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EX-32.2 - EX-32.2 - TRANS WORLD CORPtwoc-20160930ex32282e46c.htm
EX-32.1 - EX-32.1 - TRANS WORLD CORPtwoc-20160930ex321b0b7ce.htm
EX-31.2 - EX-31.2 - TRANS WORLD CORPtwoc-20160930ex312a5e665.htm
EX-31.1 - EX-31.1 - TRANS WORLD CORPtwoc-20160930ex3117ed98f.htm

 

 

 

                            

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549


FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2016

 

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)

 

 

 

 

Nevada
(State or Other Jurisdiction of
Incorporation or Organization)

 

13-3738518
(I.R.S. Employer
Identification No.)

 

 

 

545 Fifth Avenue, Suite 940
New York, NY
(Address of Principal Executive Offices)

 

10017
(Zip Code)

 

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 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 ☒  NO ☐

 

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 ☒  NO ☐

 

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):

 

 

 

 

 

 

 

 

Large accelerated filer  ☐

 

Accelerated filer  ☐

 

Non-accelerated filer  ☐

 

Smaller reporting company  ☒

 

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

 

The number of outstanding shares of the registrant’s Common Stock, par value $0.001 per share, as of November 4, 2016 was 8,854,011.

 

 

 


 

 

TRANS WORLD CORPORATION AND SUBSIDIARIES

 

FORM 10-Q

 

FOR THE QUARTER ENDED SEPTEMBER 30, 2016

 

INDEX

 

PART I — FINANCIAL INFORMATION

 

 

 

    

Page

 

 

 

 

ITEM 1. 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015

 

 

 

 

 

 

Consolidated Statements of Income and Comprehensive Income (Loss) for the Nine and Three Months Ended September 30, 2016 and 2015 (unaudited)

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (unaudited)

 

 

 

 

 

 

Notes to Consolidated Interim Financial Statements (unaudited)

 

 

 

 

 

ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

17 

 

 

 

 

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

28 

 

 

 

 

ITEM 4. 

CONTROLS AND PROCEDURES

 

29 

 

 

 

 

PART II — OTHER INFORMATION 

 

 

 

 

ITEM 1. 

LEGAL PROCEEDINGS

 

30 

 

 

 

 

ITEM 1A. 

RISK FACTORS

 

30 

 

 

 

 

ITEM 2. 

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

31 

 

 

 

 

ITEM 5. 

OTHER INFORMATION

 

31 

 

 

 

 

ITEM 6. 

EXHIBITS

 

31 

 

 

 

 

 

SIGNATURES

 

36 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

i


 

 

ITEM 1.FINANCIAL STATEMENTS

 

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 30, 2016 and December 31, 2015

(in thousands, except for share data)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2016

    

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

ASSETS

    

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

15,976

 

$

10,674

 

Prepaid expenses

 

 

387

 

 

409

 

Other current assets

 

 

466

 

 

509

 

 

 

 

 

 

 

 

 

Total current assets

 

 

16,829

 

 

11,592

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

 

37,751

 

 

37,122

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

Goodwill

 

 

5,143

 

 

5,016

 

Deposits and other assets

 

 

1,546

 

 

1,509

 

 

 

 

 

 

 

 

 

Total other assets

 

 

6,689

 

 

6,525

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

61,269

 

$

55,239

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Long-term debt, current maturities

 

$

568

 

$

542

 

Capital lease, current portion

 

 

4

 

 

22

 

Accounts payable

 

 

343

 

 

753

 

Czech gaming tax accrual

 

 

3,056

 

 

2,219

 

Foreign income tax accrual

 

 

724

 

 

957

 

Accrued expenses and other current liabilities

 

 

2,723

 

 

3,052

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

7,418

 

 

7,545

 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES:

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

7,254

 

 

7,493

 

Deferred foreign tax liability

 

 

33

 

 

32

 

 

 

 

 

 

 

 

 

Total long-term liabilities

 

 

7,287

 

 

7,525

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 4,000,000 shares authorized, none issued

 

 

 

 

 

 

 

Common stock, $.001 par value, 20,000,000 shares authorized, 8,854,011 shares 2016 and 8,829,011 shares in 2015 issued and outstanding

 

 

9

 

 

9

 

Additional paid-in capital

 

 

54,181

 

 

53,387

 

Accumulated other comprehensive loss

 

 

(2,206)

 

 

(3,282)

 

Accumulated deficit

 

 

(5,420)

 

 

(9,945)

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

46,564

 

 

40,169

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

61,269

 

$

55,239

 

 

See accompanying notes to consolidated interim financial statements.

 

 

1


 

 

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME (LOSS)

Nine and Three Months Ended September 30, 2016 and 2015

(in thousands, except for share data and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

Three Months Ended September 30,

 

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

38,761

 

$

29,786

 

$

13,159

 

$

10,528

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COSTS AND EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

20,897

 

 

15,392

 

 

7,002

 

 

5,449

 

Depreciation and amortization

 

 

1,690

 

 

1,345

 

 

504

 

 

504

 

Selling, general and administrative

 

 

9,495

 

 

9,671

 

 

3,029

 

 

3,004

 

 

 

 

32,082

 

 

26,408

 

 

10,535

 

 

8,957

 

INCOME FROM OPERATIONS, before other expenses and foreign income taxes

 

 

6,679

 

 

3,378

 

 

2,624

 

 

1,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(185)

 

 

(140)

 

 

(60)

 

 

(69)

 

Other income

 

 

 

 

 

149

 

 

 

 

 

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE FOREIGN INCOME TAXES

 

 

6,494

 

 

3,387

 

 

2,564

 

 

1,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOREIGN INCOME TAXES

 

 

(1,969)

 

 

(988)

 

 

(653)

 

 

(336)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

 

4,525

 

 

2,399

 

 

1,911

 

 

1,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), foreign currency translation adjustments, net of tax of $0

 

 

1,076

 

 

(2,414)

 

 

396

 

 

146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS)

 

$

5,601

 

$

(15)

 

$

2,307

 

$

1,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,833,938

 

 

8,821,205

 

 

8,843,685

 

 

8,821,205

 

Diluted

 

 

9,465,848

 

 

9,258,313

 

 

9,512,056

 

 

9,257,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.51

 

$

0.27

 

$

0.22

 

$

0.13

 

Diluted

 

$

0.48

 

$

0.26

 

$

0.20

 

$

0.13

 

 

See accompanying notes to consolidated interim financial statements.

2


 

 

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2016 and 2015

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

    

Nine Months Ended September 30,

 

 

    

2016

    

2015

 

 

 

(Unaudited)

 

(Unaudited)

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

4,525

 

$

2,399

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Gain from assets disposal

 

 

 

 

 

(1)

 

Gain on bargain purchase of Hotel Columbus

 

 

 

 

 

(149)

 

Depreciation and amortization

 

 

1,690

 

 

1,345

 

Stock option expense

 

 

200

 

 

44

 

Restricted stock expense

 

 

94

 

 

 

 

Deferred board fees

 

 

75

 

 

51

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses

 

 

26

 

 

(150)

 

Other current assets

 

 

57

 

 

(147)

 

Deposits and other assets

 

 

 

 

 

(264)

 

Accounts payable

 

 

(446)

 

 

(444)

 

Czech gaming tax accrual

 

 

780

 

 

105

 

Foreign income tax accrual

 

 

(257)

 

 

231

 

Accrued expenses and other current liabilities

 

 

42

 

 

233

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

6,786

 

 

3,253

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,390)

 

 

(434)

 

Proceeds from assets disposal

 

 

12

 

 

 —

 

Cash payment to seller for acquisition of Hotel Freizeit Auefeld

 

 

 

 

 

(275)

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(1,378)

 

 

(709)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Principal payments on Hotel Freizeit Auefeld's seller loan

 

 

(87)

 

 

(88)

 

Principal payments on Hotel Freizeit Auefeld's Sparkasse loan

 

 

(163)

 

 

(56)

 

Principal payments on Hotel Columbus's Sparkasse loan

 

 

(165)

 

 

(169)

 

NET CASH USED IN FINANCING ACTIVITIES

 

 

(415)

 

 

(313)

 

 

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

309

 

 

(523)

 

 

 

 

 

 

 

 

 

NET INCREASE  IN CASH AND CASH EQUIVALENTS

 

 

5,302

 

 

1,708

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

Beginning of period

 

 

10,674

 

 

6,589

 

 

 

 

 

 

 

 

 

End of period

 

$

15,976

 

$

8,297

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash paid during the period for interest

 

$

185

 

$

140

 

Cash paid during the period for foreign income taxes

 

$

969

 

$

754

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Deferred compensation to be paid in common stock

 

$

519

 

$

350

 

Assumption of Sparkasse Hann. Münden loans for Hotel Freizeit Auefeld

 

$

 

 

$

2,220

 

Seller loan received in connection with acquisition of Hotel Freizeit Auefeld

 

$

 

 

$

2,455

 

Purchase price of Hotel Freizeit Auefeld

 

$

 

 

$

4,950

 

 

See accompanying notes to consolidated interim financial statements.

 

 

3


 

Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

 

1.Basis of Presentation and Consolidation.

 

The accompanying unaudited consolidated interim financial statements of Trans World Corporation and Subsidiaries (collectively, the “Company,” “TWC,” “we,” “our” or “us”) as of September 30, 2016 and December 31, 2015 and for the nine and three months ended September 30, 2016 and 2015 are presented in conformity with accounting principles generally accepted in the United States of America (“US GAAP” or “GAAP”), and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) and Regulation S-X.  Pursuant to these instructions, certain financial information and footnote disclosures normally included in such consolidated financial statements have been condensed or omitted.  In presenting the consolidated interim financial statements, management makes estimates and assumptions that affect the amounts reported and related disclosures.  Estimates by their nature are based on judgment and available information.  Accordingly, actual results could differ from those estimates.  All intercompany balances and transactions have been eliminated in consolidation.

 

These unaudited 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, 2015. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of the results that may occur for the year ending December 31, 2016.

 

The consolidated balance sheet as of December 31, 2015 was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by US GAAP.

 

The functional currency of the Company’s Czech subsidiaries is the local Czech koruna (“CZK” or “Kč”) and the local currency of the German subsidiary is the euro currency (“EUR” or “€”).  However, as our primary reporting wholly-owned subsidiary, Trans World Hotels & Entertainment a.s. (“TWH&E”), is a Czech entity, all revenues and expenses, regardless of sources of origin, are recognized in CZK. In the case of the two German hotels, which are owned by TWH&E through its wholly-owned German subsidiary, Trans World Hotels Germany GmbH (“TWHG”), all EUR revenues and expenses are translated into the Czech currency, then all amounts are translated to United States dollars (“USD” or “$”) for reporting purposes.

 

All monetary amounts set forth in these financial statements are in USD and in thousands unless otherwise stated herein.

 

2.Nature of Business.

 

Trans World Corporation, a Nevada corporation, and Subsidiaries are primarily engaged in the gambling business in the Czech Republic (“Czechia”) and in the hospitality business in Germany (“DE”).

 

The Company owns and operates three casinos in Czechia, all under the registered brand American Chance Casinos (“ACC”). The Ceska casino (“Ceska”), located in the town of Ceska Kubice, in the western part of Czechia, close to the German border, currently has 15 gaming tables and 94 slot machines. The Route 55 casino (“Route 55”), located in Dolni Dvoriste, in the southern part of Czechia, close to the Austrian border, currently has 21 gaming tables and 138 slot machines. The Route 59 casino (“Route 59”) is located in Hate, near Znojmo, also in the southern part of Czechia, close to the Austrian border, and currently has 25 gaming tables and 176 slot machines.

 

In addition to the above gaming operations, TWC also owns and operates a 77-room, four-star deluxe hotel, the Hotel Savannah, which is physically connected to its Route 59 casino, and owns a full-service spa, the “Spa at Savannah” (the “Spa”), which is operated by an independent contractor and is attached to the hotel. The hotel features eight banquet halls for meetings and special events as well as a full-service restaurant and bar.  Hotel Savannah and the three aforementioned casinos are part of the Company’s casino segment. (See Note 5 below).

 

4


 

Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

TWC also owns and operates two German hotels, which comprise the Company’s hotel segment.  The Hotel Columbus, a four-star 117-room hotel (the “Hotel Columbus”) is located in Seligenstadt, near Frankfurt, Germany. The Hotel Columbus features five meeting rooms, a restaurant and separate breakfast room, each with its own kitchen, two bars, a 32-space parking garage and 43 surface lot parking places, including a satellite parking area located across the street from the Hotel.   The second hotel, Hotel Freizeit Auefeld, is a 93-room four-star hotel with extensive meeting space and recreational amenities located in Hannoversch Münden (“Hann. Münden”), Germany.  The hotel  features three food and beverage outlets, ten meeting rooms, an adjoining 13,000 square foot event hall, and an adjoining tennis complex with four indoor courts, several additional recreation areas, and an independent townhouse comprised of one four-room and one six-room apartment. 

 

3.Summary of Selected Significant Accounting Policies.

(a) Cash and Cash Equivalents - Cash and cash equivalents are comprised of cash on hand, current balances with foreign and domestic banks and similar institutions, and term deposits of three months or less with banks and similar institutions.  The carrying amounts of cash at banks and on hand and term bank deposits approximate their fair values.

 

(b)Revenue Recognition - Casino revenue is defined as the net win from gaming activities, which is the difference between gaming wagers and the amount paid out to wagering patrons, and is recognized on the day it is earned.  Revenues generated from other services, which include room rentals, sales of food, beverage, cigarettes, spa services, and casino logo merchandise, are recognized at the time the related services are performed or goods sold.  Room revenue from the hotel and casino segments represented 7.2% and 7.5% of consolidated total revenue for the nine months ended September 30, 2016 and 2015, respectively.  Food and beverage (“F&B”) revenues from the hotel and casino segments represented approximately 5.3% and 5.3% of consolidated total revenue for the nine months ended September 30, 2016 and 2015, respectively.

 

(c)Business Acquisitions Assets acquired and liabilities assumed in business combinations are recorded on the Company’s consolidated balance sheets as of the respective acquisition dates based upon their estimated fair values at such dates.  The results of operations of businesses acquired by the Company have been included in the consolidated statements of income since their respective dates of acquisition.  In certain circumstances, the purchase price allocations may be based upon preliminary estimates and assumptions.  Accordingly, the allocations are subject to revision until the Company receives final information and other analyses during the measurement period which ends a year after the date of acquisition.

 

(d)Segment Reporting – Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting, the Company has two reportable segments, a casino segment and a hotel segment.  ASC 280 designates the internal reporting that is used by management for making operating decisions and assessing performance as the source of the Company’s reportable segments.  The Company is including this segment reporting under Note 5 below.

 

(e)Earnings per Share - The Company complies with accounting and disclosure requirements regarding earnings per share.  Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings 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, restricted stock, and deferred compensation stock.  As of September 30, 2016, the Company’s Common Stock equivalents include 665,000 unexercised stock options, 50,000 shares of restricted stock, and 621,733 shares issuable under the Company’s Deferred Compensation Plan.  As of September 30, 2015, the Common Stock equivalents included 635,000 unexercised stock options, 75,000 shares of restricted stock, and 436,712 deferred compensation shares.  These shares for the respective years were included in the computation of diluted earnings per common share, if such unexercised stock options, restricted stock, and deferred compensation stock were vested and “in-the-money.”

 

5


 

Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

The Company has not paid dividends on its Common Stock since inception and has no current plans to do so. 

 

A table illustrating the calculation of basic earnings per share and diluted earnings per share, based on the treasury stock method, is presented below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

For the Three Months Ended

 

 

    

September 30,

 

September 30,

    

 

    

2016

    

2015

    

2016

    

2015

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,525

 

$

2,399

 

$

1,911

 

$

1,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

 

8,833,938

 

 

8,821,205

 

 

8,843,685

 

 

8,821,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.51

 

$

0.27

 

$

0.22

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,525

 

$

2,399

 

$

1,911

 

$

1,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares

 

 

8,833,938

 

 

8,821,205

 

 

8,843,685

 

 

8,821,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Addition due to the effect of dilutive securities using the treasury stock method:

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options and restricted stock

 

 

10,177

 

 

396

 

 

46,638

 

 

 

 

Stock issuable under the Deferred Compensation Plan

 

 

621,733

 

 

436,712

 

 

621,733

 

 

436,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive potential common shares

 

 

9,465,848

 

 

9,258,313

 

 

9,512,056

 

 

9,257,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.48

 

$

0.26

 

$

0.20

 

$

0.13

 

 

(f)Goodwill - Goodwill represents the excess of the cost of the Company’s subsidiaries over the fair value of their net assets at the date of acquisition.  In Czechia, this consisted of the Ceska casino and a parcel of land in Hate (upon a portion of which the Route 59 Casino and Hotel Savannah are situated). In Germany, it consists of the newly acquired Hotel Freizeit Auefeld.  Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Goodwill impairment tests require the Company to first assess qualitative factors, which include macroeconomic conditions, financial performance, and industry and market considerations, to determine whether it is necessary to perform a two-step quantitative goodwill impairment test.  TWC assesses the potential impairment of goodwill annually (as of September 30th) and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Upon completion of such review, if impairment is found to have occurred, a corresponding charge to earnings will be recorded. TWC allocates its Czech goodwill over two geographical reporting units, which are components of the casino segment, and are classified as the “Pilsen reporting unit” (“PRU”), which consists of the Ceska casino, and the “South Moravia reporting unit” (“SMRU”), which consists of the land in Hate. The German goodwill is derived from the Hotel Freizeit Auefeld, and is represented by the “Lower Saxony reporting unit” (“LSRU”).  There were no indicators of impairment present during the third quarter of 2016 for the Czech reporting units, nor for the Hotel Freizeit Auefeld; therefore, TWC determined that there was no impairment of goodwill at September 30, 2016.

 

Changes to goodwill during the periods presented are strictly related to the fluctuation in foreign currency exchange rates. See Note 3(i) below.

 

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

(g)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:

 

                                                                                                                                                                 

 

 

 

Asset

    

Estimated Useful Life

 

 

 

 

 

Buildings

 

30-50  years

 

Leasehold improvements

 

5-20  years

 

Furniture, fixtures and other equipment

 

4-10  years

 

 

At September 30, 2016 and December 31, 2015, property and equipment consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

September 30, 2016

    

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

$

2,948

 

$

2,874

 

Building and leasehold improvements

 

 

36,092

 

 

34,950

 

Furniture, fixtures and other equipment

 

 

13,257

 

 

12,253

 

 

 

 

 

 

 

 

 

 

 

 

52,297

 

 

50,077

 

Less accumulated depreciation and amortization

 

 

(14,546)

 

 

(12,955)

 

 

 

 

 

 

 

 

 

 

 

$

37,751

 

$

37,122

 

 

(h)Impairment of Long-lived Assets - The Company 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 indicators of impairment for long-lived assets for the nine and three months ending September 30, 2016 and 2015.

 

(i)Foreign Currency Translation - The Company complies with requirements for reporting foreign currency translation, which require that for foreign subsidiaries whose functional currency is the local foreign currency, balance sheet accounts are translated at exchange rates in effect at the end of the period and resulting translation adjustments are included in “accumulated other comprehensive income (loss).”  Statement of income accounts are translated by applying monthly averages of daily exchange rates on the respective monthly local statement of operations accounts for the period.

 

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

 

 

 

 

Casino Segment

 

Hotel Segment

 

Total

 

(Unaudited)

 

Pilsen

 

South-Moravia

 

Lower Saxony

 

 

 

 

As of September 30, 2016 (in thousands, except FX)

    

reporting unit

    

reporting unit

    

reporting unit

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance in USD ($)

 

$

3,042

(1)  

$

537

(1)  

$

131

 

$

3,710

 

Balance in EUR (€)

 

 

 

 

 

 

 

 €

119

 

 €

119

 

Foreign Exchange Rate ("FX")

 

 

33.883

 

 

33.8830

 

 

27.2450

 

 

 

 

Balance in CZK (Kč)

 

103,072

(2)  

18,195

(2)  

3,242

(3)  

124,509

 

Applicable FX(4)

 

 

24.210

 

 

24.2100

 

 

24.2100

 

 

 

 

Balance at September 30, 2016

 

$

4,257

 

$

752

 

$

134

 

$

5,143

 

Net cumulative change to goodwill due to foreign currency translation

 

$

1,215

 

$

215

 

$

3

 

$

1,433

 


(1)

Goodwill was amortized over 15 years until the Company started to comply with revised GAAP requirements, as of January 1, 2002. This balance represents the remaining, unamortized goodwill, after an impairment charge was taken prior to January 1, 2003.

(2)

USD residual balance translated to CZK at June 30, 1998, the date of acquisition of such assets, with the date of acquisition CZK to USD FX rate of 33.8830.

(3)

EUR balance translated to CZK at June 1, 2015, the date of acquisition of the Hotel Freizeit, with the date of acquisition CZK to EUR FX rate of 27.2450.

(4)

Czech central bank foreign exchange rates at September 30, 2016, taken from www.CNB.CZ.

 

(j)Stock-based Compensation - The Company accounts for stock options using the modified prospective method in accordance with accounting and disclosure requirements for stock compensation.  Under this method, compensation costs include the estimated grant date fair value of the awards amortized over the options’ vesting period.  The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of stock options granted to certain key management employees (“KME”s).  Stock-based compensation was approximately $117 and $15 for the three months ended September 30, 2016 and 2015, respectively, and $200 and $44 for the nine months ended September 30, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the consolidated statements of income. 

 

(k)Comprehensive Income (Loss) – The Company complies with requirements for reporting comprehensive income (loss).  Those requirements establish rules for reporting and display of comprehensive income and loss and their components.  Except for the Company’s change in the foreign currency translation adjustments to be included in other comprehensive income (loss), there were no other components of the Company’s comprehensive income (loss) for the nine and three months ended September 30, 2016 and 2015.

 

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

(l)Czech Gaming Taxes - The gaming taxes are summarized in the following table (all monetary figures in the immediate two tables below are in actual amounts, not in thousands) :

 

 

 

 

 

 

 

2012 Gaming Tax Law

 

(in actual amounts)

 

(Effective from January 1, 2012 to December 31, 2015)

 

Live Games

    

20% gaming tax from revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).

 

 

 

 

 

Slots

 

20% gaming tax from revenue earned from slot games (20% of tax allocated to the federal government; 80% of tax allocated to the local municipality); and a per diem fixed fee of Kč 55 (approximately $2.25) per slot machine (allocated to the federal government).

 

 

 

 

 

 

 

2016 Gaming Tax Amendment

(in actual amounts)

 

(Effective from January 1, 2016)

Live Games

    

23% gaming tax from revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).

 

 

 

Slots

 

28% gaming tax from revenue earned from slot games (20% of tax allocated to the federal government; 80% of tax allocated to the local municipality); and a per diem fixed fee of Kč 80 (approximately $3.30) per slot machine (allocated to the federal government).

 

Gaming taxes are to be paid quarterly, by the 25th day following the end of a quarter.  TWC was current on all of its Czech gaming tax payments at September 30, 2016 and through the date of this report.

 

TWC’s gaming-related taxes and fees, which are recognized in the cost of revenues, for the nine and three months ended September 30, 2016 and 2015 are summarized in the following table:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(amounts in thousands)

 

For the Nine Months Ended

 

 

For the Three Months Ended

 

 

    

2016

    

2015

     

 

2016

    

2015

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming revenues (excluding ancillary revenues)

 

$

32,742

 

$

24,932

 

 

$

11,100

 

$

8,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gaming taxes and fees

 

 

9,016

 

 

5,213

 

 

 

3,063

 

 

1,787

 

Gaming taxes and fees as % of above gaming revenues

 

 

27.5

%

 

20.9

%

 

 

27.6

%

 

20.9

%

 

In conformity with the European Union (“EU”) taxation legislation, Czechia’s value added tax (“VAT”) has gradually increased from 5%, when that country joined the EU in 2004, to 21%, the effective rate since 2013. Unlike in other industries, VATs are not recoverable for gaming operations. The recoverable VAT under the Hotel Savannah, Hotel Columbus and Hotel Freizeit Auefeld was not material for the nine and three months ended September 30, 2016 and 2015, respectively.

 

On June 7, 2016, the President of Czechia signed the 2017 Gambling Act (186/2016 Coll.) (the “Gambling Act”) and the 2017 Gambling Tax Act (187/2016 Coll.) (the “2017 Gambling Tax Act”) (collectively referred to as the “Gambling Acts”).  The Gambling Acts became law on June 15, 2016, when they were published in the official Collection of Laws, maintained by the Czech Ministry of the Interior.  The 2017 Gambling Tax Act, which is due to take effect on January 1, 2017, will raise the gaming tax rate on technical game (i.e. slot machine or electromechanical roulette or dice) revenues to a “minimum tax,” will raise the tax rate from 28% to 35%, and eliminate the per diem fixed fee of Kč 80 (approximately $3.30) on each slot machine.  The 2017 Gambling Tax Act introduces a “minimum tax” on

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(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

technical games which amounts to the product of the sum of all gambling positions of individual approved terminal devices (such as slot machines, electromechanical roulette and dice machines) and referred to in the permit for the location of the gambling premises and the amount of Kč 9,200 (approximately $380).  Therefore, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is lower than the computed “minimum tax,” then the casino operator must pay the “minimum tax” and not the aggregate tax amount collected from the 35% gaming tax.  Otherwise, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is greater than the computed “minimum tax,” then the casino operator need only pay the aggregate tax amount collected from the 35% gaming tax and not the “minimum tax.”  The gaming tax rate on live game (i.e. cards, roulette or dice) revenues will remain unchanged at 23%.  Further, the 2017 Gambling Tax Act modifies the tax revenue allocation between the federal government and local municipalities.  A summary table of the 2017 Gambling Tax Act is shown below:

 

 

 

 

 

2017 Gambling Tax Act

(in actual amounts)

 

(Effective from January 1, 2017)

Live Games

    

23% gaming tax from revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).

 

 

 

Slot and other technical games

 

The greater of either: (a) the aggregate amount collected from 35% gaming tax from revenue earned from slot and other technical games (35% of tax allocated to the federal government; 65% of tax allocated to the local municipality), or (b) a "minimum tax," calculated as the product of the sum of all gambling positions of individual approved terminal devices referred to in the permit for the location of the gambling premises times Kč 9,200 (approximately $380).

 

 

 

 

The 2017 Gambling Act introduces many new changes, requirements and conditions, that will take effect at various times in the future, some taking effect on the date of enactment, some on January 1, 2017 and certain provisions taking effect upon the renewal of the casino operator’s gambling licenses.  Although TWC’s 10-year gambling license expires in September 2018, and its slot operating one-year license expires at the end of 2017, the Company has begun to take steps to conform to these requirements for when it applies for its slot and other technical game license, which is due to expire at the end of 2017.  The Company is also awaiting the Czech Ministry of Finance’s (“MOF”) final interpretation of these new measures, some of which were clarified in August 2016 and others are awaiting further clarifications from the MOF.  The notable changes and requirements are summarized in the section, “New Gambling Acts and their Impact” in Item 2. “Management Discussion and Analysis” below. 

 

The Company currently estimates that if the 2017 Gambling Tax Act were in effect for the full year ended December 31, 2016, it would have resulted in an annual reduction of approximately $1.3 million to the Company’s consolidated earnings before income taxes, assuming all other factors remained constant.  The total impact of the 2017 Gambling Act cannot be quantified or estimated pending the interpretation of these measures by the MOF and their eventual implementation into the Company’s gambling operations.

 

(m)Income Taxes — The Company complies with accounting and reporting requirements with respect to accounting for U.S. federal, state, local and foreign 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 accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

recording a tax liability that would reduce net assets. This guidance also provides directions on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. However, management’s conclusions regarding this guidance may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.  The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of and for the nine and three months ended September 30, 2016 and 2015, respectively. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2011.

 

The Company incurred an estimated foreign income tax expense of $653 and $336 for the three months ended September 30, 2016 and 2015, respectively, and $1,969 and $988 for the nine months ended September 30, 2016 and 2015, respectively.  There were no income tax liabilities from the hotel segment, due to a net loss in that segment.  TWC does not anticipate any U.S. income tax liability for 2016.

 

Czechia has an applicable corporate income tax of 19%, while Germany has an applicable corporate income tax rate of 30%.  Estimated Czech and German corporate income tax payments are required to be paid quarterly.  TWC was current on all of its tax reporting and payments at September 30, 2016 and through the date of this report.

 

(n)Recent Accounting Pronouncements  In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue from contracts with customers.  This guidance supersedes the revenue recognition requirements the previous standards.  This guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.  The standard’s core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  This guidance was originally scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within those reporting periods.  In July 2015, the FASB deferred the effective date of this guidance by one year.  In March 2016, the FASB issued an update, which clarifies the implementation guidance for principal versus agent considerations in the previous update.  In April 2016, the FASB issued a further update on this topic, which amends the guidance in previous update related to identifying performance obligations and accounting for licenses of intellectual property. The Company must adopt all these updates. Entities are permitted to adopt the standards as early as the original public entity effective date of December 31, 2016, and either full or modified retrospective application is required. The Company is currently evaluating the impact of adopting this standard and all applicable updates and does not expect the standard and/or all of the applicable updates to have any material impact on its consolidated financial statements.

 

In June 2014, the FASB issued guidance on stock compensation that requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  The guidance is effective for reporting periods beginning after December 15, 2015, with early adoption permitted.  The adoption of this guidance did not have a material impact on the Company’s existing stock-based compensation plans or its consolidated financial statements.

 

In August 2014, the FASB issued guidance on the presentation of financial statements for a going concern. This provides guidance on management’s responsibility to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. This guidance is effective for fiscal years ending after December 15, 2016, and annual and interim periods thereafter. The Company is reviewing the new standard for adoption and does not expect this standard to have a material impact on the Company’s consolidated financial statements.

 

In January 2015, the FASB issued an update on the treatment of extraordinary and unusual items. This update eliminates the concept of extraordinary items and the related income statement presentation of such items. The provisions of this guidance are effective for reporting periods beginning after December 15, 2015.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

 

In April 2015, the FASB issued an update on its guidance on the presentation of debt issuance costs.  This update requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt liability. The standard is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The update requires application of the updated guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The debt issuance costs of the Company were not material as of January 1, 2016 through September 30, 2016.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In September 2015, the FASB issued updated guidance on business combinations. GAAP requires that during the measurement period, the acquirer retrospectively adjust the provisional amounts recognized at the acquisition date with a corresponding adjustment to goodwill. Those adjustments are required when new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts initially recognized or would have resulted in the recognition of additional assets or liabilities. The acquirer also must revise comparative information for prior periods presented in financial statements as needed, including revising depreciation, amortization, or other income effects as a result of changes made to provisional amounts. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, this update eliminates the requirement to retrospectively account for those adjustments.  For public companies, the updated guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued updated guidance on income taxes. Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, this update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a taxpaying component of an entity be offset and presented as a single amount is not affected by this update.  For public companies, the updated guidance is effective for financial statements issued for annual periods beginning after December 15, 2016.  The Company is currently evaluating the impact of adopting this guidance and does not expect the standard to have any material impact on its consolidated financial statements.

 

In February 2016, the FASB issued updated guidance to increase transparency and comparability among entities by reporting substantially all leased assets and related lease liabilities on the balance sheet and expanding disclosure of information about leasing arrangements.  For public companies, the updated guidance is effective for financial statements issued for fiscal years beginning after December 15, 2018 (including interim periods within those fiscal years).  Early adoption is permitted.  The Company has not adopted this guidance for 2016 and is currently evaluating the impact of adopting it.

 

In March 2016, the FASB issued updated guidance on improvements to employee share-based payment accounting.  It is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  For public companies, the updated guidance is effective for annual periods beginning after December 15, 2016 (including interim periods within those annual years).  Early adoption is permitted in any interim or annual period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.  The Company has not adopted this guidance for 2016 and is currently evaluating the impact of adopting it.

 

4.Commitments and Contingencies.

 

Lease Obligations - The Company is obligated under one operating lease, averaging approximately $9 per month, with a 2.0% annual rent escalation, for its U.S. corporate office space, expiring in March 2020. Additionally, TWC is also obligated to pay a remaining 68-year ground lease, ending March 2084, in connection with the recently

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(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

acquired Hotel Freizeit Auefeld, that has an annual lease payment of €26, or approximately $29. Future aggregate minimum annual rental payments under these leases for the next five years are as follows:

 

 

 

 

 

 

 

Twelve Months Ending September 30,

    

 

 

 

2017

 

$

127

 

2018

 

$

129

 

2019

 

$

131

 

2020

 

$

81

 

2021

 

$

29

 

 

The Company is also obligated under a number of five-year, video slot machine equipment operating leases, the projected costs of which are not included in the table above due to fluctuating inventory, expiring over staggered years, which provide for a monthly fixed rental fee per slot machine, and an option for replacement with different/newer machines during the term of the lease.  In the third quarter of 2016, the Company’s slot machine equipment lease expense was $615 versus $582 in the comparable quarter in 2015, and for the nine months ended September 30, 2016 and 2015, the slot equipment lease expense was $1,836 and $1,740, respectively.  All slot leases can be terminated at any time, subject to an early-termination penalty equal to three-month lease payments for each terminated slot machine lease. 

 

Employment Agreements - The Company’s employment agreement with its Chief Executive Officer (“CEO”), Mr. Rami S. Ramadan, absent the intervention of either party by September 30th of each year, will renew automatically for another calendar year, currently ending December 31, 2017.  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, 2016, the Company is contractually obligated to pay an aggregate of approximately $563, which represents the sum of the remaining three months of 2016 and the annual base salary for the year 2017.

 

2014 Equity Incentive Plan - In April 2014, the Board unanimously adopted the 2014 Equity Incentive Plan (“2014 Equity Plan”), which was subsequently approved by the shareholders of the Company at its Annual Meeting held in June 2014.  The 2014 Equity Plan supersedes the 2004 Equity Incentive Plan, which expired in May 2014.

The 2014 Equity Plan provides that certain awards made under the plan may be eligible for designation as “qualified performance-based compensation” which may be exempt from the $1,000 deduction limit imposed on publicly-held corporations by Section 162(m) of the Internal Revenue Code.  The type of awards that may be granted, under the 2014 Equity Plan, by the Compensation Committee of the Board, in its discretion from time to time, include stock options, stock appreciation rights, restricted stock and restricted stock units, other stock-based awards and performance awards. 

The 2014 Equity Plan provides the Compensation Committee with the discretion to grant to any participant annually any awards not to exceed 200,000 shares of Common Stock and/or any restricted stock or restricted stock units that are not subject to the achievement of a performance target or targets covering more than an aggregate of 150,000 shares.  The plan was amended on June 2, 2016 to increase the number of shares of the Company’s Common Stock that are available for awards that may be granted under that plan, from 660,750 to 910,750, of which 245,750 remained available for issuance as of September 30, 2016.  Additionally, option awards will be available for grants to the executive officers and non-employee directors as well as other key employees, except that non-employee directors are eligible to receive only awards of non-qualified stock options. 

The 2014 Equity Plan also contains the following provisions:  (i) no stock option repricings (without the approval of the Company’s shareholders); (ii) limitations on shares other than for stock options; (iii) no discounts on stock options; (iv) minimum three year vesting periods for restricted stock and other stock-based awards; (v) no “evergreen” provisions; and (vi) conformity to Section 409A of the Internal Revenue Code.

 

On January 29, 2016, the Compensation Committee recommended and the Board of Directors (or the “Board”) approved a performance bonus of $168,750 to Mr. Ramadan, our Chief Executive Officer, pursuant to his achievement of certain pre-set operational and financial targets.  In addition, he was also granted, pursuant to the Company’s 2014 Equity Plan, five-year stock options to purchase 75,000 shares of Common Stock that vest in four equal parts, with the

13


 

Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

options to acquire 18,750 shares vesting immediately upon the date of grant and options to acquire 18,750 shares vesting subsequently upon each anniversary of the grant date.  The exercise price of all these options was initially set at $2.59 per share, the closing stock price on the date of grant, and will escalate by 4.0% annually on each anniversary date.  The fair value of the grant was approximately $78, or $1.04 per option.

 

On June 2, 2016, the Compensation Committee recommended and the Board approved five-year stock option grants to eight KMEs, of an aggregate of 340,000 shares of Common Stock, pursuant to the Company’s 2014 Equity Plan.  These options vest in four equal parts, with the first portion vesting immediately upon the date of grant and remaining equal portions vesting subsequently upon each anniversary of the grant date.  The exercise price of all these options was set at $3.50 per share, the closing stock price on the date of grant, and will escalate by 4.0% annually on each anniversary date.  The fair value of the entire grant was approximately $382, or $1.12 per option.

 

401(k) Plan - The Company maintains a contributory 401(k) plan.  This plan is for the benefit of all U.S.-based, eligible corporate employees, who may have a portion 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.

 

2016 Profit Sharing Plan  The 2016 Profit Sharing Plan (the “PSP”) was recommended by the Compensation Committee of the Board and approved by the Board of Directors on February 26, 2016.  The 2016 Profit Sharing Plan permits eligible KMEs to share in the pre-tax profits of the Company.  The profit sharing plan provides for an incentive payout, the pool amount of which is based on 15.0% of the Company’s earned consolidated annual income before taxes.  This pool is to be distributed according to the percentage of each KME’s annual salary as a ratio to the total of all salaries of participating KMEs. TWC accrued $815 and $580 for the nine months ended September 30, 2016 and 2015, respectively, toward the PSP pool. Each KME is required, pursuant to the terms of the PSP, to defer 50% of his or her annual profit sharing award, if attained, into the Deferred Compensation Plan.

 

2016 Individual Performance Plan  The 2016 Individual Performance Plan (the “2016 IPP”) was recommended by the Compensation Committee of the Board and approved by the Board of Directors on February 26, 2016.  The 2016 IPP provides for incentive payout, based on each KME’s personal performance throughout the operating year, relative to pre-set performance criteria. The 2016 IPP bonuses will be incurred and paid in March 2017.

 

Deferred Compensation Plan  On May 17, 2006, the Compensation Committee of the Board unanimously recommended, and the Board approved and adopted, TWC’s Deferred Compensation Plan (the “Deferred Plan”), which provides certain key employees, selected at the discretion of the Board, and all non-employee directors the opportunity to defer receipt of specified portions of their compensation and to have such deferred amounts treated as if invested in the Common Stock of the Company.

 

The Company adopted the Deferred Plan with the intention that it shall at all times be characterized as a “top hat” plan of deferred compensation maintained for a select group of management, as described under the Employee Retirement Income Security Act of 1974 (“ERISA”) Sections 201(2), 301(a)(3) and 401(a)(1).  The Deferred Plan is required at all times to satisfy Section 409A of the Internal Revenue Code.  Pursuant to a participant’s election, the unfunded Deferred Plan obligations are payable in the form of Common Stock (and cash for fractional shares) upon the earlier of:  (i) a designated, in-service distribution date which must be a minimum of three  years from the year of the first deferral; (ii) separation from service; (iii) disability; (iv) change in control of the Company; or (v) death.  A participant’s election form must specify whether the payments will be made by lump sum or by installments, and the number of annual installments (with a minimum of two and a maximum of five installments).  For the nine months ended September 30, 2016 and 2015, $500 and $401 was deferred in the Deferred Plan, respectively.

 

Taxing Jurisdiction - Czechia and Germany currently have a number of laws related to various taxes imposed by governmental authorities.  Applicable taxes include corporate income tax, VAT, and payroll (social) taxes, and, in the case of Czechia, gaming taxes. Tax declarations, together with other legal compliance areas (e.g. customs and currency control matters) are subject to review and investigation by a number of governmental authorities in each country in

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Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

which TWC operates, which are enabled by law to impose fines, penalties and interest charges, and create tax risks in such countries. Management believes that it has adequately provided for all of its Czech and German tax liabilities. (See also Note 3(l) “Czech Gaming Taxes” and Note 3(m) “Income Taxes” above).

 

Legal Proceedings - The Company is sometimes 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 as of September 30, 2016, or through the date of this filing.

 

5.Segment Information.

 

The Company recognizes two reporting segments (a casino segment and a hotel segment) and corporate (which, for accounting purposes, is not considered to be a separate “segment”).  The casino segment is entirely in Czechia, while the hotel segment is comprised of two hotels in Germany. There are no internal transactions between our reporting segments.  The Hotel Columbus and Hotel Freizeit Auefeld are reported under the hotel segment and the Hotel Savannah and Spa, as part of the Route 59 Complex, is reported under the casino segment.

 

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Table of Contents

TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All monetary figures in thousands, except for exchange rate and share and per share data)

 

Below is a presentation of the reporting segments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 2016

 

Three Months Ended September 30, 2015

 

Operations by Segment (Unaudited)

    

Casino

    

Hotel

    

Corporate

    

Consolidated

    

Casino

    

Hotel

    

Corporate

    

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

11,968

 

$

1,191

 

$

 —

 

$

13,159

 

$

9,369

 

$

1,159

 

$

 —

 

$

10,528

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

(6,360)

 

 

(642)

 

 

 

 

 

(7,002)

 

 

(4,786)

 

 

(663)

 

 

 

 

 

(5,449)

 

Depreciation and amortization

 

 

(332)

 

 

(169)

 

 

(3)

 

 

(504)

 

 

(334)

 

 

(168)

 

 

(2)

 

 

(504)

 

Selling, general and administrative

 

 

(1,634)

 

 

(329)

 

 

(1,066)

 

 

(3,029)

 

 

(1,776)

 

 

(517)

 

 

(711)

 

 

(3,004)

 

Interest expense

 

 

(1)

 

 

(59)

 

 

 —

 

 

(60)

 

 

(1)

 

 

(68)

 

 

 —

 

 

(69)

 

Total costs and expenses

 

 

(8,327)

 

 

(1,199)

 

 

(1,069)

 

 

(10,595)

 

 

(6,897)

 

 

(1,416)

 

 

(713)

 

 

(9,026)

 

Income (loss) before foreign income taxes

 

 

3,641

 

 

(8)

 

 

(1,069)

 

 

2,564

 

 

2,472

 

 

(257)

 

 

(713)

 

 

1,502

 

Foreign income taxes

 

 

(653)

 

 

 

 

 

 

 

 

(653)

 

 

(336)

 

 

 

 

 

 

 

 

(336)

 

Net income (loss)

 

$

2,988

 

$

(8)

 

$

(1,069)

 

$

1,911

 

$

2,136

 

$

(257)

 

$

(713)

 

$

1,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2016

 

Nine Months Ended September 30, 2015

 

Operations by Segment (Unaudited)

    

Casino

    

Hotel

    

Corporate

    

Consolidated

    

Casino

    

Hotel

    

Corporate

    

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

35,244

 

$

3,517

 

$

 —

 

$

38,761

 

$

27,241

 

$

2,545

 

$

 —

 

$

29,786

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

(18,991)

 

 

(1,906)

 

 

 

 

 

(20,897)

 

 

(14,080)

 

 

(1,312)

 

 

 

 

 

(15,392)

 

Depreciation and amortization

 

 

(992)

 

 

(688)

 

 

(10)

 

 

(1,690)

 

 

(991)

 

 

(347)

 

 

(7)

 

 

(1,345)

 

Selling, general and administrative

 

 

(5,097)

 

 

(958)

 

 

(3,440)

 

 

(9,495)

 

 

(5,639)

 

 

(1,125)

 

 

(2,907)

 

 

(9,671)

 

Interest expense

 

 

(2)

 

 

(183)

 

 

 —

 

 

(185)

 

 

(2)

 

 

(138)

 

 

 —

 

 

(140)

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

149

 

 

 

 

 

149

 

Total costs and expenses

 

 

(25,082)

 

 

(3,735)

 

 

(3,450)

 

 

(32,267)

 

 

(20,712)

 

 

(2,773)

 

 

(2,914)

 

 

(26,399)

 

Income (loss) before foreign income taxes

 

 

10,162

 

 

(218)

 

 

(3,450)

 

 

6,494

 

 

6,529

 

 

(228)

 

 

(2,914)

 

 

3,387

 

Foreign income taxes

 

 

(1,969)

 

 

 —

 

 

 —

 

 

(1,969)

 

 

(988)

 

 

 —

 

 

 —

 

 

(988)

 

Net income (loss)

 

$

8,193

 

$

(218)

 

$

(3,450)

 

$

4,525

 

$

5,541

 

$

(228)

 

$

(2,914)

 

$

2,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected Balance Sheet

 

At September 30, 2016

 

At December 31, 2015

 

Data by Segment (Unaudited)

    

Casino

    

Hotel

    

Corporate

    

Consolidated

    

Casino

    

Hotel

    

Corporate

    

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

$

24,847

 

$

12,110

 

$

794

 

$

37,751

 

$

24,513

 

$

11,829

 

$

780

 

$

37,122

 

Goodwill

 

 

5,009

 

 

134

 

 

 —

 

 

5,143

 

 

4,885

 

 

131

 

 

 —

 

 

5,016

 

Other assets, excluding property and equipment and goodwill

 

 

16,640

 

 

1,130

 

 

605

 

 

18,375

 

 

11,117

 

 

1,245

 

 

739

 

 

13,101

 

Total assets

 

$

46,496

 

$

13,374

 

$

1,399

 

$

61,269

 

$

40,515

 

$

13,205

 

$

1,519

 

$

55,239

 

 

 

 

 

 

 

 

 

 

16


 

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 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 gambling and hotel 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;

 

·

the weather conditions in the markets that we serve; and

 

·

other factors described in our Form 10-K for the year ended December 31, 2015 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 noted 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.

 

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 midsize hotels, which may include casino facilities.  Our expansion into the hotel industry was founded on management’s belief that hotels in the midsize 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.

 

Currently, we own and operate three casinos and a hotel in the Czech Republic (“Czechia”).  Our Ceska casino, located at Ceska Kubice, in the western part of Czechia close to the border of Germany, currently has six competitors.  Our other two Czech casinos are located in the southern part of Czechia, close to the Austrian border.  The larger of these two, “Route 55,” located in Dolni Dvoriste, has two competitors, and our other casino, “Route 59,” is located in Hate, near Znojmo, and currently has three competitors.  Our four-star deluxe Hotel Savannah features 77 rooms, eight banquet halls for meetings and special events as well as a full-service restaurant and bar, and is connected to our Route 59 casino

17


 

with the joint facility’s main restaurant linking the two buildings.  Along with the hotel operation, we also launched a full-service spa operation, the Spa at Hotel Savannah (the “Spa”), the operation of which is sub-contracted to a local operator who pays TWC a percentage of its gross revenues.  The Spa, which is attached to Hotel Savannah, offers Ayurvedic massage therapies and an indoor pool.  Hotel Savannah has eight regional hotel competitors, five of which are located in Austria.

 

In Germany, TWC owns and operates two hotels.  The Hotel Columbus, a four-star 117-room hotel, is located in Seligenstadt, Germany, near Frankfurt.  The Hotel Columbus has six hotel competitors in the Seligenstadt area and surrounding region that it serves, four of which are privately-owned and two of which are part of German hotel chains.   The second hotel, Hotel Freizeit Auefeld, is a four-star 93-room hotel, with extensive meeting space and recreational amenities located in Hannoversch Münden (“Hann. Münden”), Germany.  The Hotel Freizeit Auefeld is the largest hotel in Hann. Münden and no hotel chains are represented in our market.  However, Hotel Freizeit Auefeld does compete with eight smaller, privately-owned hotels in the Hann. Münden area.

 

New Gambling Acts and their Impact

 

On June 7, 2016, the President of Czechia signed the 2017 Gambling Act (186/2016 Coll.) (the “Gambling Act”) and the 2017 Gambling Tax Act (187/2016 Coll.) (the “2017 Gambling Tax Act”) (collectively referred to as the “Gambling Acts”).  The Gambling Acts became law on June 15, 2016, when they were published in the official Collection of Laws, maintained by the Czech Ministry of the Interior.  The 2017 Gambling Tax Act, which is due to take effect on January 1, 2017, will raise the gaming tax rate on technical game (i.e. slot machine or electromechanical roulette or dice) revenues to a “minimum tax,” will raise the tax rate from 28% to 35%, and eliminate the per diem fixed fee of Kč 80 (approximately $3.30) on each slot machine.  The 2017 Gambling Tax Act introduces a “minimum tax” on technical games which amounts to the product of the sum of all gambling positions of individual approved terminal devices (such as slot machines, electromechanical roulette and dice machines) and referred to in the permit for the location of the gambling premises and the amount of Kč 9,200 (approximately $380).  Therefore, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is lower than the computed “minimum tax,” then the casino operator must pay the “minimum tax” and not the aggregate tax amount collected from the 35% gaming tax.  Otherwise, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is greater than the computed “minimum tax,” then the casino operator need only pay the aggregate tax amount collected from the 35% gaming tax and not the “minimum tax.”  The gaming tax rate on live game (i.e. cards, roulette or dice) revenues will remain unchanged at 23%.  Further, the 2017 Gambling Tax Act modifies the tax revenue allocation between the federal government and local municipalities.  A summary table of the 2017 Gambling Tax Act is shown below:

 

 

 

 

 

2017 Gambling Tax Act

(in actual amounts)

 

(Effective from January 1, 2017)

Live Games

    

23% gaming tax from revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).

 

 

 

Slot and other technical games

 

The greater of either: (a) the aggregate amount collected from 35% gaming tax from revenue earned from slot and other technical games (35% of tax allocated to the federal government; 65% of tax allocated to the local municipality), or (b) a "minimum tax," calculated as the product of the sum of all gambling positions of individual approved terminal devices referred to in the permit for the location of the gambling premises times Kč 9,200 (approximately $380).

 

 

 

 

The 2017 Gambling Act introduces many new changes, requirements and conditions, that will take effect at various times in the future, some taking effect on the date of enactment, some on January 1, 2017 and certain provisions taking effect upon the renewal of the casino operator’s gambling licenses.  Although TWC’s 10-year gambling license expires in September 2018, and its slot operating one-year license expires at the end of 2017, the Company has begun to take steps to conform to these requirements for when it applies for its slot and other technical game license, which is due to expire at the end of 2017.  The Company is also awaiting the Czech Ministry of Finance’s (“MOF”) final interpretation of these new measures, some of which were clarified in August 2016 and others are awaiting further clarifications from the MOF.  The notable changes and requirements are as follow (all figures in the following section are in stated actual amounts, not in thousands):

18


 

 

·

Upon the effective date of the Gambling Act, any gambling operator may apply for a gambling license if it meets all of the following conditions, having: (i) an office in Czechia, in another European Union Member state or in a state that is a party to the Agreement on the European Economic Area; (ii) an organizational chart that sets clear and comprehensive definitions of jurisdictions and decision-making powers; (iii) an established board of directors or similar control body; (iv) equity of at least of €2,000,000 ($2.2 million); (v) a transparent and unobjectionable origin of its financial resources; and (vi) transparent ownership structure.  During the licensing process, confirmation of corporate ownership of the Czech entity and required documents (e.g. criminal and tax records, etc.) from all members of the board of directors and representative from all levels of the company structure must be furnished to the MOF.  TWC is currently preparing a list of the required documentation to submit for its slot and technical game license renewal at the end of 2017.

·

A basic, general gambling license will be issued for a maximum of six (6) years and a gambling license for each location at which live game and technical game operations will be conducted (will be issued from local municipality councils) for a maximum of three (3) years. (Previously, the MOF general gambling licenses for live games have been issued for ten (10) years and for one (1) year for technical games). Licenses can be issued and/or renewed if the Company meets the following pre-existing conditions:  (i) maintains a clean criminal record and all necessary certifications; (ii) pays its taxes on time; (iii) stays in good standing; and, (iv) confirms its ability to comply with all technical and supervisory standards required by the new law.  As of September 30, 2016 and the date hereof, TWC was and is in full compliance with these conditions.   

·

Individual municipalities and their local councils will be entitled to issue decrees to prohibit or restrict gambling operations, to set permissible hours of gambling operations and designate locations of operations within their respective jurisdictions.  Previously, municipalities, by decree, have been allowed to ban gambling operations or set the locations of gambling operations within their respective jurisdictions.  As of September 30, 2016 and the date hereof, TWC was and is in good standing with all of the municipalities in which it operates.

·

Gambling operations will not be permitted in certain premises such as schools, children’s leisure facilities, health and social care facilities, churches or religious societies.  As of September 30, 2016 and the date hereof, TWC’s existing casinos were and are in full compliance with this requirement.

·

Gambling operators will be required to follow certain self-restricting measures put in place by individual players.  For instance, an operator must create an individual account for each player, which the player can use to manage his/her gaming expenditures and frequency of play, including a maximum number of casino visits per month.  These accounts must also allow players to set individual limits on gambling activities, including setting  maximum bets per day or per calendar month or a maximum amount of net loss per day or per calendar month. Each customer’s identity must be checked against the MOF’s central database of individuals excluded from the participation of gambling (black-listed).  For expats, the individual account would be valid for only 90 days, following which a reapplication would be required to setup the account.  Some of these provisions will not become effective until one year after the MOF has set up their central database, but the self-restriction provisions will become effective immediately after new licenses are obtained.  In order to meet these self-restricting measures, the Company will implement a new casino management system, that is currently been evaluated and tested by local management and will be implemented prior to September 2017.

·

Gambling operators  will also be required to bar from entry individuals flagged by the MOF and registered in its central database as black-listed or noted as being “destitute” and on public assistance, bankrupt, are subject to an order banning them from gambling under Czech criminal law or are a compulsive gambler. No one under age 18 will be allowed on the casino floor.  As of September 30, 2016 and the date hereof, TWC was and is in full compliance with this requirement.

·

Gambling operators will not be able to provide for free, or at a reduced price, any benefits to a player, including food, beverages, tobacco products or “stimulating substances.”  TWC anticipates that it will be in compliance with this requirement when its slot and technical license renewal application is approved during Autumn 2017.

·

Gambling operators will be required to post a sign on each technical game warning that gambling is “harmful,” advising of the amount of the player’s net losses and how long the player has been playing, with a requirement that there be a 15 minute break every 2 hours of play.  TWC anticipates that it will be in compliance with this requirement when its slot and technical license renewal application is approved during Autumn 2017.

·

All customer transactions, such as exchanging money for gambling chips, must be logged and such records be kept for 10 years, up from five years under the previous law.  TWC will extend its record archiving to 10 years to comply with this requirement.

·

The required retention period of all required real time color audio/visual surveillance recordings will increase

19


 

from three months to 24 months.  The Company is currently evaluating new surveillance systems that will meet this requirement.

·

Maximum bets for technical games will be increased to Kč 1,000 (about $41) from the current amount of Kč 675 (about $28) and maximum win (or jackpot) per slot machine will be decreased to Kč 500,000 (approximately $20,500) from the current amount of Kč 675,000 (approximately $27,700).  Slot and electromechanical machine vendors/suppliers will be required to incorporate these limit changes to all slots and technical games that they sell/service to the casinos.  Further, a new anti-money laundering regulation imposes a maximum daily transaction of €10,000 on purchases and/or cash transactions.  Any slot jackpot payouts exceeding this limit on any given day, can only be paid either directly to the player’s bank account or in two per diem payments where the player can pickup the remainder amount on the following day.  TWC anticipates that it will be in compliance with this requirement when its slot and technical license renewal application is approved in Autumn 2017.

·

Casinos must have a minimum of three live games tables and 30 technical games available during operating hours. For each live game table, a casino may operate an additional 10 slot or technical game machines.  If a casino has more than 10 live game tables, there is no limit on number of slot or technical game machines permitted.  All of TWC’s existing casinos each have more than 10 live game tables in operation, thereby are already in full compliance with this requirement.

·

A gaming bond equal to Kč 10 million (approximately $410,000) will be required to be paid for a casino operator to the MOF for each casino unit. For operators owning multiple casinos, a minimum bond of  Kč 20 million (approximately $820,000) is required, up to a maximum of Kč 50 million ($2.0 million) for any licensee, regardless of the number of casinos owned and operated.  Previously, only one gaming bond of Kč 22 million ($900,000) was required, which is used for the existing licenses.   When TWC renews its gaming license, it will have to provide a new gaming bond of Kč 30 million ($1.2 million), to meet the new bond requirements for its three casinos, resulting in a net increase of Kč 8 million (approximately $330,000) from its existing bond.  However, a casino operator cannot access the funds underlying the old bond until the expiration of one year after the termination of the old bond.  Therefore, the casino operator must initially pledge additional funds to secure the new bond requirement, which for TWC, will amount to Kč 30 million ($1.2 million). TWC will make the additional bond payment upon its license renewal application.

·

Any marketing advertisements, beginning January 1, 2017, must have a written warning label in the Czech language about the damage gambling can do to participants and that participants must be older than 18 years of age.

·

Failure to comply with the new Gambling Act could result in a misdemeanor punishable by fines up to Kc 1,000,000 (approximately $41,000) or an administrative offense punishable by an injunction against the violative practice, fines up to Kc 50,000,000 ($2.0 million) and/or asset forfeiture to, or confiscation by, the government.

 

The Company currently estimates that if the 2017 Gambling Tax Act were in effect for the full year ended December 31, 2016, it would have resulted in an annual reduction of approximately $1.3 million to the Company’s consolidated earnings before income taxes, assuming all other factors remained constant.  The total impact of the 2017 Gambling Act cannot be quantified or estimated pending the interpretation of these measures by the MOF and their eventual implementation into the Company’s gambling operations.

 

Exchange Rates

 

Due to the fact that the Company’s operations are located in Europe and principally in Czechia and Germany, TWC’s financial results are subject to the influence of fluctuations in foreign currency exchange rates.  For our Czech operations, the revenue generated is generally denominated in euros (“EUR” or “€”) and the expenses incurred by these facilities are generally denominated in korunas (“CZK” or “Kč” ).  For our German hotel operation, the revenue generated and expenses incurred are primarily denominated in EUR.  As our primary reporting subsidiary, Trans World Hotels & Entertainment a.s. (“TWH&E”), is a Czech entity, all revenues and expenses, regardless of sources of origin (including that of Hotel Columbus and Hotel Freizeit Auefeld, which are owned by TWH&E through its wholly-owned German subsidiary, Trans World Hotels Germany GmbH (“TWHG”)), are recognized in the Czech currency and translated to U.S. dollars (“USD” or “$”) for reporting purposes.  A substantial change in the value of either 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 or transactions.

 

20


 

In our financial statements, the actual 2016 and 2015 operating results for the Czech operations and for the two German hotels were first converted to CZK, then were converted to USD using the monthly average of the daily exchange rates of each monthly reporting periods.  The monthly average of daily exchange rates for the CZK versus the USD and EUR, respectively, are presented in the following graphical chart.

 

 Picture 3

 

The consolidated balance sheet totals of the Company’s foreign subsidiaries at September 30, 2016 and December 31, 2015 were converted to USDs using the Czech central bank exchange rates, as reported at www.cnb.cz, and for information only, the USD to EUR interbank exchange rates, as reported at www.oanda.com, both of which are depicted in the following table:

 

 

 

 

 

 

 

 

As Of

    

USD

    

CZK

    

EUR

 

September 30, 2016

 

1.00

 

24.210

 

0.892

 

December 31, 2015

 

1.00

 

24.824

 

0.917

 

 

The appreciation of the daily exchange rate of the CZK from December 31, 2015 of 24.824 to September 30, 2016’s daily rate of 24.210 was 2.5% and slightly enhanced our consolidated balance sheet at September 30, 2016, as presented in USD.

 

Critical Accounting Policies

 

The discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements. These consolidated financial statements have been prepared following US GAAP and Article 10 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. 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, 2015. 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, 2015.

 

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 gambling 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 for cash; (iii) daily income per slot machine; (iv) net win, the difference between gaming wagers and the amount paid out to wagering patrons; (v) win percentage (“WP”), the ratio of net win over total drop; (vi) occupancy

21


 

rate, the number of rooms sold divided by the number of rooms available; (vii) average daily rate (“ADR”), the average of room rental rates paid per day; and (viii) revenue per available room for rent (“RevPAR”), revenue generated per available room.  These measures are “non-GAAP financial measures.”  All figures are not in thousands, unless noted otherwise.

 

22


 

Review of the Consolidated Interim Results of the Company:

 

Three Months Ended September 30, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

(in thousands)

    

2016

    

2015

    

Variance $

    

Variance %

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

Revenues, by reporting segment:

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

11,968

 

$

9,369

 

$

2,599

 

27.7

%

Hotel

 

 

1,191

 

 

1,159

 

 

32

 

2.8

%

Total revenue

 

 

13,159

 

 

10,528

 

 

2,631

 

25.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

6,360

 

 

4,786

 

 

1,574

 

32.9

%

Hotel

 

 

642

 

 

663

 

 

(21)

 

(3.2)

%

General and administrative

 

 

1,963

 

 

2,293

 

 

(330)

 

(14.4)

%

Corporate expenses

 

 

1,066

 

 

711

 

 

355

 

49.9

%

Depreciation and amortization

 

 

504

 

 

504

 

 

 —

 

 —

%

Total operating expenses

 

 

10,535

 

 

8,957

 

 

1,578

 

17.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,624

 

 

1,571

 

 

1,053

 

67.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(60)

 

 

(69)

 

 

9

 

(13.0)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before foreign income tax

 

 

2,564

 

 

1,502

 

 

1,062

 

70.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign income taxes

 

 

(653)

 

 

(336)

 

 

(317)

 

94.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

1,911

 

$

1,166

 

$

745

 

63.9

%

 

For the quarter ended September 30, 2016, we generated total revenue of approximately $13.2 million, a 25.0%, or $2.6 million, increase, from the $10.5 million from for the same quarter a year ago, resulting largely from the revenues achieved at our casinos.  The casino revenue was supported by an 8.7% increase in consolidated attendance, a 2.6 percentage point increase in WP, a 10.2% increase in DpH, as well as a double-digit increases of 30.6% and 29.7% in both live game and slot revenues, respectively, when compared with the prior year’s third quarter, due to a stronger and more frequent presence of high-stake players. 

 

For the third quarter of 2016, our hotel segment, comprised of Hotel Columbus and Hotel Freizeit Auefeld, generated a combined total revenue of approximately $1.2 million, of which approximately 34.8% was from food and beverage (“F&B”) operations.  The hotel segment achieved a consolidated occupancy rate of 49.4% with an ADR of $77.39, compared with an consolidated occupancy rate of 50.4% and an ADR of $72.50 for the prior year’s third quarter, deriving more business from the transient and small group markets.

 

Casino operating expenses were up by approximately $1.6 million, or 32.9%, largely due to higher volume-based expenses and increased gaming tax expenses, from an effective rate of 20.9% to 27.6% of gaming revenues (See Note 3(l) – “Czech Gaming Taxes” of the Notes to the Consolidated Interim Financial Statements). 

 

General and administrative expenses decreased, due notably to the combination of lower payroll expense, from the restructuring of the KME positions in our foreign operations and to lower marketing expenditures in our casino segment.

 

Corporate expenses were higher than the same quarter last year, largely due to the increase in PSP accrual, as a result of stronger income achieved and to higher stock option expenses.

 

Depreciation and amortization expense was flat compared to the third quarter a year ago.

 

Operating income rose by approximately $1.1 million, or 67.0%, largely due to strong revenue generated by our casinos.

23


 

 

The interest expense of $60,000 for the third quarter of 2016 was from three loans: i) the bank loan from Bank Sparkasse Seligenstadt for the acquisition of Hotel Columbus; ii) the bank loan from Bank Sparkasse Hann. Münden for the acquisition of Hotel Freizeit Auefeld; and iii) a seller-financed loan for the acquisition of Hotel Freizeit Auefeld. 

 

Our effective income tax rate for the quarter ended September 30, 2016 was approximately 25.5%, or a foreign income tax provision of $653,000, versus 22.4%, or $336,000 for the comparable quarter last year.  We do not expect any income tax liability for the hotel segment, due to the cumulative net operating loss to date this year, and there was none in the prior year’s third quarter due to a net loss.

 

Thus, we achieved net income of $1.9 million, which was 63.9%, or $745,000, higher than the net income of approximately $1.2 million from the same quarter a year ago. 

 

 

Nine Months Ended September 30, 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

(in thousands)

    

2016

    

2015

    

Variance $

    

Variance %

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

Revenues, by reporting segment:

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

$

35,244

 

$

27,241

 

$

8,003

 

29.4

%

Hotel

 

 

3,517

 

 

2,545

 

 

972

 

38.2

%

Total revenue

 

 

38,761

 

 

29,786

 

 

8,975

 

30.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Casino

 

 

18,991

 

 

14,080

 

 

4,911

 

34.9

%

Hotel

 

 

1,906

 

 

1,312

 

 

594

 

45.3

%

General and administrative

 

 

6,055

 

 

6,764

 

 

(709)

 

(10.5)

%

Corporate expenses

 

 

3,440

 

 

2,907

 

 

533

 

18.3

%

Depreciation and amortization

 

 

1,690

 

 

1,345

 

 

345

 

25.7

%

Total operating expenses

 

 

32,082

 

 

26,408

 

 

5,674

 

21.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

6,679

 

 

3,378

 

 

3,301

 

97.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(185)

 

 

(140)

 

 

(45)

 

32.1

%

Other income

 

 

 

 

 

149

 

 

(149)

 

(100)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before foreign income tax

 

 

6,494

 

 

3,387

 

 

3,107

 

91.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign income taxes

 

 

(1,969)

 

 

(988)

 

 

(981)

 

99.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,525

 

$

2,399

 

$

2,126

 

88.6

%

 

For the nine months ended September 30, 2016, we generated total revenue of approximately $38.8 million, a 30.1%, or approximately $9.0 million, increase from the approximately $29.8 million for the first nine-month period a year ago, resulting largely from the strong positive business volume momentum that continued to drive the revenues achieved at our casinos, coupled with the additional revenue from our hotel segment.  In the prior year’s first nine months, only four months of revenues of Hotel Freizeit Auefeld were included as it was acquired as of June 1, 2015.  The casino revenue was supported by a combination of 8.2% and 13.9% increases in live game and slot game attendances, respectively, by a 11.1% increase in DpH and a 0.8 percentage point increase in WP, when compared to the prior year’s first nine-month period.  Live game and slot revenues increased by 25.3% and 34.3%, respectively, over the same period a year ago.  This business improvement was in large part due to the consistent high level of customer service provided to our patrons and effective player’s loyalty program.

 

For the first nine months of 2016, our hotel segment, comprised of Hotel Columbus and Hotel Freizeit Auefeld, generated a combined total revenue of $3.5 million, of which approximately 38.5% was from F&B operations.  The hotel segment achieved a consolidated occupancy rate of 47.9% with an ADR of $77.09.  The prior year’s first nine months,

24


 

which included only four months of revenue from the Hotel Freizeit Auefeld had a reported consolidated occupancy rate of 48.1% and an ADR of $76.13.

 

Casino operating expenses were up by $4.9 million, or 34.9%, largely due to higher volume-based expenses and increased gaming tax expenses, from an effective rate of 20.9% to 27.5% of gaming revenues (See Note 3(l) – “Czech Gaming Taxes” of the Notes to the Consolidated Interim Financial Statements).  Hotel operating expenses in the prior year included only four months of operating expenses for the Hotel Freizeit, as noted above. 

 

General and administrative expenses were down by $709,000, or 10.5%, due notably to the absence of the one-time real estate transfer tax of $206,000 in connection with the acquisition of the Hotel Freizeit Auefeld in June 2015 and to the restructuring of the KME positions in our foreign operations and lower marketing expenditures in our casino segment.

 

Corporate expenses were up by $533,000, or 18.3%, when compared with the same nine-month period last year, and was primarily due to increased PSP accrual related to stronger income generated and to higher sock option expenses.

 

Depreciation and amortization expense increased by $345,000, or 25.7%, resulting largely from the addition of assets, with the acquisition of the Hotel Freizeit Auefeld, which was acquired in June 2015.

 

Operating income rose by $3.3 million, or 97.7%, largely due strong revenue generated by our casinos and from additional revenue from the Hotel Freizeit Auefeld.

 

The interest expense of $185,000 for the first nine months of 2016 was from the aforementioned three loans, while the interest expense in 2015 included only 110 days of interest on the Bank Sparkasse Hann. Münden loans, and 60 days of interest expense on the seller loan, as an initial two-month no-interest grace period then applied.

 

Our effective income tax rate for the first nine months ended September 30, 2016 was approximately 30.3%, or a foreign income tax provision of approximately $2.0 million, versus 29.2%, or $988,000 for the comparable period last year.  There was no income tax liability for the hotel segment in 2016 because of a cumulative net loss arising, while in 2015 there was no income tax liability due primarily to the Hotel Freizeit Auefeld’s acquisition-related costs.

 

As a result, we achieved net income of $4.5 million, a significant improvement of approximately $2.1 million, or 88.6%, from the same nine-month period a year ago. 

 

Unlike in U.S.-based casinos, visitors to our casinos are required, by Czech laws, to “check in” at the entrance reception desk, by presenting acceptable forms of picture identification, which effectively permits the Company to track the frequency of their visits and, to a limited extent, the duration of play during each visit.   As an incentive to gaming activity, we provide complimentary drinks and a free food buffet to all of our playing guests.  In addition to these general amenities, we also issue different classes of “loyalty” cards to customers who spend relatively longer periods of time playing. These cards entitle the holder and a set number of the holder’s guests, depending on the card type, to various complimentary benefits.  We also grant certain other privileges to our VIP players, at each local casino management’s discretion, such as opening a private gaming table, or extending the casino’s operating hours, and/or providing free room/hotel accommodations.  These loyalty cards are granted based on the frequency of the players’ visits and the aggregate total drop for a pre-determined number of visits.  The complimentary F&B, hotel accommodations and other player-related costs were included in the casino operating expenses, which totaled approximately $2.1 million,  or 6.1% of gaming departmental revenues, for the nine months ended September 30, 2016, versus $1.9 million, or 7.2% of gaming departmental revenues,  for the comparable period in 2015.  General gifts and giveaways, which were also recognized in the casino operating expenses, excluding VIP personal gifts, represented $653,000, or 1.9% of gaming departmental revenues, for the same nine months in 2016, compared with $550,000, or 2.1% of gaming departmental revenues, for the comparable period in 2015, the increase of which was due to higher attendance.

 

The VIP personal gifts, which consist primarily of granted player loyalty points, were booked as special promotion expenses in the selling, general and administrative costs, and totaled approximately $46,000 for the first nine months in 2016, versus $72,000 for the same nine months a year ago.

 

25


 

Our Operating Facilities:

 

Our free-standing casinos each offer free parking, a restaurant, lounge areas and multiple bars.

 

Casino Segment:

 

Ceska

 

Our Ceska Casino, which has a Frank Lloyd-Wright-inspired organic modern theme, had, as of September 30, 2016, 15 gaming tables, including seven card tables, seven roulette tables, and a 10-position, Slingshot, multi-win roulette table.  The casino also features 94 video slot machines.  In addition to the games, Ceska also offers five luxurious hotel-like guest rooms, which, when not used as courtesy accommodations for our valuable players and guests, can be rented to paying overnight guests.  The address of our Ceska casino is Ceska Kubice 64, Ceska Kubice 345 32, in the Pilsen region of Czechia.

 

Route 59

 

As of September 30, 2016, our Route 59 Casino, which has a New Orleans in the 1920’s theme, operated 25 gaming tables, consisting of twelve card tables, twelve roulette tables, and a 16-position, Slingshot multi-win roulette table, as well as 176 video slot machines, 32 of which were added on February 22, 2016.  Route 59 Casino is connected to the Hotel Savannah via a wide public-area corridor and restaurant, to permit easier access between the two operations.  Route 59 is located at 199 American Way, Hate-Chvalovice, Znojmo 669 02, in the South Moravia region of Czechia.

 

Route 55

 

Our Route 55 Casino features a “Streamline Moderne” style, reminiscent of Miami Beach in the early 1950’s.  As of September 30, 2016, the two-story casino offered 21 tables, including twelve card tables, eight roulette tables, a 16-position, Slingshot multi-win roulette table, as well as 138 video slot machines.  On the mezzanine level, the casino offers an Italian restaurant, an open buffet area, a VIP lounge, and three luxurious hotel-like guest rooms, similar to the five guest rooms at Ceska.  Route 55 is located at Grenzubergang Wullowitz, Dolni Dvoriste 382 72, in the South Bohemia region of Czechia.

 

Hotel Savannah and the Spa at Hotel Savannah

 

As a complement to our gaming operations, we opened Hotel Savannah, a 77-room, European four-star deluxe hotel, the first Company-constructed hotel.  We also launched a full-service spa, the “Spa at Hotel Savannah” (the “Spa”), which is attached to the hotel. The operation of the Spa, which features a large indoor pool and Ayurvedic massage therapy, is sub-contracted to a local operator.  Hotel Savannah, which offers eight banquet halls for meetings and conventions, is connected to our Route 59 casino by the hotel restaurant that links the two buildings.  The combined operation of the hotel and Spa has proven to benefit Route 59 by attracting additional business to the casino.

 

Hotel Segment:

 

Hotel Columbus

 

Our four-star 117-room hotel, Hotel Columbus, is located in the suburbs of Seligenstadt, Germany, about a 20-minute, equidistant drive from Frankfurt city center and the Frankfurt International Airport.  Hotel Columbus was constructed in 2001 and was being operated profitably at the time of our purchase by a private family, primarily as a hotel for business travelers.  Hotel Columbus currently has 99 single rooms and 18 double rooms.  It also features five meeting rooms, a spacious restaurant and separate breakfast room, each with its own kitchen, two bars, a 32-place parking garage and 43 surface lot parking places.  Hotel Columbus is located at Am Reitpfad 4, 63500 Seligenstadt, in the State of Hesse, Germany.

 

Hotel Freizeit Auefeld

 

Our Hotel Freizeit Auefeld is a four-star 93-room hotel, located in Hann. Münden, Germany.  Hotel Freizeit Auefeld, which was built in 1991 and expanded with new facilities in 2001, was selected for acquisition by the Company

26


 

because of its location, approximately two hours driving time from our Hotel Columbus, allowing TWC to employ one hotel director to manage both properties. The Hotel is the only full-service lodging property in the local area, and therefore has a broad target market, as it caters to both business and leisure travelers to the region.  The hotel features three F&B outlets, ten meeting rooms, an adjoining 13,000 square foot event hall, an adjoining tennis complex with four indoor courts, several additional recreation areas, and an independent townhouse comprised of one four-room unit and one six-room unit.  The ground lease rights, upon which all of the hotel’s assets stand, currently expires on March 1, 2084. The lease agreement includes both a right of first refusal buyout and renewal options in favor of TWC.  The hotel’s guest rooms were fully renovated at the end of March 2016.  The kitchen facilities were also renovated and upgraded at the end of June 2016.  Currently, the restaurant is under renovation and the dining area has been diverted to another public dining area of the hotel.  Hotel Freizeit Auefeld is located at Hallenbadstrasse 33, 34346 Hann. Münden, in the State of Lower Saxony, Germany.

 

Sales and Marketing

 

We utilize a wide range of media marketing and promotional programs in an effort to secure and enhance our competitive position in the respective markets being served and to differentiate our product and services from our competitors.  With respect to our Czech casinos, we maintained and enhanced our marketing and promotional programs for our casinos, focusing primarily on internal and customer-oriented loyalty reward programs and greater use of social media and digital communication methods.  We reduced our marketing and promotional activities, mainly in player raffles and lotteries that involved large monetary prizes in conformance to the recent dictates of the Ministry of Finance.  As such, we strive to provide more live entertainment and shows, in an ongoing effort to secure and enhance our competitive position in the markets that we serve. The casinos’ event calendars concentrate on key, player-tested, popular events and holidays, while simultaneously focusing on higher player-incentive games designed to reward existing players with redeemable points via our player’s loyalty program, and thereby promote customer loyalty.  Furthermore, we aggressively target key cities in our media campaigns, most notably Vienna and Linz in Austria, and Regensburg in Germany as well as the areas surrounding these cities, all of which are within driving distance of our casinos.  In Germany, in addition to completing the product improvements at Hotel Freizeit Auefeld, we implemented in early 2016 a dynamic sales strategy that includes the use of an outside company that provides lead sourcing and sales support as a complement to our in-house team, which we expect to help fuel occupancy growth in our two hotels in Germany.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2016, we had a working capital surplus of approximately $9.4 million, an increase of $5.4 million, from the working capital surplus of $4.0 million at December 31, 2015.  Net cash provided by operating activities for the nine months ended September 30, 2016 was approximately $6.8 million versus approximately $3.3 million for the same prior year period.  The increase in cash provided by operating activities was due in large part to stronger net income earned, the increase in gaming tax accruals and higher depreciation expense, that, in aggregate, were partially offset by reductions in accounts payable and foreign income tax accrual.  Net cash used in investing activities of approximately $1.4 million consisted largely of the renovation costs to the rooms, kitchen facilities and public areas at the Hotel Freizeit Auefeld, and other capital improvements at our casino properties, partially offset by proceeds from disposal of assets.  Net cash used in financing activities of $415,000 consisted of the principal payments on the Hotel Columbus’s Bank Sparkasse Seligenstadt loan, on the Hotel Freizeit Auefeld’s Bank Sparkasse Hann. Münden loan and on the Hotel Freizeit Auefeld’s seller loan. 

 

27


 

We are obligated under various contractual commitments over the next five years.  We have no off-balance sheet arrangements.  The following is a five-year summary of our contractual commitments as of September 30, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except in the footnotes)

    

    

 

    

Within

    

    

Years

    

    

Years

    

    

 

 

Contractual Obligations

 

Total

 

1 Year

 

2 - 3

 

4 - 5

 

Thereafter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term, secured debt, foreign (1)

 

$

7,822

 

$

568

 

$

1,189

 

$

1,264

 

$

4,801

 

Slot machine leases (2)

 

 

474

 

 

474

 

 

 

 

 

 

 

 

 

 

Operating and other capital leases (3)

 

 

357

 

 

103

 

 

202

 

 

52

 

 

 

 

Ground lease (4)

 

 

1,928

 

 

29

 

 

58

 

 

58

 

 

1,783

 

Employment agreements (5)

 

 

790

 

 

340

 

 

450

 

 

 

 

 

 

 

Total contractual obligations

 

$

11,371

 

$

1,514

 

$

1,899

 

$

1,374

 

$

6,584

 

 

 


(1)

Includes the remaining principal balances of (i) the €3.6 million, or $3.9 million, Bank Sparkasse Seligenstadt Loan for the Hotel Columbus acquisition, a 15-year commercial loan with a fixed interest rate of 3.1% for the first ten years, followed by a prevailing market-based fixed interest rate for this type of loan for the remainder of the term; (ii) Bank Sparkasse Hann. Münden Loan of approximately €2.0 million, or $2.2 million, with 2.99% annual interest, fixed for 10 years, followed by a prevailing market-based fixed interest rate for this type of loan for the remainder of the term, and amortization over 15 years; and (iii) a seller loan of €2.2 million, or approximately $2.4 million, with terms of 3.0% annual fixed interest and amortization over 10 years.

(2)

Based on a total of 404 leased slot machines as of September 30, 2016. These slot leases can be terminated at any time with a 3-month payment penalty.

(3)

Includes a long-term lease for corporate office space and capital leases.

(4)

Represents the remaining 68 years on a 70-year term ground lease, upon which all the hotel assets of the Hotel Freizeit Auefeld stand, with an annual lease payment of €26,078 or approximately $29,000.  The lease expires on March 1, 2084.

(5)

Represents the Company’s salary obligation under two separate employment agreements.

 

PLAN OF OPERATIONS

 

We strive to develop and implement marketing and operational strategies that are designed to increase attendance at our casinos and occupancy, in the case of our hotels, and revenues at all of our existing locations in Czechia and Germany, while focusing on minimizing costs, which includes, for example, cost-sharing alliances with non-competing businesses such as food and beverage vendors, where advantageous. We endeavor to find synergy of operations between our Route 59 Casino and its attached Hotel Savannah to enhance revenues and reduce operational redundancies.  We have taken this approach also with staffing at our two German hotels.  Furthermore, we have also relied on the expertise of a third-party German company to provide lead-sourcing and to supplement our sales efforts to market our two German hotels.

 

Long Range Objective

 

Our operations have been diversified by the recent acquisitions of two German hotels, lessening, to a small extent at this point in time, our dependence on our primary gaming business in Czechia. Our senior corporate management, several of whom have extensive experience in the hotel industry, have strived to expand and diversify the Company’s operations through the acquisition and/or development of new, complementary non-gaming business units, such as hotels, while continuing to grow the Company’s existing gaming operations in and outside Czechia. We will also seek to acquire, manage or lease new business units that complement our existing operations. Acquisitions will be based on evaluations of the potential returns of projects that arise and, for certain projects, the availability of financing.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

28


 

ITEM 4.CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Exchange Act Rule 13a-15(e), which is designed to provide reasonable assurance that information, which is required to be disclosed in our reports filed pursuant to the Exchange Act, is accumulated and communicated to management in a timely manner. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.  At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including Mr. Hung D. Le, our Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, Mr. Le concluded that, as of the date of such evaluation, our disclosure controls and procedures were effective.  We made no changes in our internal controls over financial reporting during the third quarter of 2016 that materially affected, or are likely to materially affect, our internal controls over financial reporting.  Further, our management assessed the effectiveness of our internal controls over financial reporting as of September 30, 2016.  Based on this assessment, management believes that, as of September 30, 2016, our internal controls over financial reporting were effective.

29


 

PART II - OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

We are often subject to various contingencies, the resolutions of which, our management believes will not have a material adverse effect on our consolidated financial position or results of operations.  We were not involved in any material litigation as of September 30, 2016, or through the date of this filing.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this Form 10-Q, you should carefully consider the factors disclosed in Part I, Item 1A “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2015, as well as the risk factor set forth below.

 

New gambling and tax laws in Czechia will likely increase competition, increase our cost of doing business and increase the gambling taxes we pay.

 

As referenced in Item 1A. of the Risk Factors section of the Company’s Form 10-K for the year ended December 31, 2015, the President of Czechia, on June 7, 2016, signed and made effective the 2017 Gambling Act (186/2016 Coll.) and the 2017 Gambling Tax Act (187/2016 Coll.) (collectively referred to as the “Gambling Acts”).  The Gambling Acts became law on June 15, 2016, when they were published in the official Collection of Laws, maintained by the Czech Ministry of the Interior.  The Gambling Acts will become effective at various times in the future, with most portions taking effect on January 1, 2017, and certain provisions taking effect on the renewal of the casino operator’s gambling licenses. The Gambling Acts will, among other things, permit non-Czech companies to enter the gambling industry in Czechia, possibly creating more competition for TWC; permit new online internet gambling in Czechia, possibly creating more competition for TWC; make it more complicated for the Company to obtain gambling licenses due to the new two phase (federal and municipal) approval process; generally decrease the term of a live game gambling license from ten to six years; prohibit the furnishing of free food, beverage and tobacco to players; impose new player tracking and player responsibility burdens on the Company, thereby creating potential liability for the Company with respect to players who exceed their self-imposed limits; impose new bonding, surveillance and data processing burdens on the Company that will increase the cost of doing business; require the Company’s suppliers to update and upgrade their slot and electromechanical machines to comply with the new laws which, if not done, may result in the Company having to turn off non-compliant machines and lose potential associated revenue; and increase gambling taxes. A detailed summary of the Gambling Acts is set forth in Note 3(l) of the Notes to Consolidated Interim Financial Statements (Unaudited) of this Form 10-Q. While the Company continues to analyze the new Gambling Acts and their potential effect on the Company, and commences to comply with them, management believes that, in the short term, the Gambling Acts will have a negative effect on the operations, results of operations and financial condition of the Company.  The Company estimates that the effect of the 2017 Gambling Tax Act would be an annual reduction of approximately $1.3 million to the Company’s consolidated earnings before income taxes, assuming all other factors remain constant.  The full financial impact of the 2017 Gambling Act cannot be quantified or estimated pending the interpretation of these measures by the MOF and their eventual implementation into the Company’s gambling operations.  The Company cannot assure you that other material adverse effects will not result from the Gambling Acts on the Company’s operations, results of operations, financial condition and prospects over time.

 

The risk factor set forth above and the risk factors described in our Form 10-K for the year ended December 31, 2015 are not the only risks our Company is facing.  Additional risks and uncertainties not currently known to us or that we deem to be immaterial at this time also may materially adversely impact our business, financial condition and operational results in the future.

 

 

30


 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

On August 8, 2016, upon achieving the designated earnings per share targets pursuant to the terms of his July 2005 restricted stock grant, Mr. Rami Ramadan, the Company’s Chief Executive Officer, was issued 25,000 shares of the Company’s Common Stock.  As this was a compensatory stock grant, there wre no proceeds to the Compnay.

 

ITEM 5.OTHER INFORMATION

 

None.

 

ITEM 6.EXHIBITS

 

Reference is made to the Exhibit Index hereinafter contained.

31


 

TRANS WORLD CORPORATION
EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016

 

 

 

 

 

 

Item No

 

Item

 

Method of Filing

 

 

 

 

 

3.1(a)

 

Articles of Incorporation

 

Incorporated by reference to Exhibit 3.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A).

 

 

 

 

 

3.1(b)

 

Certificate of Amendment to Articles of Incorporation

 

Incorporated by reference to Exhibit 3.1 contained in the Form 10-KSB for the fiscal year ended December 31, 2000 (File No. 0-25244).

 

 

 

 

 

3.1(c)

 

Certificate of Amendment to Articles of Incorporation

 

Incorporated by reference to Exhibit 3.1 contained in the Form 10-KSB for the fiscal year ended December 31, 2004 (File No. 0-25244).

 

 

 

 

 

3.2(a)

 

Bylaws

 

Incorporated by reference to Exhibit 3.2 contained in the registration statement on Form SB-2 (File No. 33-85446-A).

 

 

 

 

 

3.2(b)

 

Amended Bylaws, dated February 5, 2015

 

Incorporated by reference to Exhibit 3.2(b) contained in the Form 8-K filed on February 6, 2015 (File No. 0-25244).

 

 

 

 

 

4.1

 

Specimen Common Stock Certificate

 

Incorporated by reference to Exhibit 4.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A).

 

 

 

 

 

4.2

 

Indenture dated March 31, 1998, as supplemented on October 29, 1998.  October 15, 1999 and September 10, 2001, among the registrant, TWC International  U.S. Corporation, TWC Finance Corp. and U.S. Trust Company of Texas, N.A.

 

Incorporated by reference to Exhibit 4(1) contained in the Form 8-K filed on April 14, 1998 (File No.0-25244). 

 

 

 

 

 

4.3

 

Indenture dated March 31, 1998, as supplemented on October 29, 1998, October 15, 1999 and September 10, 2001, between TWC International U.S. Corporation and U.S. Trust Company of Texas, N.A.

 

Incorporated by reference to Exhibit 4(III) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).

 

 

 

 

 

4.4

 

Series A Warrant to Purchase Common Stock dated March 31, 1998

 

Incorporated by reference to Exhibit 4(VI) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).

 

 

 

 

 

4.5

 

Series B Warrant to Purchase Common Stock dated March 31, 1998

 

Incorporated by reference to Exhibit 4(VII) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).

 

 

 

 

 

4.6

 

Series C Warrant to Purchase Common Stock dated March 31, 1998

 

Incorporated by reference to Exhibit 4(II) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).

 

 

 

 

 

4.7

 

Series G Warrant to Purchase Common Stock dated March 31, 1999

 

Incorporated by reference to Exhibit 10.49 contained in the Form 10-KSB filed on May 30, 2000 (File No. 0-25244).

 

 

 

 

 

4.8

 

Agreement to Amend Warrants dated March 31, 1998 among the Company and the named Holders

 

Incorporated by reference to Exhibit 4(VIII) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).

 

 

 

 

 

32


 

 

 

 

 

 

Item No

 

Item

 

Method of Filing

10.1

 

1993 Incentive Stock Option Plan

 

Incorporated by reference to Exhibit 10.13 contained in the registration statement on Form SB-2 (File No. 33-85446-A).

 

 

 

 

 

10.2

 

Loan Agreement dated June 11, 1997 between the Company and Value Partners

 

Incorporated by reference to Exhibit 10.36 contained in the Form 8-K filed on June 17, 1997 (File No. 0-25244).

 

 

 

 

 

10.3

 

Loan Agreement dated October 27, 1997, between Value Partners, and the Company

 

Incorporated by reference to Exhibit 10.39 contained in the Form 10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244).

 

 

 

 

 

10.4

 

Employment Agreement between the Company and Rami S. Ramadan dated July 12, 1999

 

Incorporated by reference to Exhibit 10.1 contained in the Form 8-K filed on July 13, 1999 (File No. 0-25244).

 

 

 

 

 

10.5

 

Amendment to Employment Agreement between the Company and Rami S. Ramadan dated July 1, 2002

 

Incorporated by reference to Exhibit 10.5 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.6

 

1998 Incentive Stock Option Plan

 

Incorporated by reference to Exhibit 10.46 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).

 

 

 

 

 

10.7

 

1999 Non-Employee Director Stock Option Plan

 

Incorporated by reference to Exhibit 10.47 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).

 

 

 

 

 

10.8

 

Form 12% Secured Senior Note due March 2005

 

Incorporated by reference to Exhibit 10.48 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).

 

 

 

 

 

10.9

 

English Restatement of the Spanish Agreement of Sale of Casino de Zaragoza

 

Incorporated by reference to Exhibit 99.2 contained in the Form 8-K filed on January 9, 2002 (File No. 0-22544).

 

 

 

 

 

10.10

 

Form of Fourth Supplemental Trust Indenture by and among Trans World Corporation, TWG International U.S. Corp., TWG Finance Corp. and the Bank of New York Trust Company of Florida, N.A. (as Trustee)

 

Incorporated by reference to Exhibit 10.10 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.11

 

Waiver and Forbearance of Covenant Violations (Interest) — Primary Indenture

 

Incorporated by reference to Exhibit 10.11 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.12

 

Waiver and Forbearance of Covenant Violations (Interest) — Finance Indenture

 

Incorporated by reference to Exhibit 10.12 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.13

 

Indemnification Agreement by and between Value Partners, Ltd., Trans World Corporation and TWG International U.S. Corporation dated February 12, 2003

 

Incorporated by reference to Exhibit 10.13 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.14

 

Agreement and Plan of Recapitalization dated June 25, 2003 between the Company and the named Holders

 

Incorporated by reference to Exhibit 4.9 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.15

 

Form of  8% Rate Promissory Note due 2006

 

Incorporated by reference to Exhibit 4.10 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

33


 

 

 

 

 

 

Item No

 

Item

 

Method of Filing

10.16

 

Form of Variable Rate Promissory Note due 2010

 

Incorporated by reference to Exhibit 4.11 contained in the Registration Statement on Form S-4 (File No. 333-101028).

 

 

 

 

 

10.17

 

2004 Equity Incentive Plan, as amended

 

Incorporated by reference to Appendix E contained in the Proxy Statement for the 2004 Annual Meeting and from the discussion contained at page 12-14 of the proxy statement for the 2005 Annual Meeting, at page 14-15 of the proxy statement for the 2006 Annual Meeting, and at page 14-15 of the proxy statement for the 2007 Annual Meeting (File No. 0-25244).

 

 

 

 

 

10.18

 

Renewal and Amendment of Employment Agreement between the Company and Rami S. Ramadan, Effective as of July 1, 2005

 

Incorporated by reference to Exhibit 10.18 contained in the Form 10-KSB filed on March 17, 2006 (File No. 0-25244).

 

 

 

 

 

10.19

 

Renewal and Amendment of Employment Agreement between the Company and Rami S. Ramadan, Effective as of July 1, 2008

 

Incorporated by reference to Exhibit 99.1 contained in the Form 8-K filed on November 21, 2008 (File No. 0-25244).

 

 

 

 

 

10.20

 

Shareholder Agreement to add Director Nominees to the slate for the 2014 Annual Meeting of Stockholders, Effective as of April 21, 2014

 

Incorporated by reference to Exhibit 10.20 contained in the Form 8-K filed on April 22, 2014 (File No. 0-25244).

 

 

 

 

 

10.21

 

2014 Equity Incentive Plan, Adopted on June 25, 2014

 

Incorporated by reference to Exhibit 10.21 contained in the Form 8-K filed on June 27, 2014 (File No. 0-25244).

 

 

 

 

 

10.22

 

Change to the Company’s Registered Certified Accountants, Effective as of July 2, 2014

 

Incorporated by reference to Exhibit 10.22 contained in the Form 8-K filed on July 7, 2014 (File No. 0-25244).

 

 

 

 

 

10.23

 

Partnership Interest Purchase Agreement to acquire the Hotel Columbus, dated September 10, 2104

 

Incorporated by reference to Exhibit 10.23 contained in the Form 8-K filed on September 15, 2014 (File No. 0-25244).

 

 

 

 

 

10.24

 

Amendment of Employment Agreement between the Company and Rami S. Ramadan, Effective as of November 11, 2014

 

Incorporated by reference to Exhibit 10.24 contained in the Form 8-K filed on November 14, 2014 (File No. 0-25244).

 

 

 

 

 

10.25

 

2006 Deferred Compensation Plan, Amended and Restated, effective November 18, 2008

 

Incorporated by reference to Exhibit 99.3 contained in the Form 8-K filed on November 21, 2008 (File No. 0-25244).

 

 

 

 

 

10.26

 

Partnership Interest Purchase Agreement to Acquire the Hotel Freizeit Auefeld, dated June, 2, 2015

 

Incorporated by reference to Exhibit 10.26 contained in the Form 8-K filed on June 19, 2015 (File No. 0-25244).

 

 

 

 

 

10.27

 

2014 Equity Incentive Plan, as amended

 

Incorporated by reference to Exhibit 10.27 contained in the discussion at page 26-27 of the proxy statement for the 2016 Annual Meeting and in Exhibit 99.2 of the Form S-8 filed on July 12, 2016 (File No. 0-25244).

 

 

 

 

 

34


 

 

 

 

 

 

Item No

 

Item

 

Method of Filing

14.0

 

Code of Ethics

 

Incorporated by reference to Exhibit 14.0 contained in the 2008 Proxy Statement filed on May 14, 2008 (File No. 0-25244).

 

 

 

 

 

21.0

 

Subsidiaries

 

Incorporated by reference to Exhibit 21.0 contained in the Form 10-K filed on March 7, 2016 (File No. 0-25244).

 

 

 

 

 

31.1

 

Section 302 Certification of Chief Executive Officer

 

Filed herewith.

 

 

 

 

 

31.2

 

Section 302 Certification of Chief Financial Officer

 

Filed herewith.

 

 

 

 

 

32.1

 

Section 906 Certification of Chief Executive Officer

 

Filed herewith.

 

 

 

 

 

32.2

 

Section 906 Certification of Chief Financial Officer

 

Filed herewith.

 

 

 

 

 

101

 

The following financial information from Trans World Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2016, filed with the SEC on November 7, 2016, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income and Comprehensive Income (Loss) for the nine and three months ended September 30, 2016 and 2015 (unaudited), (ii) the Consolidated Balance Sheets at September 30, 2016 (unaudited) and December 31, 2015, (iii) the Consolidated Statement of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited), and (iv) Notes to Consolidated Interim Financial Statements (unaudited).*

 


*Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.

 

35


 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the Registrant has caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

TRANS WORLD CORPORATION

 

 

 

 

Date:    November 7, 2016

By:

/s/ Hung D. Le

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

36