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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (“Exchange Act”)

Period: Fiscal year ended December 31, 2002

Registrant:
GIANT GROUP, LTD.

Address: 9440 Santa Monica Boulevard, Suite 407
Beverly Hills, California 90210

Telephone number:  (310) 273-5678

Commission File Number: 1-4323

I.R.S. Employer Identification Number: 23-0622690

State of Incorporation:  Delaware

          Indicate by X whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. x

          Indicate by X if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

          Indicate by X whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

          As of the most recent completed second fiscal quarter, the aggregate market value of the Registrant’s Common Stock held by non-affiliates, based on the last trade reported was approximately  $1,345,000.

          On March 27, 2003, 2,728,354 shares of the Registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the Registrant’s annual meeting of stockholders to be held on
June 10, 2003 are incorporated by reference into items 10. 11. 12. and 13. of this Form10-K.

Exhibit Index is located on page 38.

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FORWARD-LOOKING STATEMENTS

          GIANT GROUP, LTD.’s (“Company”) Form 10-K for the fiscal year ended December 31, 2002 contains forward-looking statements concerning a number of risks and uncertainties involving the Company. Forward-looking statements contain strategies, plans or intentions and may be identified by words such as “believes”, “expects”, “predicts” or “could”. Forward-looking statements are also dependent on assumptions and estimates made that may not be correct.

          Many factors outside the control of the Company may cause actual results to differ materially from those discussed in forward-looking statements. These factors include, but are not limited to  (1) availability of adequate working capital, (2) changing market value of the Company’s investments, (3) outcome of litigation, (4) development and implementation of a business plan and (5) changes in federal or state tax laws.

          In addition, many factors outside the control of Checkers Drive-In Restaurants, Inc. (“Checkers”), the Company’s 8.0% equity investment, may cause actual results to differ materially from those discussed in the Company’s forward-looking statements. These factors include, but are not limited to  (1) numerous, well established competitors who have substantially greater financial resources than Checkers which enables them to engage in heavy and sustained discounting as well as substantial advertising and promotion which could have an adverse impact on Checkers’ revenues and profitability (2) the need to continue improvement in same store restaurant sales, which is dependent on the success of advertising and promotional efforts and the success of operating and training initiatives, to achieve improved profitability. See Checkers Annual Report on Form 10-K for the fiscal year ended December 30, 2002. 

          In addition, risks and uncertainties are also described in the Company’s and Checkers’ Form 10Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.

PART I

          GIANT GROUP, LTD. (“Company” or “GIANT”) is a corporation, organized under the laws of the State of Delaware in 1913. The Company invests in operating companies through ownership in equity securities.

GENERAL DEVELOPMENT OF BUSINESS

Restaurant operations

          The Company is involved in the double drive-thru hamburger restaurant business through its equity investment in Checkers Drive-In Restaurants, Inc. (“Checkers”).

          Checkers (Nasdaq – CHKR) is a Delaware company and is headquartered in Tampa, Florida. The company is the largest double drive-thru restaurant chain in the United States. The Company develops, produces, owns, operates, and franchises quick service “double drive-thru” restaurants under the two brand names “Checkers®” and “Rally’s Hamburgers®”. The restaurants are designed to provide fast and efficient automobile-oriented service and appeal to customers of all ages. The double drive-thru concept allows Checkers® and Rally’s Hamburgers® to capitalize on the fact that approximately fifty percent (50%) of all quick-service food business is drive-thru. Customers can also enjoy a 1950’s flashback with walk-up ordering and outdoor dining in picnic area at most locations. As of December 30, 2002, Checkers and its franchisees own 398 Checkers restaurants operating primarily in the Southeastern United States and 386 Rally’s restaurants operating primarily in the Midwestern United States.

          On March 19, 2003, Checkers announced that its board of directors has approved a share repurchase program authorizing the company to repurchase up to 1.3 million shares of its common stock. Under the plan, the Company may purchase common stock from time to time in the open market or in privately negotiated block purchase transactions. The amount and timing of any purchases will be at the discretion of management based on an assessment of several factors, including the price and availability of the company’s shares, the financial condition and the overall market environment. Shares repurchased may be reserved for later reissue.

          At December 31, 2002, GIANT’s investment consisted of approximately 978,000 shares of Checkers common stock, approximately 8% of the company’s total outstanding common shares. GIANT’s Chief Executive Officer and the Board of Director’s Vice-Chairman and Audit Committee Chairman serve on the Checkers’ board of directors.

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Merged Subsidiary

          On December 17, 2002, the board of directors approved the merger of the Company’s wholly owned subsidiary, KCC Delaware Company (“KCC”) into GIANT. KCC had also invested in operating companies through ownership in equity securities. The effective date of the merger was December 31, 2002. On this date, KCC’s investment in approximately 704,000 shares of Checkers common stock and net operating loss carryforward for Federal and State income tax purposes were transferred to GIANT.

Tender Offer

          On April 20, 2001, the Company announced its intention to purchase any and all outstanding shares of its $.01 par value Common stock, with Preferred stock purchase rights (“Common Stock”) for $.50 per share (“Tender Offer”). The Company intended to deregister its Common Stock under the Securities Exchange Act of 1934, as amended and become a private company if the number of stockholders numbered less than 300 after the Tender Offer was completed.  

          The expiration date of the Tender Offer, extended twice, was May 29, 2001. Approximately 484,000 shares of Common Stock were purchased and the remaining number of stockholders continue to exceed 300. GIANT remains a public company.  One-time costs related to the Tender Offer was approximately $81,000.

Discontinued Operations

          Periscope Sportswear, Inc. (“Periscope”), the Company’s former wholly owned subsidiary, designed and marketed an extensive line of high quality, moderate priced, women and children’s clothing to mass merchandisers and major retailers, primarily for sale under private labels. 

          Periscope was acquired in December 1998 for approximately 953,000 shares of its Common Stock valued at approximately $7 million and a cash advance of approximately $28.5 million. The advance was made immediately prior to the effective date of the acquisition. Periscope used this advance to reduce certain borrowings to third parties and to increase its liquidity. In May 1999, the GIANT’s board of directors (“Board”) approved the capitalization of this advance. In September 1999, the former Periscope stockholders received an additional 62,500 shares of Common Stock valued at approximately $352,000, under the 1998 merger agreement and with the approval of the Board.

          The Board re-evaluated its apparel operations during the fourth quarter of 1999 and the period prior to the issuance of the 1999 Annual Report and determined that the investment in Periscope was not realizable from future operations because of its’ significant losses from operations for 1999 and because of the additional working capital that would be needed to continue operations. As a result, the Board concluded that the Periscope investment was impaired and this asset was written-off in 1999.

          In April 2000, Periscope terminated the employment of Glenn Sands (“Sands”) as president and Chief Executive Officer. In addition, the Company’s Cash Pledge and Security Agreement (“Cash Pledge”) with Century Business Credit Corporation (“Century”) was amended. Under the original Cash Pledge, the Company guaranteed $4 million of Periscope’s obligations to Century. Under the amended Cash Pledge, the Company’s $4 million guarantee was reduced to $2 million and GIANT advanced $3 million in cash to Century (“Cash Collateral Deposit”).

          In May 2000, Sands and Jeffrey W. Sirchio, a former Periscope employee, filed separate civil lawsuits against GIANT and other parties for wrongful termination of their employment with Periscope. GIANT and the other parties did not respond formally to Mr Sirchio’s complaint but denied the allegations and contended that Mr. Sirchio was terminated for cause and that he was not entitled to damages. The Company answered Sands’ complaint by denying all of the allegations and asserted that Sands was not entitled to damages. In addition, the Company filed a counterclaim, which asserted among other things, that Sands violated his employment agreement, interfered with Periscope’s relationship with its customers, suppliers and employees and had grossly misappropriated Periscope funds for his personal use.

          On July 14, 2000, all parties involved in the Sands’ lawsuit signed a Settlement Agreement. As part of this Settlement Agreement, among other things, GIANT and the other parties voided Sands’ employment agreement with Periscope, dismissed their counterclaims and extinguished all loans owed to them by Sands, except for amounts becoming due as part of this Settlement Agreement. Sands, among other things (1) dismissed his complaint against GIANT and the other parties with prejudice, (2) assigned to Century, for the benefit of Periscope, approximately $1.97 million including interest that he previously provided to Periscope’s factor, (3) forgave approximately $2 million owed to him by Periscope, (4)

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returned approximately 769,000 shares of Common Stock to GIANT, (5) obtained a general release from Mr. Sirchio relating to his wrongful termination lawsuit, (6) agreed not to hire any additional Periscope personnel and may not reveal Periscope confidential business information, (7) paid approximately $1 million to Periscope, (8) agreed to pay approximately $528,000 upon the earlier of the sale of his Challenger 600 airplane or January 14, 2001, (9) furnished a security interest in his Challenger 600 airplane, (10) agreed to become liable for approximately $1 million in the event that he defaulted on promise to pay $528,000 and (11) executed a confession of judgment for approximately $1 million which secured his contingent liability (see (10)). In December 2000, the senior creditor who had repossessed Sands Challenger 600 airplane sold it at auction. No additional proceeds remained after the senior creditor was paid. Sands paid $150,000 of the $528,000 he owed prior to the sale of the airplane. Sands did not pay the balance remaining of $378,000 due by January 14, 2001. As a result, a judgment was entered against Sands for approximately $1 million on February 22, 2001. On May 18, 2001, the $1 million judgment was settled for approximately $378,000. Sands made a lump sum payment of $140,000 in June 2001 towards the $378,000 settlement. The remaining balance of the settlement was payable in 10 equal quarterly installments, including 9% interest per annum. Sands defaulted on the December 2002 quarterly installment.  The balance due at the time of the default was approximately $129,000. In January 2003, the Company and Sands settled the December 2002 default. Sands paid $100,000 in January 2003, $50,476 in February 2003 and $25,000 in March 2003. The amount paid in excess of the $129,000 due at the time of the default represented accrued interest from December 1, 2002 and the reimbursement of legal fees incurred to collect the balance owed by Sands.

          From August 1999 to October 31, 2000, Periscope was in default of certain covenants included in its factoring agreement with Century. In August 2000, the Company effectively lost control of Periscope’s operations to Century. The loss of control began when Century determined which customer orders would be filled by determining which raw materials would be purchased for the manufacture of clothing and also which expenses would be paid. In September 2000, Periscope began to lay off employees. In addition, after the company received an eviction threat due to the non-payment of rent, the New Jersey operations were relocated to the company’s New York showroom. Approximately 900 boxes of accounting records stored in Periscope’s New Jersey facilities were relocated to a public warehouse in New Jersey. Century took possession of the current sales and billing records. The accounting records, previously stored in the New Jersey warehouse, were relocated to a warehouse in New York. On September 25, 2000, the Board of Directors approved a plan for the disposition of its apparel operations because of the loss of control of Periscope to its factor and continued financial losses.

          On October 31, 2000, Periscope executed and delivered a letter delivering peaceful possession of its assets to Century (“asset letter”). Pursuant to the asset letter, all of Periscope’s receivables, inventory, fixed assets, other assets and accounting books and records were transferred to Century. Century released the Company from its $2 million guarantee.

          On October 31, 2000, simultaneously with the execution and delivery of the asset letter, Century licensed certain Periscope trademarks to Alarmex Holdings, LLC (“Alarmex”) for the purpose of the manufacture and sale of Periscope products. Among other things, Century receives a royalty equal to a percentage of net sales of these products until Century has received $7 million from Alarmex. Century will pay GIANT a percentage of these net sales until the $3 million Cash Collateral Deposit has been recovered. As of December 31, 2001, approximately $483,000 of the Cash Collateral Deposit was recovered.  See Gregory Messer, Esq. As Trustee of the Estate of Periscope Sportswear, Inc. v. GIANT GROUP, LTD., Burt Sugarman and David Gotterer  ITEM 3. LEGAL PROCEEDINGS  for future recovery of Cash Collateral Deposit.

          In October 2000, GIANT commenced an action in federal court against Sands, Arthur Andersen LLP (“Arthur Andersen”), L.H. Friend, Weinress, Frankson & Presson, Inc. (“L.H. Friend”) and Friedman, Alpren & Green LLP (“Friedman”).  The federal court dismissed this action on the grounds that the relevant statute of limitations for securities fraud had expired and that the court did not have jurisdiction over the remaining state law claim. In June 2001, the Company filed a lawsuit in the Supreme Court of the state of New York against Sands, Arthur Andersen, Richard Salute, L.H. Friend, Friedman and Harriett Greenberg.  This suit was filed as a result of the dismissal of the action first commenced by the Company in October 2000.  On April 16, 2002, the Court granted certain motions to dismiss filed by various defendants. In December 2002, the Company filed suit against L.H. Friend, Gregory Presson and Robert Campbell in the Superior Court of the State of California due to the New York Supreme Court’s dismissal of the counts against L.H. Friend. These actions are on-going and are presented in more detail in ITEM 3. LEGAL PROCEEDINGS.

          On November 30, 2000, Periscope filed a Voluntary Petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In May 2002, the Trustee administering the bankruptcy of Periscope filed an adversary action in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) against the Company, Burt Sugarman and David Gotterer (“Defendants”). This adversary action sought to recover certain allegedly inappropriate payments made by or owing to the Company before and after Periscope filed for

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bankruptcy in November 2000. The Bankruptcy Court approved a settlement between the Defendants and the Trustee on January 13, 2003. This action is presented in more detail in  ITEM 3. LEGAL PROCEEDINGS.

Financial Statement Presentation

          Prior to 2002, the Statements of Operations, Balance Sheets, Statements of Cash Flows and Changes in Stockholders’ Equity were presented on a consolidated basis. The December 2002 merger of KCC into GIANT has no affect on prior year Financial Statements and selected financial data presented in the Annual Report on Form 10-K for the fiscal year ended December 31, 2002.  As a result, all Financial Statements and selected data presented for the fiscal years ended December 31, 2002 will not be reported as consolidated.  

Audit Report

          The prior independent accountant, BDO Seidman, Inc. (“BDO”), issued an audit report dated February 13, 2001 on the Consolidated Financial Statements for the three years ended December 31, 2000. BDO could not express an opinion on the Consolidated Statement of Operations, Cash Flows and Changes in Stockholders’ Equity for the year ended December 31, 2000. BDO was unable to perform auditing procedures due to the unavailability of Periscope’s accounting records and key financial personnel for the audit period. Periscope’s records were located in at least four different locations in two different states and were not properly indexed. In addition, the Company learned that while under the control of Sands, some of his associates destroyed documents while employed at Periscope. In November 2000,  most of the key financial personnel left the company after Periscope filed for bankruptcy  protection. 

          Because of the above reasons, the current independent accountant, Stonefield Josephson, Inc., will not express an opinion on the Statement of Operations, Cash Flows and Changes in Stockholders’ Equity for the year ended December 31, 2000.

EMPLOYEES

          At December 31, 2002, 5 persons are employed on a full-time basis and the Company’s relationship with these employees is considered good. 

EXECUTIVE OFFICERS

          Burt Sugarman, 64, Chairman of the Board of Directors (“Board”) President and Chief Executive Officer. Mr. Sugarman has been Chairman of the Board of the Company since 1983 and President and Chief Executive Officer since May 1985. 

          Pasquale A. Ambrogio, 50, Vice President, Chief Financial Officer and Secretary. Mr. Ambrogio joined the Company in June 1995 and served as Controller for approximately five years.  He was appointed to his present position  in May 2000.

          The Company moved into its corporate office on April 1, 2000. The office is located in Beverly Hills, CA and   consists of approximately 1,700 square feet of useable office and storage space. The office is suitable for the Company’s needs. Annual base rent for 2002 was approximately $62,000. The lease term for this office is 60 months, beginning on July 1, 2000 and ending on June 30, 2005. The lease contains one, five-year renewal option.

Mittman, et al. vs. Rally’s Hamburgers, Inc., et al. (Civ. No.C-94-0039-L(CS))

          In March 1994, this consolidated class action lawsuit was filed in the United States Western District Court of Kentucky (“the Kentucky Court”) and asserts causes of action for certain violations of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This class action lawsuit alleges that inaccurate public statements about Rally’s Hamburgers, Inc. (“Rally’s”) were issued in order to arbitrarily inflate the price of Rally’s common stock.  Rally’s merged with Checkers Drive-In Restaurants, Inc. (“Checkers”) in 1999. Plaintiffs seek an unspecified amount of damages, including punitive damages. The defendants are Rally’s, former Rally’s officers, directors, and auditors, the Company and Burt Sugarman. This

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lawsuit was the result of the consolidation of Jonathan Mittman, Steven Horowitz, Dina Horowitz and John Hannan vs. Rally’s Hamburgers, Inc., GIANT GROUP, LTD., Wayne M. Albritton, Donald C. Moore, Edward C. Binzel, Gena L. Morris, Burt Sugarman, Patricia L. Glaser and Arthur Andersen & Co., and Edward L. Davidson and Rick Sweeney vs. Rally’s Hamburgers, Inc., GIANT GROUP, LTD., Wayne M. Albritton, Donald C. Moore, Edward C. Binzel, Gena L. Morris, Burt Sugarman, Patricia L. Glaser and Arthur Andersen & Co. These lawsuits were both filed in the Kentucky Court in 1994. Mittman, et al. v. Rally’s primarily alleges the same violations of the Exchange Act as the two lawsuits that were consolidated.

          In April 1994, Ms. Glaser and the Company filed a motion to dismiss the consolidated lawsuit for lack of personal jurisdiction. The remaining defendants filed motions to dismiss for failure to state a claim upon which relief can be granted. In April 1995, the Court denied these motions. In addition, the Court struck plaintiffs’ punitive damages allegations and required plaintiffs to amend their claims under section 20 of the Exchange Act, but otherwise the Court let stand the most recent version of plaintiffs’ complaint at this juncture. The Court granted Mr. Sugarman’s motion to strike certain scurrilous and irrelevant allegations, and directed plaintiffs to amend their complaint to conform to the Court’s order. Finally, the Court denied plaintiffs’ motion for class certification, “until such time as the issue of typicality of claims is further developed and clarified.” Plaintiffs filed their second amended complaint on June 29, 1995, joining additional plaintiffs pursuant to stipulation of the parties. Plaintiffs renewed their motion for class certification on July 31, 1995. Defendants filed their opposition on or about October 31, 1995. On April 16, 1996, the Court granted plaintiffs’ motion, certifying a class from July 20, 1992 to September 29, 1993.

          In October 1995, plaintiffs filed a motion to disqualify Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro LLP (“Christensen Miller”) as counsel for defendants based on a purported conflict of interest allegedly arising from the representation of multiple defendants as well as Ms. Glaser’s association with Christensen Miller.  The Court denied the motion and refused to disqualify Christensen Miller.

          Fact discovery was completed in the summer of 1999. Expert discovery was completed in early Spring 2000.

          On August 18, 2000, defendants filed motions for summary judgment against the plaintiffs for failure to show a genuine issue of material facts supporting its claims of securities fraud under Sections 10(b) and 20(a) of the Exchange Act  and negligent representations under common law.  On January 25, 2001, plaintiffs filed oppositions to the defendant’s motions for summary judgment. On June 4, 2001, the defendants filed reply briefs in support of their summary judgment motions. On April 5, 2002, the court granted the motion for summary judgment of Rally’s former auditors. The motion of the remaining defendants is presently pending before the Court.

          The plaintiffs and defendants have been unsuccessful in reaching a settlement during several conferences conducted.  The last conference took place before Magistrate Judge Gambill in January 2003.

          The Court has not set a trial date.

          The Company denies all wrongdoing and intends to continue to vigorously defend itself in this lawsuit. Management is unable to predict the outcome of this matter.

          GIANT GROUP, LTD., Plaintiff vs.Glenn Sands; Arthur Andersen LLP; Richard Salute; L.H. Friend, Weinress, Frankson & Presson, LLC a/k/a L.H. Friend, Weinress, Frankson & Presson, Inc.; Greg Presson; Friedman, Alpren & Green, LLP and Harriett Greenberg.  

          On June 27, 2001, the Company announced that it had filed a lawsuit in the Supreme Court of the State of New York against Glenn Sands (“Sands”), Arthur Andersen LLP (“Arthur Andersen”), Richard Salute (“Salute”), L.H. Friend, Weinress, Frankson & Presson LLC a/k/a L.H. Friend, Weinress, Frankson & Presson, Inc. (“L.H. Friend”), Greg Presson, Friedman, Alpren & Green LLP (“Friedman”) and Harriett Greenberg (“Second Action”). This suit was filed as a result of the dismissal of an action first commenced by the Company in October 2000, in the United States District Court for the Southern District of New York, entitled GIANT GROUP, LTD., Plaintiff vs. Glenn Sands; Arthur Andersen LLP; L.H. Friend, Weinress, Frankson & Presson, Inc. and Friedman, Alpren & Green LLP (“First Action”).

          In this First Action, the Company sought redress for injuries arising out of its acquisition of Periscope against Sands, the former principal of Periscope, the former auditors of Periscope, Friedman and Arthur Andersen, the latter of which also served previously as independent auditor for the Company and the investment banking firm involved in the transaction, L.H. Friend.  The Company’s complaint variously alleged claims against the defendants for securities fraud, constructive fraud,

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common law fraud, negligent misrepresentation, breach of contract and professional malpractice.  Although the Company has yet to quantify its damages in regard to the subject transaction, it spent more than $35 million on its investment in Periscope and otherwise incurred costs and fees attributable to the transaction when, in fact, the investment would later prove to have been virtually worthless. The First Action was dismissed by the federal court on the grounds that the relevant statute of limitations for securities fraud had expired and that the court did not have jurisdiction over the remaining state law claims.  The Second Action’s complaint primarily alleges the same claims as the First Action. All defendants have moved again to dismiss the Second Action.  

          On April 16, 2002, the Court issued an opinion on the motions to dismiss.  In its decision, the Court denied Sands’ motion to dismiss and Arthur Andersen and Salute’s motion to dismiss related to the Company’s allegations of breach of contract and professional malpractice. The Court did grant Friedman and Harriett Greenberg’s motion to dismiss, granted L.H. Friend’s motion to dismiss for lack of personal jurisdiction, and granted Arthur Andersen and Salute’s motion to dismiss related to the Company’s allegations of fraud, constructive fraud and negligent misrepresentation. The Company has appealed this ruling. The appeal proceedings are ongoing, with the Company’s opening brief and record filed on February 28, 2003.

          The Company filed a Motion to Reargue the dismissal of the defendants pursuant to the Court’s April 16, 2002 ruling.   The Company also filed a Motion for Permission To File a First Amended Complaint.   The proposed First Amended Complaint would assert new causes of action against all the remaining defendants and L.H. Friend, including breach of fiduciary duty, conspiracy and for aiding-and-abetting a breach of fiduciary duty.   A hearing on these motions was held on October 10, 2002. The Court has not issued a decision. 

          In July 2002, Arthur Andersen filed a counterclaim against GIANT alleging nonpayment of certain fees of approximately $105,000 that related to alleged services provided in 2000.  GIANT filed a Motion to Dismiss this counterclaim on July 17, 2002. The Court has not issued a decision on GIANT’s Motion to Dismiss.

          Discovery began in Spring 2002, and will continue for the next several months. The Company has now issued discovery to the remaining defendants and has subpoenaed documents from third parties.   The Company is also seeking to take the depositions of several individuals, including Sands and Salute.  

          Management is unable to predict the outcome of this matter. 

Gregory Messer, Esq. As Trustee of the Estate of Periscope Sportswear, Inc. vs. GIANT GROUP, LTD., Burt Sugarman and David Gotterer

          On May 31, 2002, the Trustee administering the bankruptcy of Periscope filed an adversary action in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) against GIANT, Burt Sugarman and David Gotterer (“GIANT et al.”). This adversary action sought the recovery of certain allegedly inappropriate payments made by or owing to GIANT before and after Periscope filed for bankruptcy in November 2000. The total sum sought in this adversary action was approximately $4 million. GIANT et al. filed an answer to this adversary action on July 1, 2002 denying the allegations and demanding strict proof thereof. 

          On January 13, 2003, the Bankruptcy Court approved settlement of all filed or unfiled claims against the parties in this action. Under this settlement, GIANT does not admit nor concede any wrongdoing. Century Business Credit Corporation (“Century”) has been directed by the Company to transfer the following funds to the Trustee: approximately $404,000 which Century is currently holding on the Company’s behalf, representing payments under the October 2000 agreement between Century and GIANT (“October 2000 agreement”); approximately $171,000 as these funds become available under the October 2000 agreement and after the $171,000 has been transferred, divide the approximately $1.45 million remaining equally between the Trustee and the Company, as the funds become available under the October 2000 agreement.

          In addition, under this settlement, the Trustee permitted GIANT to file a Proof of Claim of up to approximately $1.1 million as to amounts paid to the Trustee as set forth in the previous paragraph. 

          Management believes this settlement will not have any material adverse effect on the Company’s Financial Position and Results of Operations.

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GIANT GROUP, LTD. vs. L.H. Friend, Gregory Presson and Robert Campbell

          On December 10, 2002, the Company filed suit against L.H. Friend, Gregory Presson and Robert Campbell in the Superior Court of the State of California for the County of Los Angeles.  This lawsuit asserts causes of action for breach of contract, breach of fiduciary duty, constructive fraud and professional negligence arising from the services they provided to the Company related to the acquisition of Periscope.  Due to the New York Supreme Court’s dismissal of the counts against L.H. Friend in New York, the Company has filed suit against L.H. Friend, Gregory Presson and Robert Campbell in California in an abundance of caution in an effort to preserve any and all claims it has against them.   The amount sought in this lawsuit is approximately $35.2 million. Defendants filed a Motion to Transfer Venue on March 25, 2003.

          Management is unable to predict the outcome of this matter.

          There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2002.

PART II

          The Company’s $.01 par value common stock, with Preferred stock purchase rights (“Common Stock”) trades on the OTC Bulletin Board under symbol “GPOL”. The high and low bid prices for the Common Stock during 2002 and 2001 are set forth in the table presented. For 2002 and 2001, the table shows the high and low bid prices reflecting inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. There is no market currently for the Company’s Common Stock.

          No cash dividends were paid on the Company’s Common Stock in the past two fiscal years. Management expects any future earnings will be retained in its business, and does not expect to pay cash dividends on its Common Stock for the foreseeable future. On March 4, 2003, the Company’s transfer agent confirmed that the total record holders of Common Stock was 1,461.

          The following table contains information on the Company’s Common Stock related to the Company’s equity compensation plans approved by stockholders for the fiscal year ended December 31, 2002. See Note 14 in Item 8. Financial statements and supplementary data for a description of the equity compensatory plans approved by stockholders.

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Prior to 2002, the Company reported the Statements of Operations, Balance Sheets, Statements of Cash Flows and Changes in Stockholders’ Equity on a consolidated basis. The merger of KCC Delaware Company into GIANT GROUP, LTD. has no affect on the Financial Statements and selected financial data presented in the Annual Report on Form 10K for the fiscal year ended December 31, 2002. As a result, all Financial Statements and selected financial data for the years ended December 31, 2002 will not be reported as consolidated.

The following table sets forth selected financial data of the Company for the five years ended December 31, 2002. The data is derived from the Company’s audited Financial Statements for 1998, 2001and 2002. The data is also derived from the Company’s unaudited Financial Statements for 1999 and 2000, except the 2000  Balance Sheet which is audited. The  Statements of Operations have been restated to present the  Company’s Co-Ownership Program and apparel operation as discontinued for 1998 and 1999 and 2000, respectively. This information  should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Financial  Statements included in the Company’s Annual Report on Form 10K for the fiscal year ended December 31, 2002.

(1) Merger and related legal expenses were the result of the attempted merger of Rally’s with the Company and Checkers.

(2) Depreciation for 1999 included the write-off of $863 of fixed assets, predominantly leasehold improvements, due to GIANT’s move into a smaller corporate office.

(3) Other income for 2001 included $194 related to the partial payment of the Company’s May 2001 judgment against Sands and for the partial recovery of the Company’s $3,000 Cash Collateral Deposit, written-off in 2000.

(4) Gain on the sale of property & equipment for 1999 included a gain of $2,845 on the sale of the corporate jet.

(5) Loss on investment in affiliate for 1998 included the write-off of the cost of the Company’s warrants to purchase Checkers  common stock due to the trend of the stock to trade below the exercise price of $.75. In 2002, the Company exercised all warrants at a post Rally’s/Merger price of $3.00.
Loss on investment in affiliate for 1999 included a cost reduction of $1,624 and $1,357 on the Company’s equity investment in Santa Barbara Restaurant Group, Inc. (“SBRG”) and Checkers due to the continuing decline in the market value and operating losses of the companies.
In August 2000, GIANT purchased Checkers common stock from SBRG for consideration consisting of its SBRG common stock. 

(6) The Luxury Co-Ownership Program was started by the Company in November 1996 and ended in November 1997.
During 1998, the Company’s two luxury yachts were charted, until sold in 1998.

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Critical Accounting Policies 

          Management’s discussion and analysis of financial condition and results of operations discusses GIANT’s Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these Financial Statements are supported by accounting policies consisting of management’s use of assumptions, judgments and estimates.  The reported amounts of assets and liabilities at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period are affected by the use of these accounting policies.  On an on-going basis, management evaluates its assumptions, judgments and estimates related to revenue recognition and the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. Liabilities include, but are not limited to, accruals for expenses related to GIANT operating as a public company, income and other taxes and litigation costs. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. 

          Management believes these accounting policies are very important to the portrayal of the Company’s Financial Condition and Results of Operations and require management’s most difficult, subjective or complex judgment, often resulting in the need to make estimates about the effect of such matters which are inherently uncertain. These accounting policies are described at relevant sections in this discussion and analysis of financial condition and results of operations and in the Notes to the Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Results of Operations for 2002 Versus 2001

Costs and expenses

          Costs and expenses for the twelve months ended December 3l, 2002 (“current year” or “2002”) increased $433 to $1,792 from $1,359 for the twelve months ended December 3l, 2001 (“prior year” or “2001”). In 2002, costs and expenses included a non-cash expense of  $584 for the Company’s February stock option exchange.  In 2001, the Company incurred expenses of $81 related to its Tender Offer.

          During the current year, general and administrative expenses decreased $65 to $1,180 from $1,245 for 2001.  Insurance premiums decreased $134 to $177 from $311 in 2001. This decrease resulted from lower premiums of $120 and $12 resulting from the reduction of the directors and officers’ liability coverage and employee health insurance coverage.   In addition, salaries and payroll taxes decreased $72 due to the President and Chief Executive Officer’s (“CEO”) voluntary authorization to decrease his annual salary to $290 from $450, effective June 30, 2001. In 2002, legal expenses increased $111 to $178 from $67 in 2001 .In the current year, additional expenses were incurred related to the bankruptcy litigation of the Company’s discontinued apparel operations. In the prior year, the accrual for legal expenses was reduced by approximately $105 because the payments for legal services for 2001 and 2000 exceeded the estimated accrual for the same years. In addition, rent expense increased $27 to $59 in 2002 from $32 in 2001. In the prior year, rent expense was reduced by higher amortization of $22 related to the rent incentives received at the inception of the leases for the prior and current corporate offices.   

          Income decreased $645 to $202 for 2002 compared to $847 in 2001. Investment income increased $117 to $124 in 2002 compared to $7 in 2001. The increase resulted primarily from the reversal of the 2001 unrealized holding loss of $114 on the investment in a trading security, which was sold in 2002. A loss of $4 from the sale of marketable securities was recorded in 2002 compared to a gain of $162 in 2001. In the current year, payments of $82 were received from Glenn Sands (“Sands”), the former president and chief executive officer of the Company’s discontinued apparel operations compared to payments of $194 in the prior year. These payments resulted from Sands May 2001 settlement with the Company. In 2002, cash proceeds from Alarmex related to the recovery of the $3 million Cash Collateral Deposit were paid directly to the Bankruptcy Trustee.  In 2001, the Company recovered $483 of the Cash Collateral Deposit. 

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Results of Operations for 2001 Versus 2000

Costs and expenses

          Costs and expenses for the twelve months ended December 3l, 2001 (“current year” or “2001”) decreased $526 to $1,359 from $1,885 for the twelve months ended December 3l, 2000 (“prior year” or “2000”).

          General and administrative expenses in the current year decreased $607 to $1,245 from $1,852 in the prior year. This decrease in expenses resulted from lower salaries and payroll taxes of  $199, lower office expenses of $177, lower professional fees of $175 and lower insurance premiums of $56. The decrease in payroll resulted primarily from the Company’s decision not to add an additional employee after the prior Chief Financial Officer passed away in May 2000. In addition, the CEO voluntary authorized the Company to decrease his annual salary to $290 from $450, effective June 30, 2001.The decrease in office expenses resulted primarily from lower travel of $59, mostly due to Periscope’s operations being discontinued in 2000 and lower rent of $56 due to GIANT’s move into a smaller corporate office in 2000. In addition, many other office expense components decreased due to the Company’s on-going cost cutting efforts, net of a few increases in expenses. The decrease in professional fees in 2001 resulted primarily from the additional legal and accounting work for Periscope in 2000. The decrease in insurance premiums resulted primarily from the decrease in directors and officers’ liability coverage and employee health insurance coverage.

          Income increased $618 to $847 for 2001 compared to $229 in 2000. In the current year, $483 of the $3,000 Cash Collateral Deposit, which was written off in 2000, was recovered.  In addition, $194 in payments from Sands was received which resulted from his May 2001 settlement with the Company. For 2001, gains from the sale of marketable securities increased  $48 compared to 2000. However, investment income decreased $107 to $7 in 2001 compared to $114 in 2000. This decrease resulted primarily from unrealized losses on trading securities and the liquidation of interest bearing corporate bonds providing cash to pay operating expenses in 2001.

Liquidity and Capital Resources

          Liquidity for the years ended December 31, 2001 (“2001”) and 2002 (“2002”) has consisted of cash, receivables and marketable securities.

          Liquidity at December 31, 2002 decreased $241 to $6,458 compared to $6,699 at December 31, 2001. Shares of Checkers Drive-In Restaurants, Inc. (“Checkers”) common stock increased approximately 221,000 to 978,000 in 2002 from 757,000 in 2001. In April 2002, a warrant to purchase approximately 237,000 shares of Checkers common stock at a cost of $712 was exercised and approximately 16,000 shares of Checkers common stock was sold for net cash proceeds of $207 and a gain of $157 was recorded. Including market appreciation of $662 for the Checkers shares acquired in 2002, the total market appreciation for the investment in Checkers common stock increased $829 for 2002. However, market appreciation for the investment in common shares of a track-driven vehicle manufacturer decreased $138. In addition, approximately 10,000 common shares of the track-driven vehicle manufacturer were sold for net cash proceeds of $101 and a loss of $28 was recognized.  In 2002, a loss was recorded of $133 on net proceeds of $98, excluding accrued interest of $6 on the sale of an interest bearing corporate bond classified as a trading security. Net of approximately $43 in cash received from the exercise of stock options and other sources, the remaining decrease in liquidity, resulted from cash used to pay 2002 operating expenses.

          At December 31, 2002, liquidity consisted of marketable securities, primarily 978,000 shares of Checkers common stock and 40,000 shares of common stock in a track-driven vehicle manufacturer. At December 31, 2002, operating expenses are being paid through the margin of marketable securities and from time-to-time, the sale of these securities. At December 31, 2002, the margin availability was $472 and net borrowings were $12 and is included in accounts payable on the Balance Sheet. 

          Management believes the current dollar amount that can be borrowed will not be enough to pay the operating expenses for the current year. Management expects that marketable securities will have to be sold to continue to fund operations, unless an additional source of cash flow becomes available to the Company. Management believes that the proceeds from the sale of marketable securities will be sufficient to pay for the operating expenses for the foreseeable future.

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          On March 27, 2003, the margin availability was $515 and net borrowings were $32. During the first quarter of 2003, cash received from Sands and the sale of approximately 12,000 common shares of the track-driven vehicle manufacturer reduced the amount borrowed by $295.

New Accounting Pronouncements

          In October 2001, the Financial Accounting Standards Board (“FASB”) recently issued Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” which requires companies to record the fair value of a liability for asset retirement obligations in the period in which they are incurred.  The statement applies to a company’s legal obligations associated with the retirement of a tangible long-lived asset that results from the acquisition, construction, and development or through the normal operation of a long-lived asset.  When a liability is initially recorded, the company would capitalize the cost, thereby increasing the carrying amount of the related asset.  The capitalized asset retirement cost is depreciated over the life of the respective asset while the liability is accreted to its present value.  Upon settlement of the liability, the obligation is settled at its recorded amount or the company incurs a gain or loss. The statement is effective for fiscal years beginning after June 30, 2002.  Management does not expect the adoption to have a material impact to the Company’s Financial Position or Results of Operations.

          In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  SFAS No. 144 addresses the accounting and reporting for the impairment or disposal of long-lived assets. The statement provides a single accounting model for long-lived assets to be disposed of.  New criteria must be met to classify the asset as an asset held-for-sale. This statement also focuses on reporting the effects of a disposal of a segment of a business.  This statement is effective for fiscal years beginning after December 15, 2001. Management does not expect the adoption to have a material impact to the Company’s Financial Position or Results of Operations.

          In April 2002, the FASB issued SFAS No. 145, “Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections.” This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of FASB No. 4, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” and SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers”. This Statement amends SFAS No. 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Management does not expect the adoption to have a material impact to the Company’s Financial Position or Results of Operations.

          In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Management does not expect the adoption to have a material impact to the Company’s Financial Position or Results of Operations.

          In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”, which amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with earlier application permitted in certain circumstances. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.  The adoption of this Statement did not have a material impact on the Company’s Financial Position or Results of Operations as the Company has not elected to change to the fair value based method of accounting for stock-based employee compensation. 

          In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities.” Interpretation

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No. 46 changes the criteria by which one company includes another entity in its consolidated financial statements.  Previously, the criteria were based on control through voting interest.  Interpretation No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the primary beneficiary of that entity. The consolidation requirements of Interpretation No. 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. Management does not expect the adoption to have a material impact to the Company’s Financial Position or Results of Operations.

Inflation

          Inflation has not materially affected revenues and expenses from operations in the last three years and is not expected to have a material effect on the Company’s business.

Personal Holding Company

          Under the Internal Revenue Code, in addition to the regular corporate income tax, an additional tax may be levied upon an entity that is classified as a personal holding company.  In general, this tax is imposed on corporations which are more than 50% owned, directly or indirectly, by 5 or fewer individuals (the “Ownership Test”) and which derive 60% or more of their taxable income from personal holding company sources, generally defined to be passive income (the “Income Test”).  If a corporation falls within the Ownership Test and the Income Test, it is classified as a personal holding company, and will be taxed on its undistributed personal holding company taxable income at a rate of 39.6%.

          Currently, the stock ownership test has been met but the taxable income requirement has not been met. No additional tax is due for the current year; however, no assurance can be given that the taxable income test will not be satisfied in the future. 

Market Risk

          Primary financial instruments consist of marketable equity securities available for sale. Market risk is the potential decrease in the value of the marketable equity securities available for sale resulting from lower market prices.  Derivatives are not purchased for trading or interest rate exposure. 

Sensitivity Analysis

          The following analysis presents the sensitivity of the market value to hypothetical changes in market prices as if these changes occurred at December 31, 2002.  The range of change that was chosen for this analysis reflects a view of change that would be reasonably possible over a one-year period. These forward-looking disclosures are selective in nature and only address the potential impact on the value of marketable securities. Other potential effects, which could impact business as a result of these changed market prices, are not addressed. Actual results could differ materially from those projected in these forward-looking statements.

          At December 31, 2002, the carrying value of the investments in marketable equity securities available for sale is $6,449, including a net unrealized holding gain of $2,703.  The estimated potential decrease in fair value resulting from a hypothetical 10% reduction in prices quoted by the stock exchanges is $645, approximately 10% of the current assets.

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GIANT GROUP, LTD.
STATEMENTS OF OPERATIONS
for the years ended December 31, 2000 (unaudited)  2001 and 2002 (audited)
(Dollars  in thousands, except per share amounts)

The accompanying Notes are an integral part of these Financial Statements.

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GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Audited)

The accompanying Notes are an integral part of these Financial Statements.

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GIANT GROUP, LTD.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2000 ( unaudited) 2001 and 2002 (audited)
(Dollars  in thousands, except per share amounts)

The accompanying Notes are an integral part of these Financial Statements.

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GIANT GROUP, LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the years ended December 31, 2000 (unaudited) and 2001 and 2002 (audited)
(Dollars in thousands)