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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

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

For the transition period from                    to                   .

Commission File No.:  0-25244

TRANS WORLD CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (212) 983-3355

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  o  NO  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.  (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

The number of outstanding shares of the registrant’s common stock as of November 2, 2010 was 8,871,640.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2010

INDEX

PART 1 — FINANCIAL INFORMATION

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ITEM 1.                FINANCIAL STATEMENTS

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2010 and December 31, 2009

(in thousands, except for share data)

See accompanying notes to condensed consolidated interim financial statements

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TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

Nine and Three Months Ended September 30, 2010 and 2009

(in thousands, except for share data)

See accompanying notes to condensed consolidated interim financial statements

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TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2010 and 2009

(in thousands)

See accompanying notes to condensed consolidated interim financial statements

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 TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(in thousands, except for share data)

1.              Basis of Presentation and Consolidation.

The accompanying unaudited condensed consolidated interim financial statements of Trans World Corporation and Subsidiaries (collectively, the “Company,” “TWC,” “we,” “our” or “us”) as of September 30, 2010 and December 31, 2009 and for the nine and three months ended September 30, 2010 and 2009 reflect all adjustments of a normal and recurring nature to fairly present the consolidated financial position, results of operations and cash flows for the interim periods. The financial statements of all foreign subsidiaries consolidated herein have been converted in accordance with accounting principles generally accepted in the United States of America (“US GAAP” or “GAAP”) for financial presentation purposes. All significant intercompany transactions and account balances have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements have been prepared by the Company according to the instructions of Form 10-Q and pursuant to the U.S. Securities and Exchange Commission’s (“SEC”) accounting and reporting requirements under Regulations S-X and S-K. Pursuant to these instructions, certain financial information and footnote disclosures normally included in such consolidated financial statements have been condensed or omitted.

In management’s opinion, all adjustments considered necessary for the fair presentation of the financial position, results of operations and cash flows of the Company have been included. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with management’s discussion and analysis, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The results of operations for the nine and three months ended September 30, 2010 are not necessarily indicative of the results that may occur for the year ending December 31, 2010.

The condensed consolidated balance sheet as of December 31, 2009 was derived from the Company’s audited financial statements but does not include all disclosures required by US GAAP.  All monetary amounts set forth in these financial statements are in United States dollars (“USD” or “$”) and in thousands, unless otherwise stated herein.

2.              Commitments and Contingencies.

Lease Obligations - The Company is obligated under several operating leases expiring through 2018.  Future aggregate minimum annual rental payments under all of these leases for the next five years are as follows:

Rent expense under these operating leases was approximately $90 and $93 for the nine months ended September 30, 2010 and 2009, respectively.

The Company is also obligated under certain five-year, slot equipment operating leases, the projected costs of which are not included in the table above due to fluctuating inventory, expiring in 2011 and 2012, which provide for a monthly fixed rental fee per slot machine, and an option for replacement to a different/newer machine during the term of the lease.  In the third quarter of 2010, the Company’s slot lease expenses were approximately $546 versus $516 in the comparable period in 2009, while for the first nine months of 2010, they were $1,657 versus $1,539 for the comparable period in 2009.  The increase in lease expenses was attributable to the weaker Czech currency versus the Euro currency, as the slot leases are paid in Euros (“EUR”).

Employment Agreements - The Company’s July 1, 2005 employment agreement with its Chief Executive Officer (“CEO”), Mr. Rami S. Ramadan, absent the intervention of either party by September 30th of each year, renewed

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automatically for another calendar year, currently ending December 31, 2011.  In addition to a perpetually renewable employment term of one year absent the intervention of either party, the agreement provides for annual compensation, plus participation in the Company’s benefits programs and equity incentive plans. As of September 30, 2010, approximately $113 of annual compensation remains payable in 2010.

401 (k) and Profit Sharing Plan - The Company maintains a contributory 401(k) plan and a profit sharing plan.  These plans are for the benefit of all eligible corporate employees, who may have up to 16.5% of their salary withheld, not to exceed the maximum federally allowed amount.  The Company makes an employer-matching contribution of 60 cents for each employee dollar contributed.

Taxing Jurisdiction - The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities.  Applicable taxes include gaming tax, value-added tax or VAT, charity tax, and payroll (also known as social) taxes.  Tax declarations, together with other legal compliance areas (as examples, customs and currency control matters) are subject to review and investigation by a number of governmental authorities, which are enabled by law to impose fines, penalties and interest charges, create tax risks in the Czech Republic.  Management believes that it has adequately provided for its Czech tax liabilities as of September 30, 2010.

Legal Proceedings - The Company is often subject to various contingencies, the resolutions of which, its management believes will not have a material adverse effect on the Company’s consolidated financial position or results of operations.  TWC was not involved in any material litigation during the quarter ended September 30, 2010, or through the date of this filing.

3.              Liquidity.

As of September 30, 2010, the Company had a working capital deficit of approximately $4,363, a reduction of $1,020 compared to a working capital deficit of $5,383 at December 31, 2009.  This decrease was primarily due to the positive cash flow generated by operations, and short term nature of note receivables from the owners of the Grand Casino Lav, which represent a one year-equivalent of principal due on this replacement loan (see details below).

On July 8, 2010 TWC satisfactorily retired, pursuant to the terms of the Replacement Notes, the Company’s unsecured promissory notes aggregating a principal balance of $1,550 which had matured on June 26, 2010, along with a total payment of $295 in associated deferred and accrued interest.  In addition, on September 22, 2010, the Company completed its gaming tax payment schedule, as permitted by the Czech Ministry of Finance, to remit its 2009 gaming tax obligations of Czech Koruna (“CZK”) 31,000, or about $1,700.  As of September 30, 2010, the Company had fully drawn down its full Commerzbank revolving credit facility of CZK 40,000, or $2,200.  The Company was in full compliance with all of the credit facility’s financial covenants at September 30, 2010.

In December 2009, TWC agreed to a proposal from the owners of Grand Casino Lav to consolidate the owners’ three outstanding loans, which had been extended to them in connection with the Company’s securing of a 10-year casino management contract in 2007, plus accrued interest and penalties into a single, 3-year, 3.55% per annum interest, term loan (the “Replacement Loan”), to be effective January 1, 2010, excluding accrued management fees.  The Replacement Loan principal amount is approximately EUR 875, or approximately $1,200.  Monthly payments for the Replacement Loan commenced May 31, 2010 (after a four-month, interest-free grace period) and are current as of September 30, 2010.  In addition to liens on gaming equipment, the Replacement Loan is secured by nine legally-binding receivable notes, which can be presented at any time upon default of the Replacement Loan to the owners’ bank for the satisfaction of the Replacement Loan.  In the event of a sale of the business, the Replacement Loan would be transferred to the new owner.  TWC management believes the loan is fully collectible.

The Company’s management believes that its cash resources at September 30, 2010, in addition to the anticipated cash to be provided by existing operations, will be sufficient to satisfy its accounts payable and other current obligations and fund its operating activities for the next twelve months.  However, should cash from operations be insufficient to cover the above objectives, the Company may seek to raise additional equity or debt capital in order to fund its current liabilities, operations and growth strategies.  There is no guarantee that such funds will be available to TWC at favorable terms or at all, in which case the Company may decide to reduce its operations and/or its development plans.

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4.              Summary of Selected Significant Accounting Policies.

(a)          Revenue recognition - The Company complies with requirements for revenue recognition in financial statements. Casino revenue is defined as the net win from gaming activities, which is the difference between gaming wagers and the amount paid out to patrons, and is recognized on the day it is earned. Revenues generated from ancillary services, including lodging, sales of food, beverage, cigarettes, and casino logo merchandise are recognized at the time the related services are performed and represent as of September 30, 2010, on each individual basis, less than three percent of total revenues.

(b)         Earnings per share - The Company complies with accounting and disclosure requirements regarding earnings per share. Basic earnings (loss) per common share are computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share incorporate the dilutive effect of common stock equivalents on an average basis during the period. The Company’s common stock equivalents currently include stock options, warrants and deferred compensation stock. Thus, unexercised stock options to purchase up to 838,525 and 838,965 shares as of September 30, 2010 and September 30, 2009, respectively, were included in the computation of diluted earnings per common share, if such unexercised stock options were “in-the-money” and vested. Warrants to purchase up to 75,000 shares were also included, if they were “in-the-money” and vested. In addition, 48,258 and 44,650 issuable shares, as of September 30, 2010 and September 30, 2009, respectively, under the Company’s Deferred Compensation Plan were also included in the computation.

A table illustrating the impact of dilution on earnings per share, based on the treasury stock method, is presented below:

(1) Per the treasury stock method.

(c)          Goodwill - Goodwill represents the excess of the cost of the Company’s Czech subsidiaries over the fair value of their net assets at the date of acquisition, which consisted of the Ceska and Rozvadov casinos and the land in Hate, which is currently, the Route 59 Casino. Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. The Company has allocated the goodwill over two reporting units that are components of the operating segment “Czech subsidiaries” and are classified as the “German reporting unit” which consists of the Ceska and Rozvadov casinos, and the “Austrian reporting unit” which consists of the Route 55 and Route 59 casinos and the Hotel Savannah. The impairment assessment requires the Company to compare the fair value of its two reporting units to their respective carrying values to determine whether there is an indication that an impairment exists. The fair value of the two reporting units were determined through a combination of recent appraisals of the Company’s real property and a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which was based on the Company’s experience and data from independent, third parties. As required, the Company performed its required annual fair-value based testing of the carrying value of goodwill related to its two reporting units at September 30, 2010, and

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determined that goodwill was not impaired at September 30, 2010. The Company will perform its required annual assessment of goodwill during the third quarter of 2011.

(d)         Property and Equipment - Property and equipment is stated at cost less accumulated depreciation and amortization.  TWC capitalizes the cost of improvements that extend the life of the asset and expenses maintenance and repair costs as incurred.  The Company provides for depreciation and amortization using the straight-line method over the following estimated useful lives:

At September 30, 2010 and December 31, 2009, property and equipment consisted of the following:

(e)          Impairment for long-lived assets - The Company adheres to GAAP for the impairment on disposal of long-lived assets and periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may be recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived assets, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable market value. There were no impairment losses for long-lived assets recorded for the nine months ending September 30, 2010.

(f)            Foreign currency translation - The Company complies with GAAP accounting and reporting requirements for foreign currency translation, where for foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts and cash flows are translated at exchange rates in effect at the end of each reporting period and resulting translation adjustments are included in “accumulated other comprehensive income (loss).” Statement of operations accounts are translated by applying the monthly averages of the daily exchange rates of one (1) USD dollar to one (1) CZK at the end of the respective month on the respective monthly local Czech statement of operations accounts for the period.

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The impact of foreign currency translation on goodwill is presented below:

(1)          Goodwill was amortized over 15 years until the Company started to comply with GAAP requirements, as of January 1, 2002.

This balance represents the remaining, unamortized goodwill, after an impairment charge taken prior to January 1, 2003.

(2)          FX (interbank) rates taken from Oanda.com.

(g)  Stock-based compensation - The Company complies with the GAAP accounting and reporting requirements for share-based payments which permit companies to adopt its requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of share-based payments for all share-based payments vested after that date, and based on these requirements for all unvested awards granted prior to the effective date of this pronouncement. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permit entities to restate financial statements of previous periods, either for all prior periods presented or to the beginning of the fiscal year in which the statement is adopted, based on previous pro forma disclosures made in accordance with this pronouncement.  Accordingly, the Company has adopted the modified prospective method of recognition, and began applying the valuation and other criteria to stock options granted beginning January 1, 2006. The Company is recognizing expense for the unvested portion of previously issued grants based on the valuation and attribution methods used previously to calculate the pro forma disclosures. The Company did not recognize expense for employee stock options prior to January 1, 2006.

The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of stock options granted to certain key employees. While this pronouncement permits entities to continue to use such a model, it also permits the use of a “lattice” model. The Company expects to continue using the Black-Scholes option pricing model in connection with its adoption of this pronouncement to measure the fair value of stock options granted.

(h)         Comprehensive income — The Company complies with GAAP accounting and reporting requirements for reporting comprehensive income. Those requirements establish rules for reporting and display of comprehensive income and its components.  Furthermore, they require the Company’s change in the foreign currency translation adjustments to be included in other comprehensive income.

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(i)             Promotional allowances — Promotional allowances primarily consist of food and beverages and, to certain of its valuable players, hotel accommodations, all of which are furnished gratuitously.  For the nine months ended September 30, 2010 and 2009, revenues do not include the retail amount of food and beverages and hotel accommodations of $4,432 and $3,857, respectively, provided at no-charge to customers. The retail value of the food and beverages given away is determined by dividing the food and beverage costs charged to the gaming operation of $1,857 and $1,539, for the respective periods, by the average percentage of cost of food and beverages sold.  The cost of hotel accommodations is either the out-of-pocket expenses paid to other hotels or the retail charge of rooms at the Hotel Savannah. The promotional allowances are summarized below:

(j)             Czech taxes — The majority of TWC’s revenues are derived from gaming operations in the Czech Republic, which are subject to gaming taxes only, while its non-gaming revenues, which are not material, have correspondingly non-material corporate income tax liabilities under Czech law.  Gaming taxes are computed on gross gaming revenues, which are comprised of live (table) games and slot games revenues. For live game revenue, the applicable taxes and fees are: (i) a 10% administration tax; (ii) a 1% state supervision fee; and (iii) a charity contribution (tax) (herein referred to as a charity tax) according to a gross revenue formula specified by the Czech Ministry of Finance, net of the aforementioned taxes and fees. For slot game revenue, the applicable taxes and fees are: (i) an annual license fee of CZK 30,000, or $1,400, per slot machine, paid to the Ministry of Finance; (ii) an administration fee of CZK 4,000, or $200, per slot machine; and (iii) the charity tax, net of the applicable fees.  Therefore, for all gaming revenue, net of applicable taxes and fees, up to CZK 50,000 (or approximately $2,800 at the September 30, 2010 exchange rate), a 6% charity tax applies; up to CZK 100,000 (or approximately $5,500 at the same exchange rate), an 8% rate applies; up to CZK 500,000 (or approximately $28,000 at the same exchange rate), a 10% rate applies; and above the CZK 500,000 gaming revenue threshold, a 15% rate applies.  The charity tax is intended for publicly beneficial, cultural, sporting and welfare purposes, net of local (municipality) administration and slot state-licensing fees.  TWC’s gaming taxes are presented in the following table:

Gaming taxes payable are due to the Czech Ministry of Finance annually, typically in April of the subsequent year, while charity taxes payable, although having no stated due dates, are paid as mutually agreed with the charities by May of the subsequent year. The Company may allocate this charity contribution to local schools, sports clubs, subsidized or volunteered organizations, or municipalities in which each of the Company’s casinos operate. The distribution is subject to the prior approval of the Czech Ministry of Finance.

On April 8, 2010, the Company opted to utilize a payment schedule, ending September 25, 2010, permitted by the Czech Ministry of Finance to remit its 2009 gaming tax obligations of approximately CZK 31,000, or approximately $1,500.  On September 22, 2010, TWC satisfactorily completed the scheduled remittances of 2009 taxes to the Czech Ministry of Finance.

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In conformity with the European Union (“EU”) taxation legislation, when the Czech Republic joined the EU in 2004, its value added tax (“VAT”) increased from a range of 5% to 22%, beginning in January 2004, up to a range of 9% to 19%, by December 31, 2009 for all intra-EU generated purchases. All non-EU generated purchases were impacted by identical VAT increases, beginning in May 2004.  Beginning January 1, 2010, VAT rates increased to a range of 10% to 20% in the Czech Republic.  The Company pays its VAT directly to its vendors in connection with any purchases that are subject to this tax.  Unlike in other industries, VATs are not recoverable for gaming operations.  As for the Company’s new hotel operation, Hotel Savannah, the recoverable VAT was non-material for the nine and three month periods in 2010 and 2009, respectively.

(k)          Income taxes — The Company complies with GAAP accounting and reporting requirements with respect to accounting for income taxes, which require an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed for differences between the financial statement and the tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.  In July 2006, the accounting recognition rules for uncertainty in income taxes created a single accounting and disclosure model for uncertain tax positions, provides guidance on the minimum threshold that a tax uncertainty is required to meet before it can be recognized in the financial statements and applies to all tax positions taken by a company, both those deemed to be routine as well as those for which there may be a high degree of uncertainty.  During the period ended September 30, 2010, the Company recognized no adjustments for uncertain tax positions.

(l)             Recently issued and adopted accounting standards:

In December 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-17, which requires a qualitative approach for determining the primary beneficiary of a variable interest entity and replaces the quantitative evaluation previously set forth under FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities.” This approach is focused on identifying the reporting entity that has the ability to direct the activities of a variable interest entity that most significantly affects the entity’s economic performance and has the obligation to absorb the entity’s losses or has the right to receive benefits from the entity. ASU No. 2009-17, among other things, requires enhanced disclosures about a reporting entity’s involvement in variable interest entities. The guidance under ASU No. 2009-17 became effective for the first annual period beginning after November 15, 2009, and interim periods within that first annual period. The Company adopted the pronouncement on January 1, 2010 resulting in no impact to the Company’s consolidated balance sheets, statements of income and cash flows.

In January 2010, the FASB issued ASU No. 2010-06, which requires additional disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009.  The Company has complied with the additional disclosures required by this standard.  The adoption of this standard had no impact on the Company’s consolidated financial position, results of operations and cash flows.

In February 2010, the FASB issued ASU No. 2010-09, which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.

In April 2010, the FASB issued ASU No. 2010-16 which requires that an entity should not accrue a jackpot liability (or portions thereof) before the jackpot is won if the entity is not obligated to pay out that jackpot.  Jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot.  The guidance will become effective for the first annual period beginning after December 15, 2010 and the interim periods within that first annual period.  The Company is assessing what impact, if any, adoption of this standard will have on its consolidated financial statements.

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ITEM 2.                                            MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note on Forward-Looking Information

This Form 10-Q contains certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the use in those statements of terminology such as “may,” “will,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. The forward-looking statements included in this Form 10-Q address activities, events or developments that we expect or anticipate will or may occur in the future.

Although we believe the expectations expressed in the forward-looking statements included in this Form 10-Q are based on reasonable assumptions within the bounds of our knowledge of our business at the time the statements are made, a number of factors outside of our control could cause actual results to differ materially from those expressed in any of the forward-looking statements included in this Form 10-Q. Any one or a combination of these factors, or other factors not now known, could materially affect our financial performance, business strategy, business operations, plans, goals and objectives. These factors include but are not limited to:

·              the market’s acceptance of our gaming offerings;

·              the effect of competition in our markets;

·                                          the political, legislative, and regulatory climates and changes upon our business;

·                                          the impact of fluctuations of currencies on revenue we receive or expenses we incur; and,

·                                          other factors described in our Form 10-K for the year ended December 31, 2009 under the headings “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk.”

Forward-looking statements that we make or that are made by others on our behalf are based on a knowledge of our business and the environment in which we operate, but because of the factors listed above, actual results may differ significantly from those in forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. The results or developments we anticipate may not be realized. Even if substantially realized, those results or developments may not result in the expected consequences for us or affect us, our business or our operations in the ways we expect. We caution readers not to place undue reliance on any of these forward-looking statements in this Form 10-Q, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

Amounts presented in this Item 2 are rounded.  As such, rounding differences could occur in period over period changes and percentages reported throughout this Item 2.

Nature of Business and Competition

We are engaged in the acquisition, development and management of niche casino operations in Europe, which feature gaming tables and mechanized gaming devices, such as video slot machines, as well as the acquisition, development and the management of small to midsize hotels, which may include casino facilities.  Our expansion into the hotel industry was founded on management’s belief that hotels in the small to midsize boutique class are complementary to our casino brand; that opportunities in one of these two industries often lead to, or are tied to, opportunities in the other industry; and that a more diversified portfolio of assets will give us greater stability and make us more attractive to potential investors.  Further, several of our top management executives have extensive experience in the hotel industry.  In this pursuit, we have developed our first hotel, Hotel Savannah, a 77-room, European four-star deluxe hotel, adjoining our Route 59 Casino, which primarily draws customers from the Vienna, Austria, regional area.

Currently, we own and operate four casinos in the Czech Republic (“CZ”), and manage, under a 10-year management contract expiring in 2017, a casino and nightclub in Croatia.  With respect to our Czech casinos, two are located in the western part of the CZ, close to the border of Germany.  The larger of the two, located in Ceska Kubice

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(“Ceska”), currently has five competitors, one of which began operation in December 2009. The smaller one is located in the town of Rozvadov (“Rozvadov”), and currently has one competitor.  The other two Czech casinos are located in the southern part of the CZ, close to the Austrian border.  The larger of these two, “Route 55,” located in Dolni Dvoriste, has two competitors, and the other casino, “Route 59,” which recently underwent a major building expansion and renovation, is located in Hate, near Znojmo, and currently has two competitors.  On April 16, 2009, we officially launched our newly constructed 77-room, European four-star hotel, Hotel Savannah.  The hotel is connected to our Route 59 casino with the joint facility’s main restaurant linking the two buildings.  Along with the hotel operation, which includes eight banquet rooms for meetings and conferences, we also launched a full-service spa, the Spa at Hotel Savannah (the “Spa”), which is attached to Hotel Savannah.  The Spa, which features Ayurvedic massage therapies and an indoor pool, opened on March 16, 2009 and is operated by an independent contractor.  The Croatian casino and adjoining nightclub (collectively known as the “Grand Casino Lav”), is located in the Grand Hotel Lav resort in the city of Podstrana, near Split, Croatia.  The Grand Casino Lav’s revenues and expenses are recognized on the owner’s books.  We derive only management fee income from the performance results of the Grand Casino Lav, which is recognized in our consolidated financial statements.  The Grand Casino Lav currently has two competitors.

Our industry is capital intensive, and we rely heavily on the ability of our casinos to generate operating cash flow to repay debt financing, to fund maintenance and capital expenditures and to provide funds for future development.

Exchange Rates

Due to the fact that the Company’s operations are located in Europe and principally in the Czech Republic, TWC’s financial results are subject to the influence of fluctuations in foreign currency exchange rates.  The revenue generated by our Czech operations is generally denominated in EUR and the expenses incurred by these facilities are generally denominated in CZK.  As our primary reporting subsidiary, American Chance Casinos, the TWC subsidiary that operates TWC’s casinos (“ACC”), is a Czech entity, all revenues and expenses, regardless of sources of origin (e.g. Croatia), are recognized in the Czech currency and translated to USD for reporting purposes.  A substantial change in the value of any of these currencies in relation to the value of the USD would have an impact on the results from our operations when translated into USD.  We do not hedge our foreign currency holdings.

The actual 2010 and 2009 operating results in local currency for the Czech casino units were converted to USD using the average of the daily exchange rates of each month in the reporting periods.  As all of the Grand Casino Lav’s operating results, including revenues and expenses, are recognized on the owner’s books, the foreign currency exchange impact is limited to only our earned management fees income, which was not material for the periods reviewed.  The monthly average exchange rates for the CZK versus the USD and EUR, respectively, are presented in the following graphical chart.

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The consolidated balance sheet totals of the Company’s foreign subsidiaries at September 30, 2010 and December 31, 2009 were converted to USDs using the interbank exchange rates, as reported at www.oanda.com, which are depicted in the following table:

Critical Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed financial statements have been prepared following the US GAAP and by Article 8 of Regulation S-X for interim periods and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates, including those related to potential impairment of goodwill and share-based compensation expense. As these are condensed consolidated financial statements, the reader should also review expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2009. There have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year ended December 31, 2009.

RESULTS OF OPERATIONS

Performance Measures and Indicators

In discussing the consolidated results of operations, we may use or refer to performance measures and indicators that are common to the gaming industry, such as: (i) total (live game) drop, the dollar value of gaming chips purchased in a given period; (ii) (live game) drop per head (“DpH”), the per guest average dollar value of gaming chips purchased; (iii) daily income per (slot) machine; (iv) net win, the difference between live game wagers and the amount paid out to patrons; (v) win percentage (“WP”), the ratio of net win over total drop; and (vi) occupancy rate, the number of rooms sold divided by the number of rooms available.  These measures are “non-GAAP financial measures.”

Review of the Condensed Consolidated Interim Results of the Company:

Three Months Ended September 30, 2010 and 2009:

For the quarter ended September 30, 2010, our total revenues declined to approximately $8.0 million, from $8.7 million for the quarter ended September 30, 2009.  The decline was attributable in large part to several factors: (i) the negative impact of the 2010 FIFA World Cup, which continued for 11 days into the beginning of the third quarter of 2010, and served to divert many of our players to other social venues, including their own homes, to watch the soccer matches; (ii) the significant live game losses at our largest casino, Route 55; and (iii) the lower revenue at one of our casinos due to stronger than expected competition.  Live game attendance fell 9.9% while slot attendance rose 2.3%, for

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the three months ended September 30, 2010 versus the same three months a year ago.  The live game revenue decline that resulted was partially offset by revenue increases in slot revenues, food and beverage (“F&B”) and by the addition of hotel room and spa revenues.  F&B, rooms and spa revenues aggregated approximately 5.6% of total revenue.

Operating costs and expenses decreased $584,000, or 7.3%, from approximately $8.0 million for the quarter ended September 30, 2009 to approximately $7.4 million for the quarter ended September 30, 2010, mainly due to reduced volume-based gaming taxes and payroll, lower expenses in property-related costs and to lower depreciation and amortization expenses for the comparable periods.

Income from operations fell $184,000 or 24.1%, to $579,000, from the third quarter in 2009 income from operations of $763,000, as a result of the above factors.

Other expense for the quarter ended September 30, 2010 decreased by $87,000, or 41.2%, to $124,000 from $211,000 for the same quarter last year, and represents lower interest paid on the Company’s credit facility, due to lower interest rates.

As a result of the above, net income for the three months ended September 30, 2010 decreased by $97,000, or 17.6%, to $455,000, versus a net income of $552,000 for the three months ended September 30, 2009.

Costs and Expenses

Total costs and expenses for the three months ended September 30, 2010 and 2009 are presented below:

Cost of revenues for the quarter ended September 30, 2010 decreased by $505,000, or 10.1%, primarily due to lower volume-driven gaming taxes, payroll and amenity expenses.  The complimentary food and beverage, cigarettes, and hotel accommodations costs were recognized in the gaming departmental expenses, which totaled approximately $619,000 or 8.3% of gaming revenues for the three months ended September 30, 2010, compared with $683,000 or 8.3% of gaming revenues for the comparable quarter last year.  General gifts and giveaways, excluding personal gifts, represented $146,000 or 2.0% of gaming revenues, versus $227,000 or 2.7% of gaming revenues in the same quarter of 2009.  These expenses were also recognized in the gaming departmental expenses and represented a shift toward lower-cost, in-house promotions and a higher customer-service focus.

The personal gifts, which are booked in the Marketing Department, totaled approximately $22,000 for the third quarter in 2010, compared with $6,000 for the same quarter in 2009 and reflect a heightened focus on players’ attraction.

Depreciation and amortization expense decreased by $117,000, or 18.7%, largely due to the presence of fully depreciated assets.

Selling, general and administrative costs increased by $38,000, or 1.6%, due largely to higher costs in repairs and maintenance and utilities, which were partly offset by lower property insurance premiums.

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Nine Months Ended September 30, 2010 and 2009: