan is represented by the Senior Notes issued pursuant tothe Indentures by and among TWC, TWGI, TWGF and USTCT.  The Indentures were amended on October 29,1998 in connection with the restructuring of the Company’s ownership of Resortsas a result of the change in the Czech gaming law, which restricted foreignownership of Czech casinos. The Amended Indentures, however, did not alter theunderlying basis of the Senior Notes. The Senior Notes require mandatory prepayments based upon excess cashflow generated by TWGI from the operation of the Czech casinos acquired in theResorts acquisition and bear interest at the rate of 12% per annum.  The proceeds of the Senior Notes were usedto pay the net acquisition costs of, and improvements to, Resorts totaling$12.6 million, to repay the First Amended Loan Agreement in the amount of $1.3million, to cover costs and expenses of $1.4 million relating to the PrivatePlacement and to provide working capital of $1.7 million.

 

On October 15, 1999, theCompany borrowed $3.0 million ($2.7 million from Value Partners) in the October1999 Private Placement.  The loan isrepresented by the October 1999 Senior Notes issued pursuant to indentures byand among the Company and an independent indenture trustee.  The October 1999 Senior Notes, which are dueMarch 2005, require mandatory prepayments based on excess cash flow generatedfrom Resorts.  The October 1999 SeniorNotes are collateralized, primarily by all of Resort’s gaming equipment and amajority interest in the capital stock of all of the Company’s subsidiaries(except CDZ).  In addition to theOctober 1999 Senior Notes, each investor received a proportionate share ofwarrants to purchase 1,251,000 shares of the Company’s Common Stock.  The proceeds of the October 1999 SeniorNotes were used to retire a $1.0 million short-term debt obligation related tothe acquisition of the CDZ casino, to make an interest payment of approximately$250,000 on said debt, and to

 

47

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finance the equipment, workingcapital, and pre-opening costs associated with the opening of a third casino inthe Czech Republic on land that had been previously purchased.  That casino, located near Znojmo, opened onDecember 22, 1999.

 

TheCompany was unable to fully meet its September 2000, March 2001, and September2001 interest payments related to the Senior Notes *(see Note 4 of the notes to Consolidated Financial Statements)**.*  Waivers of default have been received fromthe majority holder of the Senior Notes through the earlier of:  (i) Ten days subsequent to the receipt of inexcess of $5.0 million from any source by TWC or any of its subsidiaries; or(ii) January 1, 2003.  Under theconditions of the waivers, if the Company receives a sum in excess of $5.0million on or before September 17, 2002, the accrued and unpaid interest as ofSeptember 17, 2002 shall become due on September 17, 2002.

 

The Company has, from time totime, been in technical default of the Amended Indentures and has relied uponthe forbearance and waivers from a majority interest of the holders of theSenior Notes.  Value Partners representsa majority in interest of the holders of the Senior Notes.  The Company has borrowed other amounts fromValue Partners from time to time (some of which have been in technical defaultfor which forbearance or waivers have been granted) and may seek to borrowadditional funds or obtain equity investments from Value Partners in thefuture.  On February 23, 2001, ValuePartners converted 5,657,453 of $0.01 warrants held by it.  With the exercise of those warrants, ValuePartners holds a controlling 51.32% of the Company’s issued and outstandingCommon Stock, which does not include the 2,600,000 warrants it also holds.  At December 31, 2001, Value Partners owned66% of the Company’s long-term debt and owned warrants to acquire 60.6% of theCompany’s issued and outstanding shares of outstanding Common Stock.

 

**Item 13. Exhibits and Reports on Form 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 ofApril 2, 2001, upon written request from any such person.  Requests should be sent to:  Rami S. Ramadan, Chief Executive Officer,Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017.

 

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

 

During the last quarter of the year ended December 31, 2001, theCompany did not file a Periodic Report on Form 8-K with the SEC.

 

48

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**TRANSWORLD CORPORATIONEXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSBFOR THE YEAR ENDED DECEMBER 31, 2001**

 
| **Item No**    |                                                                                                                                                                 | **Item** |                                                                                                                                     | **Method of  Filing** |
|----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|------------------------------------------------------------------------------------------------------------------------------------------|-----------------------|
|           |
| 2              | Deed of Sale of Shares Authenticated Mr.  Jose Maria Badia Gasco, Notary of Zaragoza, dated April 17, 1998                                                           |     | Incorporated by reference to Exhibit 2  contained in the Form 8-K/A filed on July 2, 1998 (File No. 0-25244)                             |
|           |
| 3.1(a)         | Articles of Incorporation                                                                                                                                            |     | Incorporated by reference to Exhibit 3.1  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                    |
|           |                                                                                                                                                                 |     |                                                                                                                                     |
| 3.1(b)

  | Certificate of Amendment to Articles of  Incorporation                                                                                                               |     | Incorporated by reference to Exhibit 3.1  contained in the Form 10-KSB for the fiscal year ended December 31, 2000  (File No. 0-25244)   |
|           |
| 3.2            | Bylaws                                                                                                                                                               |     | Incorporated by reference to Exhibit 3.2  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                    |
|           |
| 4.1            | Specimen Common Stock Certificate                                                                                                                                    |     | Incorporated by reference to Exhibit 4.1  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                    |
|           |
| 4.2            | Specimen Redeemable Common Stock Purchase  Warrant                                                                                                                   |     | Incorporated by reference to Exhibit 4.2  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                    |
|           |                                                                                                                                                                 |     |                                                                                                                                     |
| 4.3            | Form of Warrant Agreement                                                                                                                                            |     | Incorporated by reference to Exhibit 4.3  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                    |
|           |
| 4.4            | Confidential Private Placement Memorandum  dated June 17, 1996                                                                                                       |     | Incorporated by reference to Exhibit 4.4  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244) |
|           |
| 4.5            | Supplement No. 1 dated January 14, 1997 to  Confidential Private Placement Memorandum dated June 17, 1996                                                            |     | Incorporated by reference to Exhibit 4.5  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244) |
|           |
| 4.6            | Indenture dated as of November 1, 1996  between the Company and Trans World Gaming of Louisiana, Inc., as Issuer, and  U.S. Trust Company of Texas, N.A., as Trustee |     | Incorporated by reference to Exhibit 4.6  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244) |
|           |
| 4.7            | Form of 12% Secured Convertible Senior Bond  due June 30, 1999                                                                                                       |     | Incorporated by reference to Exhibit 4.7  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244) |
|                |                                                                                                                                                                      |          |                                                                                                                                          |                       |  |  |

 

 

49

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| 4.8    | Form of Warrant to Purchase Common Stock  dated July 1, 1996                                                                                                                                         |   | Incorporated by reference to Exhibit 4.8  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244)                           |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |
| 4.9    | Form of Warrant for Purchase of Shares of  Common Stock dated January 1, 1997                                                                                                                        |   | Incorporated by reference to Exhibit 4.9  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244)                           |
|   |
| 4.10   | Form of Non-Negotiable Promissory Note  dated January 1, 1997                                                                                                                                        |   | Incorporated by reference to Exhibit 4.10  contained in Form 10-KSB for the fiscal year ended December 31, 1996.  (File No. 0-25244)                          |
|   |
| 4.11   | First Amended Senior Secured Promissory  Note dated December 19, 1997                                                                                                                                |   | Incorporated by reference to Exhibit 4.11  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 30, 1998.  (File No. 0-25244) |
|   |
| 4.12   | Form of Warrant for Purchase of Shares of  Common Stock dated January 15, 1998                                                                                                                       |   | Incorporated by reference to Exhibit 4.12  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 30, 1998.  (File No. 0-25244) |
|   |
| 4.13   | Lenders Waiver and Option Agreement dated  March 9, 1998                                                                                                                                             |   | Incorporated by reference to Exhibit 4.13  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 30, 1998.  (File No. 0-25244) |
|   |
| 4.14   | Indenture dated March 31, 1998 among the  Company, TWC International U.S. Corporation, TWC Finance Corp. and U.S. Trust  Company of Texas, N.A.                                                      |   | Incorporated by reference to Exhibit 4(I)  contained in the Form 8-K filed on April 14, 1998  (File No. 0-25244)                                              |
|   |
| 4.15   | 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)                                                   |
|   |
| 4.16   | Indenture dated March 31, 1998 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)                                                  |
|   |
| 4.17   | Consent to Amend Indenture, Bonds and  Warrants dated March 25, 1998 by and between the Company, Trans World Gaming  of Louisiana, Inc., U.S. Trust Company of Texas, N.A., and certain  individuals |   | Incorporated by reference to Exhibit 4(IV)  contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244)                                                   |
|   |                                                                                                                                                                                                 |   |                                                                                                                                                               |
| 4.18   | First Amended Indenture dated March 31,  1998 among the Company, TWGLa and U.S. Trust Company of Texas, N.A.                                                                                         |   | Incorporated by reference to Exhibit 4(V)  contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244)                                                    |
|   |                                                                                                                                                                                                 |   |                                                                                                                                                               |
| 4.19   | First Amended Indenture dated March 31,1998  among the Company, TWGLa and U.S. Trust Company of Texas, N.A.                                                                                          |   | Incorporated by reference to Exhibit 4(V)  contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244)                                                    |
|   |
| 4.20   | 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)                                                   |

 

50

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| 4.21   | 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)       |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |
| 4.22   | 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   | Agreement for  Exchange of Shares dated July 12, 1994,between the Company and the  shareholders of Lee Young Enterprises, Inc.                                                                                               |   | Incorporated by reference to Exhibit 10.1  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.2   | Asset Purchase Agreement dated as of  September 21,1994, between the Company and Prime Properties, Inc.                                                                                                                      |   | Incorporated by reference to Exhibit 10.2  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.3   | Agreement of Sale dated as of September 21,  1994, between the Company and Prime Properties, Inc.                                                                                                                            |   | Incorporated by reference to Exhibit 10.3  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.4   | Form of Lease between Prime Properties,  Inc. and the Company.                                                                                                                                                               |   | Incorporated by reference to Exhibit 10.4  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.5   | Agreement dated September 21, 1994, among  Chrysolith, LLC, Prime Properties, Inc., Monarch Casinos, Inc. of Louisiana,  and the Company.                                                                                    |   | Incorporated by reference to Exhibit 10.5  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.6   | Asset Purchase Agreement dated September  21, 1994, between Chrysolith L.L.C. and Monarch                                                                                                                                    |   | Incorporated by reference to Exhibit 10.6  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.7   | Lease (with option) dated May 10, 1994  among Lula Miller, Inc., Charles A. Jones III and Kelly McCoy Jones, as  Lessor, and Monarch, as Lessee.                                                                             |   | Incorporated by reference to Exhibit 10.7  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.8   | Offer to Purchase dated October 4, 1994,  among Trans World Gaming of Louisiana, Inc., Monarch, Lula Miller, Inc.,  Charles A. Jones III and Kelly McCoy Jones.                                                              |   | Incorporated by reference to Exhibit 10.8  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.9   | Memorandum of Agreement dated March 18,  1994, between the Company and Yves Gouhier and Camille Costard to acquire  shares of Casino Cherbourg S.A., as amended   (English translation, except amendment is in French.) |   | Incorporated by reference to Exhibit 10.9  contained in the registration statement on Form SB-2 (File No. 33-85446-A).  |
|   |
| 10.10  | Shareholder Agreement dated April 7, 1994,  between the Company and Michael A. Edwards, as the shareholders of Monarch                                                                                                       |   | Incorporated by reference to Exhibit 10.10  contained in the registration statement on Form SB-2 (File No. 33-85446-A). |

 

51

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| 10.11  | Employment Agreement dated March 6, 1996  between the Company and Stanley Kohlenberg                                          |   | Incorporated by reference to Exhibit 10.11  contained in the Form 10-KSB for the fiscal year ended December 31, 1995  (File No. 0-25244). |   |
|--------|-------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                          |
| 10.12  | Employment Agreement between the Company  and Dominick J. Valenzano                                                           |   | Incorporated by reference to Exhibit 10.12  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                   |   |
|   |                                                                                                                          |
| 10.13  | 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).                   |   |
|   |                                                                                                                          |
| 10.14  | Form of 4 1/2% Bridge Note                                                                                                    |   | Incorporated by reference to Exhibit 10.14  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                   |   |
|   |                                                                                                                          |
| 10.15  | Form of 10% Secured Bridge                                                                                                    |   | Incorporated by reference to Exhibit 10.15  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                   |   |
|   |                                                                                                                          |
| 10.16  | Collateral Mortgage relating to the  Woodlands Travel Plaza.                                                                  |   | Incorporated by reference to Exhibit 10.16  contained in the registration statement on Form SB-2 (File No. 33-85446-A).                   |   |
|   |                                                                                                                          |
| 10.17  | Operating  Agreement dated as of December 22, 1994 between the Company and Chrysolith  relating to the Gold Coin.             |   | Incorporated by reference to Exhibit 10.17  contained in the Form 10-KSB for the fiscal year ended December 31, 1994  (File No. 0-25244). |   |
|   |                                                                                                                          |
| 10.18  | Note in principal amount $75,000 payable by  Monarch (and assumed by the Company).                                            |   | Incorporated by reference to Exhibit 10.18  contained in the Form 10-KSB for the fiscal year ended December 31, 1994  (File No. 0-25244). |   |
|   |                                                                                                                          |   |                                                                                                                                      |   |
| 10.19  | Lease Agreement dated May 1, 1993 between  National Auto/Truck Stops, Inc. and Prime Properties with respect to the 76  Plaza |   | Incorporated by reference to Exhibit 10.19  contained in the Form 10-KSB for the fiscal year ended December 31, 1995  (File No. 0-25244). |   |
|   |                                                                                                                          |   |
| 10.20  | Agreement and General Release dated as of  March 6, 1996 between the Company and R. K. Merkey.                                |   | Incorporated by reference to Exhibit 10.20  contained in the Form 10-KSB for the fiscal year ended December 31, 1995  (File No. 0-25244). |   |
|   |                                                                                                                          |   |
| 10.21  | Forbearance Agreement dated January 19,  1996 between the Company and Chrysolith                                              |   | Incorporated by reference to Exhibit 10.21  contained in the Form 10-KSB for the fiscal year ended December 31, 1995  (File No. 0-25244). |   |
|   |                                                                                                                          |   |
| 10.22  | Letter Agreement dated January 30, 1996  between the Company and Chrysolith regarding forbearance payments                    |   | Incorporated by reference to Exhibit 10.22  contained in the Form 10-KSB for the fiscal year ended December 31, 1995  (File No. 0-25244). |   |
|   |                                                                                                                          |   |                                                                                                                                      |
| 10.23  | Consulting Agreement dated January 1, 1997  between the Company and Stanley Kohlenberg                                        |   | Incorporated by reference to Exhibit 10.23  contained in the Form 10-KSB for the fiscal year ended December 31, 1996  (File No. 0-25244). |   |
|   |                                                                                                                          |   |                                                                                                                                      |
| 10.24  | Employment Agreement dated December 26,  1996 between the Company and Andrew Tottenham                                        |   | Incorporated by reference to Exhibit 10.24  contains in Form 10-KSB for the fiscal year ended December 31, 1996 (File No.  0-25244).      |   |
|        |                                                                                                                               |        |                                                                                                                                           |        |  |  |  |  |  |  |  |  |  |  |

 

52

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| 10.25  | Employment Agreement date February 1, 1997  between the Company and Christopher Moore                                                                                        |   | Incorporated by reference to Exhibit 10.25  contained in Form 10-KSB for the fiscal year ended December 31, 1996 (File  No. 0-25244).                         |   |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.26  | Cancellation Agreement dated as of October  3, 1996 between the Company and Mid-City Associates                                                                              |   | Incorporated by reference to Exhibit 10.26  contained in the Form 10-KSB for the fiscal year ended December 31, 1996  (File No. 0-25244).                     |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.27  | Agreement of Lease dated as of October 2,  1996 between the Company and Mid-City Associates                                                                                  |   | Incorporated by reference to Exhibit 10.27  contained in the Form 10-KSB for the fiscal year ended December 31, 1996  (File No. 0-25244).                     |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.28  | Stock Purchase Agreement dated as of  January 1, 1997 among the Company, Andrew Tottenham and Robin Tottenham                                                                |   | Incorporated by reference to Exhibit 10.28  contained in the Form 10-KSB for the fiscal year ended December 31, 1996  (File No. 0-25244).                     |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.29  | Employment Agreement dated April 15, 1997  between the Company and James Hardman                                                                                             |   | Incorporated by reference to Exhibit 10.29  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 30, 1998. (File No. 0-25244) |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.30  | Stock Purchase Agreement dated as of  January 20, 1998 between the Company and 21st Century Resorts                                                                          |   | Incorporated by reference to Exhibit 10.30  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 31, 1998. (File No. 0-25244) |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.31  | Form of the Subscription Agreement for the  Private Placement                                                                                                                |   | Incorporated by reference to Exhibit 10.31  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 31, 1998. (File No. 0-5244)  |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.32  | Escrow Agreement dated March 17, 1998 among  the Company, TWC Finance Corp., TWC International U.S. Corporation as Issuer  and U.S. Trust Company of Texas, N.A., as Trustee |   | Incorporated by reference to Exhibit 10.32  contained in Form 10-KSB for the fiscal year ended December 31, 1997 filed on  March 30, 1998. (File No. 0-25244) |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.33  | Consulting Agreement between Chrysolith,  L.L.C. and Lee Young dated January 1, 1997                                                                                         |   | Incorporated by reference to Exhibit 10  contained in the Form 10-QSB for the quarter ended June 30, 1996 filed on  August 14, 1996 (File No. 0-25244)        |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.34  | Purchase Agreement dated as of April 15,  1997 among the Company, James R. Hardman, Jr. and Multiple Application  Tracking System                                            |   | Incorporated by reference to Exhibit 10.34  contained in the Form 10-Q for the quarter ended March 31, 1997, filed on May  9, 1997 (File No. 0-25244)         |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |   |
| 10.35  | License Agreement dated as of April 15,  1997 between the Company and James R. Hardman, Jr.                                                                                  |   | Incorporated by reference to Exhibit 10.35  contained in the Form 10-Q for the quarter ended March 31, 1997, filed on May  9, 1997 (File No. 0-25244)         |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.36  | 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)                                               |   |
|   |                                                                                                                                                                         |   |                                                                                                                                                          |
| 10.37  | $350,000 Senior Promissory Note dated June  11, 1997                                                                                                                         |   | Incorporated by reference to Exhibit 10.37  contained in the Form 8-K filed on June 17, 1997 (File No. 0-25244)                                               |   |
|        |                                                                                                                                                                              |        |                                                                                                                                                               |        |  |  |  |

 

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| 10.38  | Joint Activity Agreement dated March 31,  1997 between Mr. Mahmud Avdiyev and Tottenham & Co., d/b/a Art Marketing  Ltd.                                                      |   | Incorporated by reference to Exhibit 10.38  contained in the Form 8-K filed on June 17, 1997 (File No. 0-25244)                                                   |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                              |   |                                                                                                                                                              |
| 10.39  | 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) |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |
| 10.40  | $262,500 Senior Promissory Note dated  October 27, 1997                                                                                                                           |   | Incorporated by reference to Exhibit 10.40  contained in the Form 10-QSB for the quarter ended September 30, 1997, filed  on November 12, 1997 (File No. 0-25244) |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |
| 10.41  | Warrant to  Purchase Common Stock dated November 27, 1997                                                                                                                         |   | Incorporated  by reference to Exhibit 10.41 contained in the Form 10-QSB for the quarter  ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244) |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |
| 10.42  | Employment  Agreement between the Company and Rami S. Ramadan dated July 12, 1999                                                                                                 |   | Incorporated  by reference to Exhibit 10.42 contained in the Form 8-K filed on July 13,  1999 (File No. 0-25244)                                                  |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |
| 10.43  | Severance  Agreement between the Company and Stanley Kohlenberg dated May 23, 1999                                                                                                |   | Incorporated  by reference to Exhibit 10.43 contained in the Form 8-K filed on July 13,  1999 (File No. 0-25244)                                                  |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |
| 10.44  | Severance  Agreement among the Company, Trans World Gaming of Louisiana, TWC  International U.S. Corporation and TWC Finance Corp. and Dominick J.  Valenzano dated July 12, 1999 |   | Incorporated  by reference to Exhibit 10.44 contained in the Form 8-K filed on July 13,  1999 (File No. 0-25244)                                                  |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |   |
| 10.45  | Form of  Lease Agreement between London Investments s.r.o. and the Company                                                                                                        |   | Incorporated  by reference to Exhibit 10.45 contained in the Form 8-K filed on July 13,  1999 (File No. 0-25244)                                                  |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |   |
| 10.46  | 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)                                                |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |   |
| 10.47  | 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)                                                |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |   |
| 10.48  | 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)                                                |   |
|   |                                                                                                                                                                              |   |                                                                                                                                                              |   |   |   |
| 10.49  | Form of  Warrant to Purchase Common Stock dated October 15, 1999                                                                                                                  |   | Incorporated  by reference to Exhibit 10.49 contained in the Form 10-KSB filed on May 26, 2000  (File No. 0-25244)                                                |   |
|        |                                                                                                                                                                                   |        |                                                                                                                                                                   |        |  |  |  |  |  |  |  |  |  |  |  |

 

54

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| 10.50  | 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)                                                   |   |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                   |   |                                                                                                                                                                |   |
| 16.1   | Letter from  Bederson & Co. (the Company’s former independent public accountants)  relating to a change of accountants        |   | Incorporated  by reference to Exhibit 16.1 contained in the Form 10-QSB for the fiscal year  ended December 31, 1995, filed on November 12, 1997 (File No. 0-25244) |
|   |                                                                                                                                   |   |                                                                                                                                                                |   |   |
| 16.2   | Letter from  Pannell, Kerr, Forster PC (the Company’s former independent public  accountants) relating to a change of accountants |   | Incorporated  by reference to Exhibit 16.2 contained in the Form 8-K filed on February 25,  1999 (File No. 0-25244)                                                 |
|   |                                                                                                                                   |   |                                                                                                                                                                |   |   |
| 21.0   | Subsidiaries                                                                                                                           |   | Filed  herewith (File No. 0-25244)                                                                                                                                  |
|        |                                                                                                                                        |        |                                                                                                                                                                     |        |  |  |  |  |  |

 

55

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**SIGNATURES**

 

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

 
|                   |   | **TRANS WORLD CORPORATION**                                 |
|------------------------|--------|-------------------------------------------------------------|
|                   |   | (registrant)                                                |
|                   |   |                                                        |
|                   |   |                                                        |
| Dated: April  01, 2002 |   |                                                        |
|                   | By:    | /s/ Rami S.  Ramadan                                        |   |
|                   |   | Rami S.  Ramadan                                            |
|                   |   | President,  Chief Executive Officer/Chief Financial Officer |
|                   |   | (Principal  Executive and Financial Officer)                |

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this Report has been signed by the following persons on behalf of the Issuer onMarch 29, 2002 in the capacities indicated.

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

 

56

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