As filed with the Securities and Exchange Commission on April 25, 2007
Registration No. 333-134766
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT No. 1
TO
FORM SB-2
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRANS WORLD CORPORATION
(Name of small business issuer in its charter)
Nevada
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7900
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13-3738518
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(State or
jurisdiction of
incorporation or organization)
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(Primary Standard
Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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545
Fifth Avenue, Suite 940
New York, New York 10017
(212) 983-3355
(Address and telephone
number of principal executive offices)
545 Fifth Avenue, Suite 940
New York, New York 10017
(Address of principal place
of business or intended principal place of business)
Rami S. Ramadan, Chief
Executive Officer
Trans World Corporation
545 Fifth Avenue, Suite 940
New York, New York 10017
(212) 983-3355
(Name, address and
telephone number of agent for service)
With a
copy to:
Timothy B. Matz
Jeffrey A. Koeppel
Elias Matz Tiernan & Herrick L.L.P.
734 15th Street, N.W., 12th Floor
Washington, D.C. 20005
(202) 347-0300
Approximate
date of proposed sale to the public:
s soon as practicable after the effective date of this registration statement.
If any of the securities
being registered on this form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act, check the following
box. x
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If delivery of the
prospectus is expected to be made pursuant to Rule 434, check the
following box. o
CALCULATION
OF REGISTRATION FEE
Title of each class of
securities to be registered
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Amount
to be registered
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Proposed maximum
offering price
per unit
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Proposed maximum
aggregate offering
price
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Amount of
registration fee
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Common Stock, $0.001 par value per share
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6,452,044
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$2.55
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$16,452,714.75
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$1,760.44
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(1)
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(1) Previously paid in conjunction with the filing of the
original registration statement on June 6, 2006.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
EXPLANATORY
NOTE
This Post-Effective Amendment No. 1 to our
registration statement on Form SB-2 amends our registration
statement No. 333-134766, declared effective June 29, 2006, to
update the information, including the financial statements, in the prospectus
for the year ended December 31, 2006.
The information in this
prospectus is not complete and may be changed. The selling security holders may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO
COMPLETION, DATED APRIL 25, 2007
6,373,639 Shares
TRANS WORLD CORPORATION
Common Stock
$0.001 par value per share
This is an offering of 6,373,639
shares of the common stock, $0.001 par value per share, of Trans World Corporation
by the selling stockholders identified elsewhere in this prospectus. The shares
covered by this prospectus include 6,362,257 outstanding shares of common stock,
and 11,382 shares of common stock issuable upon the exercise of warrants that
we previously issued to certain selling stockholders in private transactions.
The shares are being registered to permit public secondary trading of the
shares that are being offered by the selling stockholders named in this
prospectus. We will not receive any of the proceeds from the sale of these
shares.
The selling stockholders
may, but are not obligated to, offer all or part of their shares for resale
from time to time through public or private transactions including underwritten
offerings, at either prevailing market prices or at privately negotiated
prices. See Plan of Distribution, below.
Our common stock is currently quoted on the
Over-the-Counter Bulletin Board under the symbol TWOC.OB. On April 19,
2007, the last reported sales price on our common stock was $3.90 per share.
Investing in our
common stock involves risks. See Risk Factors beginning on page 4 to
read about factors you should consider before buying shares of our common
stock.
Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is April , 2007.
The map
below shows the locations of our five casinos in Europe, denoted by
American Chance Casinos logo.
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ABOUT THIS
PROSPECTUS
You should rely only on
the information contained in this document or any other document to which we
refer you. Neither we nor the selling stockholders have authorized anyone to
provide you with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. Neither we nor the
selling stockholders are making an offer to sell these securities in a
jurisdiction where the offer or sale is not permitted. The information
contained in this document is current only as of its date, regardless of the
time of delivery of this prospectus or of any sales of shares of common stock.
Our business, financial condition, results of operations and prospects may have
changed since that date.
TABLE
OF CONTENTS
ii
PROSPECTUS SUMMARY
This summary
highlights selected information about us and the offering that is contained
elsewhere in this prospectus. You should read the entire prospectus before
making an investment decision, especially the information presented under the
heading Risk Factors on page 4 and the financial statements and related
notes included elsewhere in this prospectus, as well as the other documents to
which we refer you. Except as otherwise indicated by the context, references in
this prospectus to we, us, our, TWC or the Company are to the
combined business of Trans World Corporation and its wholly-owned subsidiaries,
and in each case does not include the selling stockholders. References to the Czech
Republic or to the CZ are references to the country, the Czech Republic. All
references to dollars, USD or $ refer to United States dollars,
references to or EUR refer to the
Euro, the currency of the European Union, and references to CZK refer to the
Czech Koruna, the currency of the Czech Republic.
Our Business
We were organized as a Nevada corporation in October 1993
for the acquisition, development and management of gaming establishments that
feature live and mechanized gaming, including video gaming devices such as
video poker machines. In 1998, we changed our operating strategy by shifting
our focus to the casino market in Europe. Today, we operate five full-service casinos; four of which are owned
and one which is managed under contract. The four fully-owned casinos operate
in the Czech Republic, and are located in Ceska Kubice (Ceska), Rozvadov
(Rozvadov), Hate (Route 59), and Dolni Dvoriste (Route 55). The casino
operated under the management contract is located in Podstrana, a resort town
on the Adriatic Sea, near Split, Croatia.
The Czech casinos, which operate under the brand name American
Chance Casinos (ACC), are situated at border locations and draw the majority
of their customers from Germany and Austria. Each of the casinos showcases a
theme portraying recognizable eras of American history, including: Pacific South Seas, Chicago in the Roaring 1920s,
New Orleans in the 1930s, and Miami Beach in the 1950s. ACCs operating
strategy centers on differentiating its products from the very formal German
and Austrian casinos, and as a result, management has endeavored to create
gaming environments with casual and exciting atmospheres. emphasizing
entertainment. Further, as part of the ACC operating formula, management
strives to uphold the integrity and professionalism of its operations as a
means to dispel any concerns that customers and the national and local
governments might have about the gambling industry.
On
September 21, 2006, we were selected to manage the Grand Casino Lav and
InMotion Nightclub (collectively referred to as the Grand Casino Lav),
located in the newly opened Le Meridien Lav, Split resort in Podstrana,
Croatia. The management agreement with the Grand Hotel Lav d.o.o., the property
owner, provides for a 10-year term, with optional renewal periods of five
(5) years each, subject to certain performance conditions. In addition to
marketing the casino/nightclub to the hotel guests, ACC will target the local
market of Split, the second largest city in Croatia.
As the Grand Casino Lav opened in the last part of
December 2006, its contribution to the year 2006 operational results was
not material. Thus, all discussions of operational performance and results
herein are limited to our fully-owned and operated units in the Czech Republic.
Although our headquarters are located in New York
City, we currently have no operating presence in the United States.
Our existing operations
are located exclusively in the Czech Republic and in the gaming industry.
However, senior management, which includes several members with extensive
experience in the hotel industry, is exploring ways to expand the Company
through the acquisition and/or development of new or existing hotels, while
continuing to grow our existing gaming operations. Acquisitions will be based
on
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evaluations of the
potential returns of projects that arise and the availability of financing to
purchase additional assets.
We filed a registration
statement on Form SB-2 with the Securities and Exchange Commission (SEC)
on June 6, 2006, as amended on June 26, 2006 and as further amended
on April 25, 2007 (file number 333-134766), to register the resale
of 6,373,639 shares of our common stock by certain selling stockholders as
described herein. Those shares were previously issued by us to those selling
stockholders in private placements, as follows:
· 56,575
shares were issued due to the exercise of warrants issued in 1998 and 1999 to
institutional accredited lenders in conjunction with the loan made to us to
facilitate the purchase of our casinos in Ceska, Rozvadov and land in Hate, CZ.
The loans also permitted the purchase of a casino in Zaragoza, Spain (which has
since been divested), and the construction of our third casino, Route 59, on
that land in Hate;
· 11,382
shares that are subject to issuance upon the exercise of the remaining warrants
issued in 1998 and 1999 in conjunction with the loans made to us to facilitate
the purchase of our casinos as noted above;
· 232,708
shares were issued to an affiliated noteholder in a private exchange for $4.8
million principal amount (and $1.9 million unpaid interest) of our 12% Senior
Secured Notes relating to our discontinued Louisiana operations (that we call
the LA Exchange) in May 2002;
· 3,342,192
shares were issued to affiliated noteholders in a publicly registered exchange
offer for $13.6 million principal amount of our 12% Senior Secured Notes
relating to our Czech operations (that we call the Public Exchange) in June 2003;
and,
· 2,809,188
shares were issued in December 2005 to five institutional accredited
investors, and our placement agent, who purchased our common stock in a private
placement. We have used the proceeds from that sale to renovate the Route 59
casino in Hate, made capital improvements to the Route 55 casino in Dolni
Dvoriste, purchased 100 slot machines and as general working capital.
We agreed to register some of these shares for resale
by the selling stockholders in the agreements to subscribe for such shares in
the December 2005 private placement (or the $4.75 million Capital Raise).
Our board of directors has determined that it would be in the best interests of
the Company and its stockholders to register the remainder of such shares in
order to increase the market liquidity in the common stock and as an
accommodation to our largest stockholder. The board believes that an increased
trading volume will enhance a more active and liquid market in the Companys
shares and should decrease extreme price fluctuations when our shares trade in
the over-the-counter market. Certain shares previously registered have been
sold by selling stockholders since the date of our original registration
statement.
The offers and sales of common stock covered by the
registration statement by the selling stockholders may commence on such date as
determined by those stockholders. We have no control over the timing or pricing
of such sales. See Risk FactorsRisks Related to Our Common Stock.
Our corporate headquarters
is located at 545 Fifth Avenue, Suite 940, New York, New York 10017. Our
telephone number is (212) 983-3355. We have a website at www.transwc.com
that is linked to the website for our casinos at www.american-chance-casinos.com
or www.acc.cz. The aforementioned
websites are not part of this prospectus.
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THE
OFFERING
Common stock outstanding
prior to, and to be outstanding after, this offering
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7,840,870 shares.
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Common stock offered by
us
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We are not offering any shares of our common stock
for sale pursuant to this prospectus.
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Common stock offered by
the selling stockholders
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6,373,639 shares.
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Total shares of common
stock offered pursuant to this prospectus
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6,373,639 shares.
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Method of offering
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The selling stockholders may offer and sell their
shares in one or more types of transactions, including in ordinary brokerage
transactions, by cross or block trades, in negotiated transactions, by sales
at the market, in underwritten offerings, and in transactions involving
options, swaps and other derivatives. See Plan of Distribution below.
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Dividends
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We have not in the past paid any dividends on our
common stock and currently have no plans to do so.
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Risk Factors
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See Risk Factors beginning on page 4 and
other information included in this prospectus for a discussion of factors you
should consider before deciding to invest in shares of our common stock.
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Trading
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Shares of our common stock trade in the
over-the-counter market and are quoted on the OTC Bulletin Board under the
symbol TWOC.OB.
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3
RISK FACTORS
An investment in our securities involves a high degree
of risk. You should carefully consider the following risks and the other
information set forth elsewhere in this prospectus, including our financial
statements and related notes, before you decide to purchase shares of our
common stock.
Risks Related to
Our Business
Our ability to sustain our net income depends on our
management.
For the year ended December 31, 2006, we had net
income of approximately $2.0 million, on total revenue of approximately $26.2
million. The improvement was largely the result of the major revenue increase
at our newest operating unit, Route 55, which was slightly offset by lower live
game revenue at Route 59. With the exception of Route 55s 80% year-over-year
attendance growth, the attendances at other units dipped slightly below their
2005 levels. Our ability to sustain profitability from continuing operations
will depend largely upon the successful management of our gaming establishments,
their expansion, the addition of gaming business units, and the expansion of
operations to include non-gaming sources of revenue. There can be no assurance
that we will achieve or maintain profitability as a result of these operations
or otherwise.
We are seeking to diversify our operations into a new
business line.
At this time, our
operations are primarily in gaming. We are currently seeking to develop or
acquire interests in gaming operations and hotels in other European countries,
including countries in Eastern Europe which may not be members of the European
Union. The Companys experience operating hotels is limited and we currently
have no hotel operations.
We are subject to high taxes on our gaming operations.
Gaming operators are
typically subject to significant taxes, which could increase at any time. Any
material increase in these taxes would adversely affect our results of
operations. The Czech Republic currently imposes a number of different taxes on
our operations. Applicable taxes include a value-added tax or VAT, gaming tax,
charity tax, and payroll (social) taxes. Tax declarations, together with other
legal compliance areas (for example, customs and currency control matters) are
subject to review and investigation by a number of Czech governmental
authorities, which are authorized by law to impose extremely severe fines,
penalties and interest charges. Management believes that it has adequately
provided for the Companys tax liabilities.
We are dependent upon our key personnel.
Our ability to
successfully manage our casinos, implement our expansion strategy, and maintain
a competitive position in the marketplace will continue to depend, in large
part, on the ability of Mr. Rami S. Ramadan, the Companys President,
Chief Executive Officer and Chief Financial Officer. The Company is also
dependent upon other key employees, casino managers and consultants employed by
the Company from time to time.
Our ability to grow our business is dependent on
additional financing.
Although we have achieved
positive income for the fourth consecutive year, our growth strategies require
additional debt and/or equity financing for the acquisition and development of
other businesses. In this regard, our ability to obtain additional financing
has been improved as a result of the Companys recapitalizations in 2002 and
2003, which effectively reduced our then existing debt burden in 2003 by
approximately 80%, and as a result of our private placement that raised
approximately $4.75 million in
4
December 2005.
Despite these improvements, there can be no assurance that further financing
will be available in the future on terms favorable to us or at all.
Our international operations subject us to a number of
significant risks.
Our operations occur
completely outside of the United States. Operating internationally involves
additional risks relating to such things as currency exchange rates, different
legal or regulatory environments, political and economic risks relating to the stability
or predictability of foreign governments, differences in the manner in which
different cultures do business, difficulties in staffing and managing foreign
operations, differences in financial reporting, operating difficulties,
different types of criminal threats and other factors. The occurrence of any of
these risks, if severe enough, could have a material adverse effect on the
financial condition or results of operations of the Company.
Our liability insurance may be inadequate.
The Company currently
maintains, and intends to continue to maintain, general liability insurance in
each of our locations. There can be no assurance that liability claims will not
exceed the coverage limits of such policies or that such insurance will
continue to be available on commercially reasonable terms or at all. There can
be no assurance that such insurance will be adequate to cover unanticipated
liabilities.
We could issue a series of preferred stock that might
adversely affect our common stockholders.
Our Articles of
Incorporation, as amended, authorize the issuance of 4,000,000 shares of blank
check preferred stock, with designations, rights and preferences that may be
determined from time to time by our board of directors. Accordingly, the board
of directors is empowered, without further stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
the common stock. In the event of such issuance, the preferred stock could be
used, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. The Company has no current plans
to issue any shares of preferred stock. However, there can be no assurance that
preferred stock will not be issued at some time in the future.
Our outstanding warrants and options will have a
dilutive effect on our common stock.
As of March 31, 2007,
warrants exercisable for a total of 11,382 shares of common stock and options
for 294,135 shares of common stock are outstanding, which, if all were
exercised, would represent 3.8% of the 8,146,387 shares of common stock that
would be outstanding. The issuance of such securities would have a dilutive
effect on any earnings per share that the Company may generate when the
earnings per share are determined on a fully diluted basis.
We face significant competition, and if we are not
able to compete successfully our results of operations will be harmed.
For a large portion of our operations, the gaming
industry is highly fragmented and characterized by a high degree of competition
among a large number of participants in the Czech Republic, Germany, and Austria,
many of which have financial and other resources that are greater than ours.
Competitive gaming activities include casinos, slot parlors, and other forms of
legalized gaming in the Czech Republic and neighboring jurisdictions. Legalized
gaming is currently permitted in various forms throughout the Czech Republic, Germany,
and Austria. If additional gaming opportunities become available near our
operating facilities, such gaming destinations could attract players who might
otherwise visit our casinos. The resulting loss of revenue at our casinos may
have a material adverse effect on our business, financial conditions and
results of operations.
5
We face extensive regulation from gaming and other
regulatory authorities, which involve considerable expense and could harm our
business.
As owners and operators of gaming facilities, we are
subject to extensive national and local regulation in the Czech Republic and
Croatia. National and local authorities require us and our subsidiaries to
demonstrate suitability to obtain and retain various licenses and require that
we have registrations, permits and approvals to conduct gaming operations. The
various regulatory authorities, including the Ministries of Finance in the
Czech Republic and in Croatia, may for any reason set forth in applicable
legislation, rules and regulations limit, condition, suspend or revoke a
license or registration to conduct gaming operations or prevent us from owning
the securities of any of our gaming subsidiaries. Like all gaming operators in
the jurisdictions in which we operate or plan to operate, we must periodically
apply to renew our gaming licenses or registrations and have the suitability of
certain of our directors, officers and employees approved. Regulatory authorities
may also levy substantial fines against us or seize our assets or the assets of
our subsidiaries or the people involved in violating gaming laws or
regulations. Any of these events could force us to terminate operations at an
existing gaming facility, or could prohibit us from successfully completing a
project in which we invest. Closing facilities or an inability to expand may
have a material adverse effect on our business, financial condition and results
of operations.
From time to time, legislators and special interest
groups have proposed legislation in the Czech Republic and Croatia that would
expand, restrict or prevent gaming operations or that may otherwise adversely
impact our operations in the jurisdictions in which we operate. Any expansion
of gaming, or restriction on, or prohibition of, our gaming operations could
have a material adverse effect on our operating results.
We may face disruption in integrating and managing
facilities we open or acquire in the future, which could adversely impact our
operations.
We continually evaluate
opportunities to acquire or develop casinos and/or hotels, some of which are
potentially significant in relation to our size. We expect to continue pursuing
expansion opportunities, and we could face significant challenges in managing
and integrating expanded or combined operations resulting from our expansion
activities. The integration of any new projects we acquire or develop in the
future will require the dedication of management resources that may temporarily
divert attention from the day-to-day business of our existing operations, which
may interrupt the activities of those operations and could result in
deteriorating performance from those operations. The management of new
operations, especially in new geographic areas, may require that we increase
our managerial staff, which would increase our expenses.
A downturn in general economic conditions may
adversely affect our results of operations.
Our business operations
are subject to changes in international, national and local economic
conditions, including changes in the economy related to future security alerts
in connection with threatened or actual terrorist attacks, such as those that
occurred on September 11, 2001, and related to the war with Iraq, which
may affect our customers willingness to travel or spend money on discretionary
items. A recession or downturn in the general economy, or in a region
constituting a significant source of customers for our casinos, could result in
fewer customers visiting our properties, which would adversely affect our
results of operations.
Inclement weather and other conditions could seriously
disrupt our business, which may hamper our financial condition and results of
operations.
The operations of our casinos are subject to
disruptions or reduced patronage as a result of severe weather conditions. For
instance, in the winters of 2005 and 2006, the Czech Republic experienced
severe
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cold, occasional heavy snow and hurricane-force winds,
which kept many of our customers at home. In the event weather conditions limit
access to our casinos or otherwise adversely impact our ability to operate our
casinos at full capacity, our revenue will suffer, which will negatively impact
our operating results.
Construction delays and budget overruns could
adversely affect our development of new casino projects and may harm our
business.
We are currently engaged
in the development of a new hotel to complement our existing casino in Hate,
Czech Republic. We also evaluate other opportunities to expand our business as
they become available, and we may in the future acquire or develop additional
casinos or hotels. The anticipated costs and construction periods to develop
and build a property are based upon budgets, conceptual design documents and
construction schedule estimates prepared by us in consultation with our
architects and contractors. Unanticipated cost increases or other factors may
result in the estimated budgets we use to plan our investment in new facilities
not accurately forecasting the costs of those facilities, in which cases our
operating results will be adversely impacted to a greater degree than we
initially planned. In addition, if our initial budgets are not accurate, we may
need to pursue additional financing to complete a proposed project, which may
not be available on favorable terms or at all. The adverse impact on our
results of operations resulting from cost overruns on any development projects
we undertake may adversely affect our net income and consequently, our stock
price. Construction projects entail significant risks, which can cause
substantial delays in completing a project in addition to increasing the costs
of the project. Such risks include shortages of materials or skilled labor,
unforeseen engineering, environmental or geological problems, work stoppages,
and weather interference. Most of these factors are beyond our control. In
addition, difficulties or delays in obtaining any of the requisite licenses,
permits or authorizations from regulatory authorities can increase the cost or
delay the completion of an expansion or development. Significant delays with
respect to development projects could result in a delay in our ability to
recognize revenue from a new property, even though we would recognize a portion
of the development costs of the project as construction was ongoing. This could
adversely affect our results of operations.
Fluctuations in currency exchange rates could
adversely affect our business.
We conduct our business in
foreign countries, principally in the Czech Republic. The Czech Republic has
joined the European Union but has not yet adopted the Euro currency. Our Czech
operations are conducted in Czech Korunas, the local Czech currency and in
Euros, the European Unions single currency used in Germany and Austria. An
increase in the value of the Czech Koruna or the Euro in relation to the value
of the U.S. dollar would decrease the revenue and operating profit from our
operations when translated into U.S. dollars, which would adversely affect our
consolidated results. In addition, we expect to expand our operations into
other countries, which may use currencies other than the Euro or the U.S.
dollar and, accordingly, we will face similar exchange rate risk with respect
to the costs of doing business in such countries as a result of any increases
in the value of the U.S. dollar in relation to the currencies of such
countries. We do not currently hedge our exposure to fluctuations in the Czech
Koruna or to the Euro, and there is no guarantee that we will be able to
successfully hedge any future foreign currency exposure.
The availability and cost of financing could have an
adverse effect on our business.
We intend to finance our current and future expansion
and renovation projects primarily with cash flow from operations, bank
borrowings and equity or debt financings. If we are unable to finance our
current or future expansion projects, we will have to adopt one or more
alternatives, such as reducing or delaying planned expansion, development and
renovation projects as well as reducing or delaying capital expenditures, or
obtaining additional equity financing or joint venture partners. These sources
of funds may not be sufficient to finance our planned expansion, and other financing
may not be available on
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acceptable
terms, in a timely manner or at all. If we are unable to secure additional
financing, we could be forced to limit or suspend expansion, development and
renovation projects, which may adversely affect our business, financial
condition and results of operations.
Energy and fuel price increases may adversely affect
our costs of operations and our revenues.
Our casinos use
significant amounts of electricity, natural gas and other forms of energy.
While we have not experienced any shortages of energy that have hampered our
operations, the substantial increases in the cost of electricity and natural
gas in the Czech Republic may negatively affect our results of operations. The
extent of the impact is subject to the magnitude and duration of the energy and
fuel price increases. Dramatic increases in fuel prices may also adversely
affect customer visits to our casino properties.
Acts of terrorism, war or other natural disasters may
negatively impact our future profits.
Terrorist attacks and
other acts of war or hostility have created many economic and political
uncertainties. We cannot predict the extent to which terrorism may directly or
indirectly impact our business and operating results. As a consequence of the
threat of terrorist attacks and other acts of war or hostility in the future,
premiums for a variety of insurance products have increased, and some types of
insurance are no longer available. Given current conditions in the global
insurance markets, we are uninsured for losses and interruptions caused by
terrorist acts and acts of war. In addition, natural disasters such as major
fires, floods, hurricanes and earthquakes could also adversely impact our
business and operating results. Such events could lead to the loss of use of
one or more of our properties for an extended period of time and disrupt our
ability to attract customers to certain of our gaming facilities. If any such
event were to affect our properties, we would likely be adversely impacted.
Work stoppages and other labor problems could
negatively impact our future profits.
Although none of our
employees are represented by labor unions, a labor action or work stoppage at
one of our casino properties or construction projects could have an adverse
effect on our business and results of operations. From time to time we have
also experienced attempts to unionize certain of our non-union employees. While
these efforts have ended without success to date, we cannot provide any
assurance that we will not experience additional and more successful union
activity in the future.
Risks Related to
Our Common Stock
We do not pay dividends on our common stock.
The Company has not paid
any dividends to date on its common stock, and does not expect to declare or
pay any dividends in the foreseeable future. The Company intends to retain
future earnings, if any are generated, for investment in its current operations
and for future business development or acquisitions.
The market price for our common stock may be volatile.
The market price
for our common stock is likely to be highly volatile and subject to wide
fluctuations in response to factors including but not limited to:
· the
lack of depth and liquidity of the market for our common stock;
· actual
or anticipated fluctuations in our quarterly operating results;
· announcements
of new projects or services by us or our competitors;
· changes
in the economic performance or market valuations of other companies involved in
gaming industry;
8
· sales
of common stock by us and selling stockholders;
· investor
perceptions of us and our business;
· changes
in the estimates of the future size and growth rate of our markets;
· announcements
by our competitors of significant acquisitions, strategic partnerships, joint
ventures or capital commitments;
· additions
or departures of key personnel;
· potential
litigation; and,
· conditions
in the gaming market.
In addition, the stock
market in general, and the over-the-counter market in particular, have experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the performance of listed companies. These broad market and
industry factors may seriously harm the market price of our common stock,
regardless of our operating performance. Our common stock trades on the
Over-the-Counter Electronic Bulletin Board, which is characterized by small
issuers and a lack of significant trading volumes relative to other U.S.
markets. These factors may result in volatility in the price of our common
stock. Our shares are not liquid and are thinly traded. On some days on which
the markets are open, our common stock does not trade at all, and when it does
trade, there is usually a spread between the bid and asked price that is larger
than it might be if there were greater liquidity and a larger float in the
shares, which results in exaggerated price swings in such transactions.
Accordingly, we do not believe that the market price may, at any particular
time, accurately reflect the intrinsic, or even the market, value of our common
stock.
A large portion of our common stock is controlled by a
small number of stockholders.
Value Partners, Ltd., a
Texas limited partnership controlled by Mr. Timothy G. Ewing, a member of
our board of directors, controls 43.4% of our common stock, 17.9% is held by
Special Situations Funds, an unaffiliated investment fund, and 12.9% of our
common stock is held by Wynnefield SmallCap Value Offshore Fund, Ltd., another
unaffiliated investment fund. As a result, Mr. Ewing is able to influence
the outcome of stockholder votes on various matters, including the election of
directors and extraordinary corporate transactions including business
combinations. Furthermore, the current ratios of ownership of our common stock
reduce the public float and liquidity of our common stock, which can in turn
affect the market price of our common stock.
Only a limited trading market for our common stock
exists.
Historically, we have had limited trading in our
common stock, in part, as a result of the limited public float in our stock and
as a result of our operating history. Unless a substantial number of shares are
sold by the selling shareholders and other Company shareholders into the open
market, an active trading market for shares of our common stock may never
develop. Without an active market in our shares, the liquidity of the stock
could be limited and prices for the common stock would be depressed and/or
volatile.
Our common stock is traded in the over-the-counter
market through the Over-the-Counter Electronic Bulletin Board. Our common stock
may never be included for trading on any stock exchange or through any other
quotation system (including, without limitation, the NASDAQ Stock Market).
As there is only limited
trading activity in our securities, the sale of a substantial amount of our
common stock in the market over a relatively short period of time could result
in significant fluctuations in the market price of our common stock and could
cause our common stock price to fall.
9
Our common stock is subject to additional regulation
as a penny stock, which may reduce the liquidity of our common stock.
Because the trading price of our common stock is below
$5.00 per share, the open-market trading of our common stock is subject to the penny
stock rules of the Securities and Exchange Commission, or SEC. The penny
stock rules impose additional sales practice requirements on broker-dealers
who sell securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000 or, together with his or her spouse, $300,000). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchasers written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny
stock, unless exempt, the broker-dealer must deliver, before the transaction, a
disclosure schedule prescribed by the SEC relating to the penny stock market.
The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell
the common stock and may affect a stockholders ability to resell the common
stock.
Stockholders should be
aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include (i) control of the market for the security by one or
a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation
of prices through prearranged matching of purchases and sales and false and
misleading press releases; (iii) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differential and
markups by selling broker-dealers; and (v) the wholesale dumping of the
same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of
those prices and with consequent investor losses.
We are obligated to indemnify our officers and
directors for certain losses they suffer.
Our Articles of
Incorporation, as amended, and Bylaws, as amended, provide for the
indemnification of our directors, officers, employees, and agents, under
certain circumstances, against liabilities, attorneys fees and other expenses
incurred by them in any litigation to which they become a party arising from
their association with or activities on behalf of us to the maximum extent
permitted by Nevada law. If we are required to indemnify any persons under this
policy, the amounts we would have to pay could be material, and although we
maintain directors and officers liability insurance, we may be unable to
recover any of these funds from any source.
SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus
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 prospectus 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
prospectus 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
10
differ
materially from those expressed in any of the forward-looking statements
included in this prospectus. 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
markets acceptance of our gaming offerings;
· our
ability to increase attendance and drop-per-head, control expenses and maintain
profitability;
· the
effect of competition in our markets;
· our
ability to acquire or develop new casinos or hotels and have them operate
profitably;
· our
ability to obtain required regulatory approvals and comply with applicable
regulatory requirements;
· our
ability to attract and retain experienced management;
· our
ability to manage fluctuations of currencies in which we receive revenue or
incur expenses; and
· other
factors described in this prospectus under the heading Risk Factors.
Forward-looking statements
that we make or that are made by others on our behalf are based on a knowledge
of our business and the environment in which we operate, but because of the
factors listed above, actual results may differ significantly from those in
forward-looking statements. Consequently, these cautionary statements qualify
all of the forward-looking statements we make herein. The results or
developments we anticipate may not be realized. Even if substantially realized,
those results or developments may not result in the expected consequences for
us or affect us, our business or our operations in the ways we expect. We
caution readers not to place undue reliance on any of these forward-looking statements
in this prospectus, which speak only as of their dates. We assume no obligation
to update any of the forward-looking statements.
USE OF PROCEEDS
The registration of
2,809,188 shares of common stock satisfies a contractual obligation to certain
of the selling stockholders who acquired them in the $4.75 million private
placement. We are also registering 3,486,043 shares that are subject to, or
have resulted from, the exercise of certain warrants, the LA Exchange and the
Public Exchange as an accommodation to other of our stockholders. We will not
receive any cash proceeds from the sale of any of the shares of common stock
sold by the selling stockholders in this offering.
MARKET FOR COMMON
EQUITY, RELATED
STOCKHOLDER MATTERS AND DIVIDEND POLICY
General
Our common stock is quoted on the OTC Electronic
Bulletin Board under the symbol TWOC.OB (formerly TWCP.OB).
In December 2005,
we sold $4.75 million of the Companys common stock, in a private placement to
selected accredited investors, as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended, at the
then market price per share. The market price at the time of the first closing
was $1.70 per share. As a result, we issued an aggregate of 2,794,188 shares of
common stock on two separate dates: 1,911,835 on December 22, 2005 and
882,353 on December 27, 2005. In conjunction with the transaction, the
firm that assisted in the arrangement of the private placement requested to
have a portion of its finders fee paid in shares of our common stock. Thus, on
December 30, 2005, the Company issued an additional 15,000 shares at the
market price of $1.70. The Company incurred approximately
11
$257,000
in associated expenses that were capitalized into additional paid-in capital.
The private equity raise was intended for use for the following purposes:
· renovation
and expansion of Route 59;
· capital
enhancements in Route 55;
· purchase
and upgrade of gaming equipment; and
· additional
working capital for the Company.
Reverse Stock Split
On March 5, 2004, our
board of directors approved a one (1)-for-one hundred (100) reverse stock split
of our common stock, with all fractional shares being rounded up to the next
whole share. The reverse stock split was effective on April 5, 2004.
Stockholders equity was restated to give retroactive recognition to the stock
split for all periods presented in our financial statements by reclassifying
from common stock to additional paid-in capital for the par value of the
diminished shares arising from the reverse split. In addition, all references
herein and in the consolidated financial statements to the number of shares and
per share amount reflect the reverse stock split.
Stock Prices
As of April 19, 2007,
the closing sale price for one share of our common stock was $3.90. The
following table sets forth the high and low prices of our common stock for
fiscal years 2005, 2006 and the first quarter of 2007 as quoted on OTC Electronic
Bulletin Board.
Common Stock
|
|
|
|
High
|
|
Low
|
|
2005
|
|
|
|
|
|
First Quarter
|
|
$
|
3.05
|
|
$
|
2.50
|
|
Second Quarter
|
|
$
|
3.50
|
|
$
|
2.50
|
|
Third Quarter
|
|
$
|
2.70
|
|
$
|
2.35
|
|
Fourth Quarter
|
|
$
|
2.00
|
|
$
|
1.60
|
|
2006
|
|
|
|
|
|
First Quarter
|
|
$
|
3.50
|
|
$
|
2.00
|
|
Second Quarter
|
|
$
|
2.90
|
|
$
|
2.35
|
|
Third Quarter
|
|
$
|
2.80
|
|
$
|
1.92
|
|
Fourth Quarter
|
|
$
|
2.85
|
|
$
|
2.10
|
|
2007
|
|
|
|
|
|
First Quarter
|
|
$
|
4.60
|
|
$
|
3.10
|
|
As of April 19, 2007, there were (a) 7,840,870
outstanding shares of Common Stock held of record by approximately 105 holders;
(b) outstanding options to purchase an aggregate of 294,135 shares of
common stock; (c) outstanding $1.00 Series C Warrants to purchase an
aggregate of 10,131 shares of common stock issued in connection with the March 1998
private placement of debt securities; and (d) outstanding $1.00 Series G
Warrants to purchase an aggregate 1,251 shares of common stock issued in
connection with the October 1999 private placement.
Dividend Policy
We have never paid any
cash dividends on our common stock. We do not anticipate paying any cash
dividends or making any other cash distributions on our common stock in the
foreseeable future. Should we decide in the future to do so, as a holding
company, our ability to pay dividends and meet other
12
obligations
depends upon the receipt of dividends or other payments from our operating
subsidiaries. Our operating subsidiaries may be subject, from time to time, to
restrictions on their ability to make distributions to us, including as a
result of restrictive covenants in loan agreements, restrictions on the
conversion of local currency into dollars and other regulatory restrictions. We
currently intend to retain future earnings, if any to finance operations and
the expansion of our business.
Equity Compensation
Plan Information
The following table
provides information about the securities authorized for issuance under our
equity compensation plans. In accordance with the rules of the SEC, the
information in the table is presented as of December 31, 2006, the end of
our most recently completed fiscal year.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan Category
|
|
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))(1)
|
|
Equity compensation plans approved by security
holders(1)
|
|
|
294,135
|
|
|
|
$
|
3.22
|
|
|
|
22,748
|
(2)
|
|
Equity compensation plans not approved by security
holders
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
|
Total
|
|
|
294,135
|
|
|
|
$
|
3.22
|
|
|
|
22,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Represents the outstanding
reserve remaining in the amended 2004 Equity Incentive Plan.
(2) The
Company intends to ask its stockholders to approve an amendment to the 2004
Equity Incentive Plan that will increase the number of shares of common stock
reserved for issuance under that Plan from the current 387,748 to 627,270, or
8% of the current outstanding shares of the Company, at the Annual Meeting of
Stockholders to be held on May 5, 2007.
(3) Does
not include accruals made under the Companys Deferred Compensation Plan for
directors who may only receive such amounts in shares of Company Common Stock
upon the occurrence of certain events. See Directors and Executive OfficersDirectors
Compensation below.
13
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF
OPERATIONS
General
The following managements discussion and analysis
should be read in conjunction with our consolidated financial statements and
the notes thereto and the other financial information appearing elsewhere in
this prospectus. In addition to historical information, the following
discussion contains certain forward-looking information. See Special Note
Regarding Forward-Looking Statements above for certain information concerning
those forward-looking statements.
Our financial
statements are prepared in U.S. dollars and in accordance with accounting
principles generally accepted (GAAP) in the United States. See Exchange
Rates below for information concerning the exchange rates at which Czech Korunas
and Euros were converted to U.S. dollars at various pertinent dates for
pertinent periods. As our Croatian casino opened in the last part of
December 2006, its contribution to the year 2006 operational results was
not material. Thus, all discussions of operational performance and results
herein are limited to the Companys fully-owned and operated units in the Czech
Republic.
Since our inception, we have been engaged, through our
operating subsidiaries, in the acquisition, development and management of local
gaming establishments that feature live and mechanized gaming, including video
gaming devices. Our current operations occur primarily in the Czech Republic,
serving customers predominantly from Germany and Austria, and since
December 2006, the resort town of Postrana, near Split, Croatia. Competition
continues to intensify for our Czech market areas; our casino in Croatia has no
immediate competitors.
Exchange Rates
Due to the fact that the
Companys operations are located overseas, our results are subject to the
impact of fluctuations in foreign exchange rates. In May 2004, the Czech
Republic joined the European Union, but has not yet adopted the EUR currency.
Thus, the Companys operations conducted business in EURs and CZKs, the local
currency of the Czech Republic and in EURs and Croatian Kunas in Croatia.
The
impact of exchange rate fluctuations can be measured through a comparison of
the rates of exchange for these two currencies to the USD, which are depicted
on a quarterly basis, showing the trend, in the following table.
Period
|
|
|
|
USD
|
|
CZK
2006
|
|
CZK
2005
|
|
EUR
2006
|
|
EUR
2005
|
|
January through March
|
|
1.00
|
|
23.8236
|
|
22.9139
|
|
0.8319
|
|
0.7623
|
|
April through June
|
|
1.00
|
|
22.6462
|
|
23.9565
|
|
0.7965
|
|
0.7941
|
|
July through September
|
|
1.00
|
|
22.2697
|
|
24.3836
|
|
0.7845
|
|
0.8197
|
|
October through December
|
|
1.00
|
|
21.7878
|
|
24.6842
|
|
0.7760
|
|
0.8410
|
|
The balance sheet totals of the Companys foreign
subsidiaries at December 31, 2006 were converted to USDs using the
prevailing exchange rates at December 31, 2006, which are depicted in the
following table.
As Of
|
|
|
|
USD
|
|
CZK
|
|
EUR
|
|
December 31, 2006
|
|
1.00
|
|
20.8550
|
|
0.7580
|
|
Critical Accounting
Policies
Management has identified the following as the
critical accounting policy that affects our consolidated financial statements.
14
Goodwill represents the
excess of the cost of the our Czech subsidiaries over the fair value of their
net assets at the date of acquisition, which consists of only the Ceska and
Rozvadov casinos. Under Statement of Financial Accounting Standards (SFAS) No. 142,
goodwill is no longer subject to amortization over its estimated useful life;
rather, goodwill is subject to at least an annual assessment for impairment,
applying a fair-value based test. The impairment assessment requires us to
compare the fair value of our Czech Republic reporting unit, comprised of the
Ceska and Rozvadov casinos, to its carrying value (the net equity of our Company)
to determine whether there is an indication that an impairment exists. The fair
value of the Czech Republic reporting unit is determined through a combination
of recent appraisals of our Companys real property and a multiple of earnings
before interest, taxes, depreciation and amortization (EBITDA), which was
based on our experience and data from independent, third parties. During the
second quarter of 2006 and 2005, as required by SFAS No. 142, we performed
the periodic fair-value based testing of the carrying value of goodwill related
to our Czech Republic reporting unit, and determined that goodwill was not
impaired and therefore that no reporting of impairment losses was warranted in
either year.
New Accounting
Pronouncements
In June 2006, the Financial Accounting Standards
Board (FASB) issued FIN No. 48, Accounting for Uncertainty in Income Taxes
- - an Interpretation of FASB Statement No. 109. FIN No. 48 requires
that management determine whether a tax position is more likely than not to be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. Once it is
determined that a position meets this recognition threshold, the position is
measured to determine the amount of benefit to be recognized in the financial
statements. The Company will adopt the provisions of FIN No. 48 beginning
in the first quarter of 2007. We are currently evaluating the impact of
adopting FIN No. 48 on our financial condition, results of operations and
cash flows.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measures.
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, expands disclosures about
fair value measurements, and applies under other accounting pronouncements that
require or permit fair value measurements. SFAS No. 157 does not require
any new fair value measurements. However, the FASB anticipates that for some
entities, the application of SFAS No. 157 will change current practice.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company would be its
fiscal year beginning January 1, 2008. We are currently evaluating the
impact of SFAS No. 157 but do not expect that it will have a material
impact on our financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. This Statement permits entities to choose to measure many
financial assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been elected are reported
in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are currently assessing the impact of SFAS
No. 159 on our financial position and results of operations.
Results of
Operations
The following discussion
and analysis relates to the consolidated financial condition and results of
operations of the Company for the years ended December 31, 2006 and 2005.
15
Year Ended
December 31, 2006 Compared to Year Ended December 31, 2005
|
|
Year Ended
|
|
|
|
Year Ended
|
|
|
|
December 31, 2005
|
|
Change
|
|
December 31, 2006
|
|
|
|
(dollars in thousands)
|
|
Net income
|
|
|
$
|
79
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
2,967
|
|
|
|
|
|
|
Cost of revenues
|
|
|
|
|
|
|
(739
|
)
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
(84
|
)
|
|
|
|
|
|
Selling, general and administrative
|
|
|
|
|
|
|
(322
|
)
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
Foreign currency transaction gain and other
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
1,948
|
|
|
|
$
|
2,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the year ended
December 31, 2006, we posted a 12.8%, or approximately $3.0 million,
improvement on revenues of $26.2 million versus $23.2 million for the year
ended December 31, 2005. The improvement was largely the result of the
major revenue increase at our newest operating unit, Route 55, which was
slightly offset by lower live game revenue at Route 59. With the exception of
Route 55s 80% year-over-year attendance growth, the attendances at other units
dipped slightly below their 2005 levels.
Our cost of
revenues increased by $739,000 over the prior year as a result of several
factors. The incremental costs associated with the volume increases at Route 55
were the principal contributor. Other factors that also contributed to the
increase in cost of revenues included: (i) the overall increase of gaming
taxes, and specifically the hike of charity taxes from 8% to 10% on a
substantial portion of the Companys slot revenues, which, in 2006, exceeded
the 100 million CZK revenue base; (ii) greater amenity expenses related to
the Companys aggressive promotional and player benefit programs; and
(iii) higher labor costs related to quality and service enhancements in
food and beverage operations. These increases were partially offset by reduced
foreign exchange-related transactional losses and to the elimination of slot
revenue-based expenses. In 2006, our slot
lease expenses were approximately $2,316 versus $2,835 in 2005.
Depreciation and
amortization expense increased by $84,000 in 2006 versus the prior year, due
primarily to the addition of Route 55 and to the Companys new, fully-owned
slot machines.
Selling, general
and administrative expenses increased by approximately $322,000 in year 2006 in
comparison to those of 2005, in large part, as a result of the following: (i) incremental costs of operating Route
55; (ii) preopening expenses related to the Grand Casino Lav;
(iii) higher promotional expenditures to increase and retain market share
in our other units; and (iv) stock compensation expense of approximately
$51,000, for the fair value of stock options awarded to key management
employees.
Net interest
expense decreased by $120,000 in 2006 versus the prior year due mainly to
maturities of two loans: The Interest
Notes on June 26, 2006 and the lease buyback loan on the Route 59 on
December 20, 2006.
Consequently, we posted a positive net income of
approximately $2.0 million for the year ended December 31, 2006, versus a
nominal net income of $79,000 for the year ended December 31, 2005.
Business Units
The following is a discussion of how each of our
business units contributed to our results of operations for the year ended December 31,
2006.
16
Ceska, Czech Republic
2006 results were
relatively flat to 2005 as live game attendance dipped 4%, while drop per head
(DpH), the per guest average dollar value of gaming chips purchased, rose 4%.
Win percentage (WP), or the revenue retention percentage of total drop, fell
1.6 percentage points (ppts), thereby contributing to a live game revenue
reduction of approximately 7% from 2005. The decline in live game revenue was
offset by a 19% increase in slot revenue, resulting in a 1% improvement in
total revenues over the prior year. Operating expenses, as a percentage of
revenues, were up 1.6 ppts versus the same period in 2005, while overhead
expenses were flat to 2005. Consequently, 2006 unit earnings were on par with
those of 2005.
Rozvadov, Czech Republic
For the year ended
December 31, 2006, WP increased 3.9 ppts over 2005, contributing to a 1%
improvement in total revenues. As a
percentage of revenues, operating expenses fell 7 ppts from 2005, due largely
to the conversion to fixed equipment rent over slot revenue-based equipment
lease expenses for some of its slot machines and the replacement of rented slot
machines with Company-owned units. Overhead expenses saw a 2% reduction in the
current year, because of lower marketing expenses, thereby contributing to a
year over year unit earnings improvement of 60%.
Route 59, Czech Republic
2006 was a transitional
year for Route 59. The casino underwent an expansion and renovation project,
pursuant to the Companys capital improvement program, financed by a portion of
the $4.75 million Capital Raise. Although minimized by management, the
construction impact on operations was unavoidable. The presence of the 2006
FIFA World Cup matches in Germany, throughout the months of June and
July 2006, preceding the renovation, had already served to reduce the
attendance volume at the casino. The cumulative and negative impact on
attendance at this unit was greater than anticipated, specifically those of
high-stake players, which drove down DpH by 16%, despite the fact that overall
attendance was on par with the level achieved in 2005. As a result, total
revenues declined by 9% in the current year versus 2005. Customer
retention-related costs, such as gifts and giveaways, dominated operating and
overhead expenses throughout the year and following the construction period,
thereby reducing the margin to earnings.
Route 55, Czech
Republic
In its second year of operation, business at Route 55
climbed steadily, with all statistical indicators reaching double and triple
digit growth rates. Attendance posted an 80% year-to-year increase, with live
game revenue posting similar growth, while slot revenue doubled that posted in
2005. As a result, total revenues increased 81% over 2005. Moreover, operating
and overhead expenses stabilized after its first years operation in 2005,
resulting in a dramatic 300% unit earnings turnaround for the casino.
Liquidity and
Capital Resources
At December 31, 2006, we had a working capital
deficit of approximately $2.6 million versus a working capital surplus of
$161,000 at December 31, 2005, primarily as a result of weaker than
expected results in Route 59. Nevertheless, since the completion of the
extension of Route 59 casino in mid-November 2006, operational results
have improved. Management believes that the completed product will better
position Route 59 to recapture the business that it had missed in 2006 as well
as attract new business. Further,
management anticipates improvement in our cash flow in 2007, as a result of the
following major operational enhancements implemented throughout the Company in
2006: (i) purchases of a sizable number of new slot machines; (ii) successful
renegotiation of equipment leases on a large portion of our
17
existing inventory of slot machines, from a
revenue-based structure to a fixed-rent basis; and (iii) the continuation
of the growth stage of the our newest and largest casino, Route 55.
For the year ended
December 31, 2006, we had approximately $2.6 million of net cash provided
by operating activities. This was primarily a result of net income of
approximately $2.0 million, $821,000 of depreciation and amortization, $147,000
in various accrual increases, $51,000 in options expense, and a $22,000 in
interest payable, which were partially offset by increases in prepaid expenses
and other current assets of approximately $385,000 and a decrease in cash of
$123,000 resulting from changes in operational accounts payable. For the year
ended December 31, 2006, net cash used in investing activities was
approximately $5.0 million attributable to the following: (i) our capital investments of approximately
$4.0 million into equipment purchases and renovation of Route 59; (ii)
issuance of notes receivable for equipment purchases of $737,000 and $199,000
for preopening costs to Grand Hotel Lav d.o.o., in connection with the
Companys management of the Grand Casino Lav; and (iii) payments for
various deposits of approximately $488,000, which were partially offset by
approximately $408,000 from equipment leaseback. Net cash used in financing
activities of approximately $1.2 million were due to repayments of the Interest
Notes and other long-term debts related to the Route 59 building lease
purchase, the Route 55 construction loan, and to an additional $74,000 in
residual legal costs related to the $4.75 million Capital Raise.
We are also obligated under various contractual
commitments over the next five years. The following is a summary of the
five-year commitments of the Company as of December 31, 2006:
(in thousands)
|
|
|
|
Less than
|
|
|
|
|
|
After
|
|
Contractual Obligations
|
|
|
|
Total
|
|
1 Year
|
|
1-3 Years
|
|
4-5 Years
|
|
5 Years
|
|
Long-term, unsecured debt, US
|
|
$
|
1,550
|
|
|
$
|
|
|
|
|
$
|
1,550
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
Long-term debt, foreign
|
|
1,903
|
|
|
604
|
|
|
|
1,299
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
957
|
|
|
309
|
|
|
|
601
|
|
|
|
47
|
|
|
|
|
|
|
Employment agreements
|
|
550
|
|
|
550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
4,960
|
|
|
$
|
1,463
|
|
|
|
$
|
3,450
|
|
|
|
$
|
47
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management believes that its
cash resources at December 31, 2006 and anticipated cash to be provided by
2007 operations will be sufficient to fund its activities for the year ending December 31,
2007.
Off-Balance Sheet
Transactions
We have not entered into any transactions in the years
ended December 31, 2006 or 2005, which were not recorded on our balance
sheet or were recorded in amounts different than the full contract or notional
amount of the transaction.
Trend Information
Management is not aware of
any trends in the jurisdictions in which we currently operate or in those in
which we are currently studying or developing new properties that would have a
material adverse effect on our results of operations subsequent to December 31,
2006.
Foreign Exchange
Risk
While our reporting
currency is the USD, all of our consolidated revenues are denominated in EUR
while approximately 93% of consolidated costs and expenses are denominated in
CZK with the balance denominated in EUR. Substantially all of our assets are
denominated in CZK. As a result, we are exposed to foreign exchange risk as our
revenues and results of operations may be affected by fluctuations in the
exchange rate between the USD, the EUR and the CZK. We have not entered into
any hedging transactions in an effort to reduce our exposure to foreign
exchange risk.
18
OUR BUSINESS
General Description
of Our Business
Today, we operate five full-service casinos; four of
which are owned and one which is managed under contract. The four fully-owned
casinos are in the Czech Republic, which are located in Ceska Kubice (pronounced:
CHESS-ka coo-BEE-chay) (Ceska), Rozvadov (pronounced: rose-VAH-dahv)
(Rozvadov), Hate (pronounced: HAH-te-eh) (Route 59), and Dolni Dvoriste
(pronounced: DOH-nee Ja-vo-REES-tay) (Route 55), and the casino operated
under management contract is located in Podstrana, near Split, Croatia.
The Czech casinos,
which operate under the brand name American Chance Casinos (ACC), are
situated at border locations and draw the majority of their customers from
Germany and Austria. Each of the casinos showcases a theme portraying
recognizable eras of American history, including: Pacific South Seas, Chicago
in the Roaring 1920s, New Orleans in the 1930s and Miami Beach in the 1950s.
ACCs operating strategy centers on differentiating its products from the very
formal German and Austrian casinos, and as a result, management has endeavored
to create gaming environments with casual and exciting atmospheres with an
emphasis on entertainment. Further, as part of the ACC operating formula,
management strives to uphold the integrity and professionalism of its
operations as a means to dispel any concerns that customers and national and
local governments might have about the gambling industry.
On September 21,
2006, we were selected to manage the Grand Casino Lav and the InMotion
Nightclub (collectively the Grand Casino Lav) located in the newly opened Le
Meridien Lav, Split resort in Podstrana, Croatia. The management agreement with
the Grand Hotel Lav d.o.o., the property owner, provides for a 10-year
term, with optional renewal periods of five (5) years each, subject to
certain performance conditions. Our management fees consist of two
components: a basic fee, which is a
designated percentage of total gaming and nightclub revenues generated, and
incentive fees, which are based on gross operating profit of the two
operations. In addition to marketing the casino/nightclub to the hotel guests,
we will target the local market of Split, the second largest city in Croatia.
As the Grand Casino
Lav opened in the last part of December 2006, its contribution to the year
2006 operational results was not material. Thus, all discussions of operational
performance and results herein are limited to our fully-owned and operated
units in the Czech Republic.
Although our headquarters are located in New York
City, we have no current operating presence in the United States of America.
The Development of
Our Business
Our Historical
Operations. We
were incorporated in 1993 to acquire, develop and manage local gaming establishments
in the United States that utilized primarily video poker machines. In 1994 we
acquired two truckstops in Louisiana that were licensed for video poker. Four
years later, local referendums in the parishes in which our truckstops were
located amended the ordinances that permitted gaming, making such operations
illegal. In 1998, faced with a closing date of June 30, 1999 for our
Louisiana video poker facilities, we amended our operating strategy by shifting
our focus to the casino market in Europe and acquired three casinos. Two of
these casinos (plus a parcel of land upon which a third could be built) were
located in the Czech Republic and the third was located in a mountain top spa
in Zaragoza, Spain. During that period, we also entered into a joint activity
agreement relative to a fourth casino located in the Azerbaijan Republic and
signed a management contract with regard to a fifth casino located in the
Kyrgyz Republic. Since that time, the casinos in the Azerbaijan Republic and
Kyrgyz Republic were closed due to changes in local laws, we constructed and
opened an additional casino (Route 59) on the parcel of land in Hate, Czech
Republic, that was purchased in 1998, and sold our interest in the Spanish
casino.
19
Our Czech
Operations. On March 31, 1998, we consummated
a Stock Purchase Agreement with 21st Century Resorts a.s. (Resorts), an
owner-operator of two casinos, and the owner of property to build a third
casino, in the Czech Republic, and Gameway Leasing Limited and Monarch Leasing
Limited, two off-shore affiliates of Resorts which leased equipment to Resorts,
and the stockholders of Resorts. We acquired 100% of the equity interests of
Resorts, its two operating subsidiaries and all of the assets of Gameway
Leasing Limited and Monarch Leasing Limited for the purchase price of $12.6
million, including the cost of initial improvements to the acquired assets. On March 31,
1998, the Company, with the assistance of Libra Investments, Inc., Los
Angeles, California, acting as placement agent, borrowed $17.0 million from 14
sophisticated, accredited lenders (one of whom was Value Partners) in a
private placement. The loan was represented by the senior secured promissory
notes issued pursuant to the indentures by and among the Company, its operating
subsidiaries and the indenture trustee. These notes required mandatory
prepayments based upon excess cash flow generated by our subsidiary that
indirectly owned the casinos and required interest payments at the rate of 12%
per annum. The proceeds of the notes were used to pay the net acquisition costs
of, and improvements to, Resorts.
The assets acquired with the purchase of Resorts
consisted of the Ceska casino, which is located near the border with Germany,
and is patronized by Germans, and the Rozvadov casino, which is located
approximately four miles from the regions main highway, not far from the
German border and caters, as in Ceska, to a predominately German clientele. The
third asset was a parcel of land near Hate (also known as Znojmo) upon which
our third Czech Republic casino was constructed. The Route 59 casino in Hate
opened in December 1999 with 11 gaming tables and 42 slot machines. It
draws the bulk of its customers from the northern suburbs of Vienna, Austria,
and the surrounding region.
On October 15, 1999, we borrowed an additional
$3.0 million in a private placement with four sophisticated, accredited
investors (one of whom was Value Partners). This loan was also represented by
12% Senior Secured Notes which were identical in terms to the notes issued in
the March 1998 private placement. All of the notes were collateralized by
all of Resorts gaming equipment and a majority interest in the capital stock
of all of our subsidiaries. In addition to the notes issued in the October 1999
private placement, each investor in the October 1999 private placement
received a proportionate share of warrants to purchase 1,250,728 shares of our
common stock at an exercise price of $0.01 per share. The proceeds of the notes
issued in the October 1999 private placement were used to retire a $1.0
million short-term debt obligation related to the acquisition of our Spanish
casino, to make an interest payment on the March 1998 debt, and to finance
the equipping, working capital, and pre-opening costs associated with the
opening of the Route 59 casino in Hate.
At December 31, 2002, we had a nominal working
capital surplus and a stockholders deficit of $14.8 million. Further, in spite
of the conversion of $4.8 million of certain long term notes to common stock,
we remained highly leveraged and, from time to time, had been unable to pay our
interest and accounts payable obligations when they became due. We were unable
to meet our September 2000, March 2001, September 2001, March 2002,
September 2002 and March 2003 interest payments on the notes in full,
but had received waivers of default for the nonpayment of interest from Value
Partners, the majority holder of the notes, though January 1, 2004. Other
noteholders had not taken any action to date to enforce the indentures against
us. In order to operate, we were relying upon the forbearance of our
noteholders and waivers from Value Partners, which then held a controlling
57.5% of our issued and outstanding common stock and 66.6% of our long-term
debt (or $13.3 million of the $20.0 million of the outstanding principal amount
of the notes). Value Partners also owned, at that time, warrants having an
exercise price of $1.00 per share to purchase 600,000 shares of our common
stock which, in the aggregate, upon exercise, would result in Value Partners
beneficial ownership of common stock equaling 59.6% of our issued and
outstanding shares of common stock.
As a result of this financial situation, in May of
2003, we commenced an offer to the 12 sophisticated investors (including Value
Partners) that then held our notes to exchange the notes for our common stock
20
or replacement notes
having different terms than those then outstanding. In exchange for the
cancellation of that debt, we offered to issue to each tendering noteholder
22,650 shares of our common stock for each $1,000 principal amount of notes
tendered, plus additional shares of our common stock on a pro-rata basis to the
extent that if less than 100% of the principal amount of the outstanding notes
tendered for common stock, all of the 452,796,015 shares offered would be
issued in the note exchange offer. If the noteholders did not wish to tender
for shares of our common stock, they were also offered to tender for
replacement notes. Noteholders were required to choose to receive either common
stock or the replacement notes, but were not permitted to choose to receive a
combination thereof. Noteholders who agreed to tender and who had not received
certain interest payments under the notes also would receive an interest note
having a principal balance equal to such unpaid interest. All other unpaid
interest would be deemed waived by the tendering noteholders. In addition, the
Companys repayment obligations under the terms of the notes to all noteholders
who tendered their notes would terminate.
On June 26, 2003, we
completed the exchange offer and, as a result, $18.45 million of note principal
was exchanged for 452,796,015 shares of common stock and $1.55 million of note
principal was exchanged for the seven-year, unsecured, variable rate
replacement notes. In addition, approximately $2.5 million in pre-September 18,
2001 accrued and unpaid interest was converted into the three-year, unsecured,
8% interest notes and approximately $5.2 million of post-September 17,
2001 interest was waived and forgiven. The debt to equity conversion price of
approximately $0.04 per share was a product of the negotiated terms of
agreement between the Company and the noteholders, which was designed to
provide the noteholders who tendered in the note exchange approximately 90%
ownership of the Companys issued and outstanding common stock. Under the terms
of the exchange offer, the equity interests of TWCs existing stockholders were
diluted to 10% of the total shares outstanding. We received a fairness opinion
from a recognized expert that such exchange offer was fair to our stockholders
from a financial point of view. The transaction was accounted for as an even
exchange of value, with no gain or loss recognized. The exchange offer, which
had 100% participation and 92.25% in aggregate value of the notes exchanging
for common stock, both conditions of the offer, effectively reduced our
long-term liabilities (net of approximately $1.7 million of unamortized debt
discount) from approximately $27.0 million at March 31, 2003 to
approximately $5.4 million at June 30, 2003. Management believed that the
enhanced consolidated balance sheet and improved results that were a product of
the transaction put us in a better position to secure additional financing, the
proceeds from which would be used to provide us with the supplementary working
capital to preserve and enhance our existing assets and acquire new businesses.
21
Our Current
Operations
We currently operate four
casinos in the Czech Republic through our operating subsidiaries. The following
table depicts our corporate organization structure:
Trans
World Corporation
Company Structure
As
noted above, all of our casinos are operated through ACC. The following is a
brief description of each casino:
· CeskaThe Ceska
casino, which has a 1920s Chicago theme, currently has 16 gaming tables,
including seven card tables, eight roulette tables, and one electro-mechanical,
eight-position roulette machine. Through 2006, Ceska added, in aggregate, four
new video slot machines, bringing the total to the current 52. The casino
features a bar, lounge and restaurant. Visitor parking is available for
approximately 60 cars.
· RozvadovThe
Rozvadov casino, which has a South Pacific theme, currently operates 10 gaming
tables, including five card tables and five roulette tables, 30 video slot
machines. It offers a bar and restaurant and parking for 40 cars.
· Route 59Route 59
currently includes 21 gaming tables, which consist of 12 card tables, eight
roulette tables, and one electro-mechanical roulette machine. The casino also
offers among its amenities, two full bars, a lounge area and a restaurant.
Further, in July 2006, the casino added 10 new video slot machines,
bringing the total to 70 for the year ended December 31, 2006. In
January 2007, another 32 slot machines were added, bringing the total
number of slots in operation to 102. The unit recently underwent expansion and
renovation projects, the scope of which included: (i) refurbishment of the
existing space, including reception reconfiguration; (ii) expansion of the
building, including an extension of the gaming floor area;
(iii) construction of a large, centrally located stage;
(iv) introduction of a second bar; (v) introduction of New Orleans in
the
22
1930s thematic elements throughout the casino; and
(vi) expansion of the parking area to accommodate up to 220 cars.
· Route 55Route
55, ACCs largest casino to date, features a Miami Beach Streamline Moderne
style, reminiscent of Miami Beach in the early 1950s. The two-story casino
offers 21 tables, including 10 card tables, 10 roulette tables, a Slingshot
multi-win roulette, and 100 video slot machines, six of which were added in
July 2006. On the mezzanine level, the casino offers a full Italian,
Pompeii-themed restaurant with seating for 70 guests, an open buffet area, a
VIP lounge, and a VIP gaming room equipped with four gaming tables (included in
the 21 tables count).
· Grand Casino Lav
(Croatia)The Grand Casino Lav currently has 13 gaming tables, including
six roulette tables, seven card tables, two of which are in the VIP dedicated
area, 80 video slot machines, a panoramic, mezzanine bar overlooking the gaming
floor, and a full service nightclub that can accommodate up to 250 guests, and
features live acts and entertainment.
Our Business
Objectives
Our operations are all in the gaming industry. Consequently,
our senior corporate management, including several members who have extensive
experience in the hotel industry, is exploring ways to expand our Company
through the acquisition and/or development of new non-gaming business units,
while continuing to grow our existing operations. We will also seek to manage
business units that complement our existing operations, while acquisitions will
be based on evaluations of the potential returns of projects that arise and,
for certain projects, the availability of financing.
We plan to achieve
these goals by:
· Acquiring and applying for gaming licenses in new or
existing market areas. From time to time, countries (or local
jurisdictions in countries) approve casino gaming or increase the number of
casino gaming licenses they will approve. Depending on our analysis of the
situation, we may tender for a new, or apply for one of the increased, gaming
licenses in such jurisdiction when they become available.
· Expanding in our existing market through acquisition. We
continually monitor the Czech market for special situations that would permit
us to expand our in-country ACC franchise and allow us, among other things, to
better allocate our advertising dollars over a larger number of casinos. The
casinos that have come onto the market in the past have typically been ones
that are owned by individuals who want to exit the business (such as the people
who sold Resorts to us in 1998), small to medium-sized companies that may be
having financial or regulatory issues, larger companies that want to dispose of
a gaming unit for various reasons, all of which could present an acquisition
opportunity for us.
· Acquiring out of market casinos or hotels. We
constantly analyze potential sale opportunities out of our market to determine
the viability of such a purchase. We get leads from brokers, banks,
word-of-mouth, and other professionals in the industry as well as from sellers
themselves via the media or in-person contacts. Our ability to purchase is
constrained by our current capital position. However, we have received
indications from lenders of their willingness to lend on real estate that would
collateralize a large portion of the purchase money debt. Notwithstanding the
above, we will not pay what we consider to be a substantial premium over market
value for any such property. In fact, we look for situations where the property
is selling for a discount from present fair market value. There can be no
assurance, however, that any property we buy will be at or below its then fair
market value, or that we will make an offer on, or consummate a purchase
contract for, any such property.
· Engaging in management contracts. In a situation
where we cannot or do not wish to, for various reasons, own or lease the
property, we have and intend in the future to continue to, bid on a
23
management contract to
operate the casino or hotel for the property owner in exchange for a management
fee, which is typically a percentage of gross casino or hotel revenue, plus a
percentage of its earnings before interest, taxes, amortization and
depreciation.
· Promoting dynamic growth of our existing casinos. Our
existing operations in the Czech Republic can be upgraded and expanded when the
local markets are capable of accommodating such growth. In 2006, we have
upgraded much of our mechanized gaming equipment and have renovated and
expanded our Route 59 casino.
Management is now focused
on securing additional financing to acquire and develop new business units.
Additionally, the Company is involved in several development projects,
including the potential development of hotels in Hate and in Folmava, both in
the Czech Republic, and the potential acquisition of existing hotels in Europe.
There can be no assurances that managements plans will be realized.
Marketing
We market our casinos under the American Chance
Casinos brand and not under the Trans World Corporation name. Our marketing
occurs on the local level, although some of our marketing relates to all ACC
business units. We focus our marketing efforts primarily on our potential and
existing clientele who reside in Germany and Austria, and with the Grand Casino
Lav, the hotel guests, local residents, and the neighboring countries. Outside
the casinos, we utilize print, billboard, bus, radio and video-wall advertising
in those countries. In Croatia, we receive, in addition to our own marketing programs,
the unique partial benefit of a larger marketing presence via the Le Meridien
international brand recognition and their marketing plans.
In the year ended
December 31, 2006, we boosted our marketing and promotional programs in an
ongoing effort to secure and enhance our competitive position in the markets
that we serve. The casino event calendars were broadened to attract new
players, while focusing on higher player-incentive games to retain existing
players. In addition, we continued sponsorships of several amateur athletic
teams and were a benefactor in several community and social projects during the
year, as a way to further promote our image and positive contribution to the
communities in which we operate. We also continued our popular, ethnic-themed
and holiday-related parties, which feature live entertainment, raffles and
complimentary grand buffets. Further, we aggressively targeted key cities in
our media campaigns, most notably Vienna and Linz in Austria, and Regensburg,
Germany as well as the areas surrounding these cities.
Regulation and
Licensing
The ownership and
operation of casino gaming facilities are subject to extensive governmental
regulations. We are required to obtain and maintain gaming licenses from the
Ministry of Finance of the Czech Republic. In Croatia, we operate under the
gaming license of the owner of Grand Casino Lav. The limitation, conditioning,
suspension, revocation or non-renewal of gaming licenses, or the failure to
reauthorize gaming would materially adversely affect our gaming operations. In
addition, changes in the law that restrict or prohibit gaming operations could
have a material adverse effect on our financial position, results of operations
and cash flows.
Statutes and regulations
can require us to meet various standards relating to, among other matters,
business licenses, registration of employees, floor plans, security, background
investigations of licensees and employees, historic preservation, building,
fire and accessibility requirements, payment of gaming taxes, and regulations
concerning equipment, machines, tokens, gaming participants, and ownership
interests. Civil and criminal penalties can be assessed against us and/or our
officers or directors to the extent of their individual participation in, or
association with, a violation of any of the Czech gaming statutes or
regulations. Management believes that we are in material compliance with
applicable gaming regulations in the Czech Republic and Croatia.
24
We are also subject to EU national and regional safety
and health, employment and environmental laws and regulations that apply to our
casinos in the Czech Republic. We believe that we are in material compliance
with such laws and regulations.
In 1998, the Czech Republic House of Deputies passed
an amendment to the gaming law, which restricted foreign ownership of casino
licenses. In response, the Company restructured its subsidiaries and Czech
legal entities to comply with the amendment and was subsequently granted a 10-year
gaming license that expires in 2009. There can be no assurance that the
authorities in the Czech Republic will renew our gaming license when it expires
or will not amend the gaming law as it pertains to foreign ownership of casino
licenses. In the event that the gaming laws are amended in the future, there
may be a material adverse effect on our future profitability and operations.
Further, there has been increased competition in the areas where we operate
because local municipalities no longer have control over the issuance of casino
licenses, thereby effectively eliminating the exclusivity we had when we
acquired the casinos.
In the future, we may seek
the necessary licenses, approvals and findings of suitability in other
jurisdictions where the Company plans to conduct business. However, there can
be no assurance that such licenses, approvals or findings of suitability will
be obtained or will not be revoked, suspended or conditioned or that the
Company will be able to obtain the necessary approvals for its future
activities.
Gaming Taxes
In conformity to the
European Union (EU) taxation legislation, when the Czech Republic joined the
EU in 2004, its value added tax (VAT) increased from 5% to 19%, effective
January 2004, for all intra-EU generated purchases. All non-EU generated
purchases were impacted by identical VAT increases, beginning in May 2004.
Unlike in other industries, VATs are not recoverable for gaming operations.
For the year ended December 31, 2006, our gaming
taxes averaged approximately 16.0% of gross gaming revenues, which comprised of
live (table) games and slot games revenues. For live games revenue, the
applicable taxes are: (i) a 1% state supervision tax; (ii) a 10% administration
tax; and (iii) a charity contribution (tax) according to the formula
below, net of the aforementioned taxes totaling 11%. For slot games revenue,
the applicable tax is the charity tax, net of local administration and
licensing fees.
Charity tax rates apply according to the following
table:
|
|
Net of applicable gaming
taxes and fees, in Czech
Koruna
|
|
|
|
Up to
50 million
|
|
Up to
100 million
|
|
Above
100 million
|
|
Charity tax rates (1)
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
applicable charity tax rate is determined separately on annual live game and
slot game revenues, net of applicable gaming taxes and fees as generated and
reported by each Czech legal entity. For the year ended December 31, 2006,
one of the Companys slot subsidiaries, LMJ Slots s.r.o.s slot revenue
exceeded 100 million CZK (approximately $4 million) for the first time and was
subject to the 10% charity tax.
There can be no assurances
that tax rates, fees, or other payments applicable to our gaming operations
will not be increased in the future.
Market Overview and
Competition
Casinos in Germany and Austria have formal atmospheres
and an air of exclusivity, while ACCs casinos offer relaxed but exciting and
informal atmospheres, which have become a desirable alternative.
25
Further, ACC has established itself as a reputable
casino company in the Czech Republic through its high customer service
standards, professionalism, and strict adherence to all local gaming
regulations.
We acquired two of
our casinos, at Rozvadov and Ceska Kubice, in the Czech Republic in
March 1998. At the time, they were the only casinos in the local market
areas. Prior to December 1998, local municipalities were empowered to
grant casino licenses in their regions. However, after 1998, amendments to the
Czech gaming legislation removed the licensing right from the local
governments, which effectively eliminated exclusivity. Since this change, four
casinos have opened in Folmava, Czech Republic, which operate in direct
competition with our Ceska casino. In early 2000, in response to increased
competition from casinos located in the Czech Republic, the German government
issued 12 new gaming licenses in the Bavarian region of Germany. Two of the
Bavarian casinos that went into operation in spring of 2000 as a result of the
additional licenses have operated in direct competition with TWCs casinos in
Ceska Kubice and Rozvadov. Further, in June 2003, a new competitor casino
opened across the street from the Rozvadov casino. Route 59 currently has two
competitors: one remaining from four that were in existence two years ago and a
new competitor, which is similarly located in the former duty free zone between
the Czech and Austrian border posts. Our newest casino, Route 55, which opened
in December 2004, has two competitors.
The Grand Casino Lav, which had its soft opening on
December 22, 2006 and held its gala grand opening on January 13,
2007, targets the immediate region surrounding Split, a resort destination and
a United Nations Educational, Scientific and Cultural Organization
(UNESCO)-recognized city. The casino conducts its gaming activities in the
Euro (EUR) currency, and its food and beverage operations in Kunas (HRK),
the local Croatian currency. The Grand Casino Lav has no current competitors in
close proximity
Seasonality
Our casinos are open year round. Customer traffic is
heavier on long German, Austrian and/or Croatian weekends and on holidays.
Extreme winter weather in the Czech Republic negatively impacted guest
attendance for short periods of time in early 2006 and 2005.
Employees
As of December 31,
2006, we had a total of 564 employees, including 126 in its casino in Ceska, 72
in its casino in Rozvadov, 184 in Route 59, 161 in Route 55, 16 in its shared
services office in the Czech Republic, and five in our headquarters in New York.
We managed 92 employees at the Grand Casino Lav. We believe that our employee
relations are excellent.
Locations
Corporate Offices. Our corporate offices are located
at 545 Fifth Avenue, Suite 940, New York, New York, pursuant to the
renewal of its five-year lease at the base rental rate of $5,014 per month, escalating
to $5,420 per month effective April 2008. The lease expires in March 2010.
Czech Republic. We lease the casino facility in
Ceska Kubice. The renewable building lease expires in 2010. We also own a parcel
of land in Folmava, Czech Republic, in the same region as our Ceska casino.
We lease accommodations for our staff in each of Ceska
Kubice, Hate (Route 59) and Dolni Dvoriste (Route 55).
In Rozvadov, we own the
casino building and the adjacent facility for staff accommodations. The casino
is located on the first floor of a two-story building, with the second floor
providing administrative offices. Staff accommodations can house approximately
30 employees.
26
In Hate, we own the casino building and the
surrounding land.
In April 2002,
we acquired a parcel of land in Dolni Dvoriste, Czech Republic. On this parcel,
we constructed our fourth and largest casino, the 199,154 square foot Route 55,
which was completed in December 2005. The casinos construction was
financed, in part, through a 60 million CZK (or approximately $2.4 million
using 2005 year-end exchange rates), 5.95% interest per annum, 58-month
term loan with GE Capital Bank a.s. The loan is collaterized by the land,
building, furniture, fixtures and equipment in Dolni Dvoriste and by our land
in Folmava.
Croatia. We operate the Grand Casino Lav
under a 10-year management contract, with optional renewal periods of
five (5) years each, subject to certain performance conditions. The casino
and nightclub is located in the Le Meridien Lav resort hotel in Podstrana, near
Split, Croatia.
Intellectual
Property Rights
We rely primarily on confidentiality agreements and
trade secrets laws to protect our intellectual property. Our Code of Ethics for
our executive officers requires that they affirmatively agree to take all
reasonable measures to protect the confidentiality of our non-public
information and that of our customers. We have registered our trademark on our
ACC brand in the Czech Republic and Croatia and in several other European
countries in which we may operate in the future. We have also registered the
following Internet domain names: transwc.com, american-chance-casinos.com and acc.cz.
Legal Proceedings
We are often subject to various contingencies, the
resolutions of which, we believe will not have a material adverse effect on our
consolidated financial position or results of operations. We are not involved
in any other material pending litigation as of the date of this prospectus.
DIRECTORS AND
EXECUTIVE OFFICERS
The
following table provides information with respect to each of our directors and
each executive officer:
Name
|
|
|
|
Age
|
|
Position in the Company
|
|
Director or Executive Since
|
Rami S. Ramadan
|
|
57
|
|
Chief Executive Officer,
Chief Financial Officer, President and Director
|
|
1999
|
Julio E. Heurtematte, Jr.(1)
|
|
71
|
|
Director
|
|
1998
|
Malcolm M.B. Sterrett(1)
|
|
64
|
|
Director
|
|
1998
|
Geoffrey B. Baker(1),(2)
|
|
57
|
|
Director
|
|
1999
|
Timothy G.
Ewing(1)
|
|
46
|
|
Director
|
|
2004
|
(1) Member of each of the
Audit, Nominating and Compensation Committees of the board of directors.
(2) Mr. Baker, who was
appointed to a fill a vacancy on the board of directors on December 22,
1998, resigned from his position on May 13, 1999 and rejoined the board on
August 4, 1999.
The following provides information regarding each of
our directors principal occupation for at least the past five years.
Rami
S. Ramadan. Mr. Ramadan
has served as CEO/CFO since July 12, 1999 and as President since August 2000.
His most recent prior position had been Executive Vice President of Finance for
Ian Schrager Hotels from November 1997 to July 1999. Prior to that, Mr. Ramadan
held senior financial
27
positions with Hyatt
Hotels from January 1994 to November 1997, Euro Disney from October 1990
to December 1993 and Meridien Hotels from September 1975 to September 1990.
Julio E. Heurtematte, Jr. Mr. Heurtematte
is a private investor. Since 1989 he has also been a consultant, specializing
in international projects, trade and investments. From 1963 to 1989 Mr. Heurtematte
served with the Inter-American Development Bank in several capacities, the last
as Deputy Manager for Project Analysis.
Malcolm M. B. Sterrett. Mr. Sterrett
is a private investor. From 1989 to 1993, he was a partner at the law firm of
Pepper Hamilton & Scheetz, in Washington, D.C. From 1988 to 1989, he
served as General Counsel to the U.S. Department of Health and Human Services
and from 1982 to 1988 he was a Commissioner on the U.S. Interstate Commerce
Commission. Before that, he was Vice President and General Counsel to the
United States Railway Association and served as Staff Director and Counsel to
the U.S. Senate Committee on Commerce, Science and Transportation. Until
August 2006, Mr. Sterrett had served as a member of the board of
directors as well as on certain board committees of Telos Corporation.
Geoffrey B. Baker. Mr. Baker is a private
investor. Since 1983 has been a partner in a
private investment firm and a member of various corporate and civic boards. A
graduate of Stanford University and Georgetown University Law Center,
Mr. Baker previously served as Legislative Director to U.S. Senator Lowell
P. Weicker, Jr., and as Professional Staff Member on the U.S. Senate
Committee on Commerce, Science and Transportation.
Timothy G. Ewing. Mr. Ewing has been a director
since June 2004. Mr. Ewing, a Chartered Financial Analyst, is the
managing partner of Ewing & Partners and the manager of Value
Partners, Ltd., a private investment partnership formed in 1989, and of the
Endurance Partnerships, formed in 2001. Mr. Ewing sits on the board of
directors of Cherokee, Inc. (NASDAQ: CHKE) in Van Nuys, CA since
1997. He is the chairman of the board of Harbourton Capital Group (OTC:
HBTC) in McLean, VA and has served on its board of directors since 2000. In
addition, he is immediate past chairman and an executive board member of
the Dallas Museum of Nature & Science, serves on the board
of directors of The Dallas Opera, the board of trustees of the Baylor
Healthcare System Foundation, and the advisory board of the University of
Texas at Dallas Holocaust Studies Program.
Information about
the Board and its Committees:
Our Board of
Directors, which is chaired by Mr. Sterrett in a non-executive role,
manages the business and affairs of the Company. The Board holds biweekly
conference calls and meets on an as-needed basis. The Board has established
several committees, described below, which also meet on an as-required basis
during the year. The Board held 21 conference calls, met three times in person
and conducted business by written consent twice during the Companys fiscal
year ended December 31, 2006. Each director of the Company attended at
least 80% of the total number of meetings of the Board or meetings of
committees of the Board during the year ended December 31, 2006 and the
average attendance was 90%. All directors were present at the 2006 Annual
Meeting of Stockholders.
The board of
directors has established the following committees:
· Audit CommitteeThe Audit Committee
reviews and approves internal accounting controls, internal audit operations
and activities, the Companys annual report and audited financial statements,
the selection of our independent auditors, the activities and recommendations
of our independent auditors, material changes in our accounting procedures, our
policies regarding conflicts of interest and such other matters as may be
delegated by the Board. The Audit Committee, composed of Mr. Baker, the
Committees Chairman, Messrs. Heurtematte, Sterrett and Ewing, all non-employee,
independent directors, met once and conduced business by consent once in 2006.
Additionally, the Committees Chairman conferred four times via telephone with
the committee members regarding audit matters throughout 2006.
28
· Compensation
CommitteeThe Compensation Committee sets the compensation for our
executive officers and sets the terms of grants of awards under the 2004 Equity
Plan and any other equity-based compensation plans adopted by the Company. The
Compensation Committee, composed of Mr. Heurtematte, the Committees
Chairman, Messrs. Baker, Sterrett and Ewing, met once in 2006 and
conducted business by consent three times in 2006.
· Nominating
CommitteeThe Nominating Committee has the responsibilities set
forth in its Charter, including recommending Board nominees, determining the
qualifications for such nominees and assisting the Board of Directors in
interpreting and applying the Companys Corporate Governance Guidelines. The
Nominating Committee is composed of Mr. Ewing, its Chairman, Messrs. Baker,
Heurtematte and Sterrett, and met once during 2006.
Compensation
Discussion and Analysis
Overview of Compensation
Philosophy and Program. Our compensation philosophy is to
provide compensation to its executive officers that is competitive in the
marketplace in order to attract and retain qualified and experienced officers.
The compensation of the Companys principal executive officer, including the
various components of such compensation, is determined by the Compensation
Committee. The Committee consists solely of non-employee directors who meet all
applicable requirements to be independent of management. In addition, the
Committee uses, from time to time, an independent outside consulting firm that
provides information regarding the compensation paid by the Companys peer
group, as described below.
When setting the compensation of its principal
executive officer, the Committee generally targets compensation which is
comparable with our Companys peer group with respect to each of our Companys
components of compensation. The compensation our Company provides to its
executive officer primarily consists of the following:
· annual base salary,
· annual cash bonus,
· stock options,
· restricted stock awards to
a lesser extent and
· other forms of compensation
as approved by the Committee.
Since 1999, we has
implemented various stock option and restricted stock plans in order to more
closely align the interests of our directors and executive officer with our
stockholders. Each of these plans was approved our stockholders. Grants of
stock options are made to our executive officer on an exceptional basis and, to
a lesser extent, grants of restricted stock were made in 2004 to our executive
officer both as a reward for past service as well as to provide an incentive
for future performance. In addition, equity compensation has become a more
significant part of our executive compensation structure due to our goal of
linking the executive compensation to the achievement of our Companys business
strategy and goals.
We also provide to
certain of its key management employees, including our executive officer, a
401(k) retirement plan, with a voluntary employer-matching contribution of
60 cents for each employee dollar contributed.
We also offer
various fringe benefits to certain of our key employees, including our
executive officer, including group policies for medical, dental, life,
disability and accidental death insurance. The executive officer receives the
use of a Company-leased automobile. The Committee believes such benefits are
appropriate and assist such officers in fulfilling their employment
obligations.
29
Independent Compensation
Committee. The
Committee, composed entirely of independent directors, administers the
Companys executive compensation program. The members of the Committee,
Messrs. Geoffrey B. Baker, Timothy G. Ewing, Julio E.
Heurtematte, Jr., Malcolm M.B. Sterrett, meet all of the independence
requirements under applicable laws and regulations, including the listing
requirements of the National Association of Securities Dealers Automated
Quotations (Nasdaq) stock market. None of the members is a current or former
officer or employee of our Company or any of its subsidiaries or has any
separate business relationship with our Company. The role of the Committee is
to: (i) oversee our Companys compensation and benefit plans and policies;
(ii) administer its stock benefit plans (including reviewing and approving
equity grants to executive officers); and (iii) review and approve
annually all compensation decisions relating to the principal executive
officer, Mr. Rami S. Ramadan, who serves as President, Chief Executive
Officer and Chief Financial Officer of our Company, as set forth in the Summary
Compensation Table (the named executive officer).
The Committee is
committed to high standards of corporate governance, as embraced most notably
in the Sarbanes-Oxley Act of 2002 and the various regulations implementing the
letter and spirit of that statute. The Committees Charter reflects the
foregoing responsibilities and commitment, and the Committee and the Board
periodically reviews and revises the Charter as appropriate. The full text of
the Compensation Committee Charter is available upon written request to our
Companys Secretary. The Committees membership is determined by the Board. The
Committee held one meeting in 2006 and conducted business by consent three
times in 2006.
Even prior to the
recent intensified interest in corporate governance, the Committee adhered to
sound governance principles and practices. The Committee has typically
exercised exclusive authority over the compensation paid to the principal
executive officer, while deferring, with respect to the other key management
employees, to the discretion of the executive officer, including not only the
amount and type of awards granted to executives under our Companys stock
option and restricted stock plans, but also on the issues of executive
salaries, bonuses, retirement and severance arrangements, and other benefits.
As a matter of philosophy, our Company and the Committee have been committed to
creating a compensatory structure for executives that is simple and readily
comprehensible to investors. The types of compensation we offer our executives
remain within the traditional categories: salary, short and long-term incentive
compensation (cash bonus and stock-based awards), standard executive benefits,
and retirement and severance benefits. We do not provide executives with
excessive or exotic perquisites. We also do not make loans to executives or
their families or families businesses. We do not permit our executives to
receive any income or gain from affiliated transactions or arrangements with
our Company, a major concern addressed by the new corporate governance laws and
regulations.
The Committee
recognizes the importance of maintaining sound principles for the development
and administration of compensation and benefit programs, and has taken steps to
significantly enhance the Committees ability to effectively carry out its
responsibilities as well as enhance the link between executive pay and
performance. Examples of actions that the Committee has taken include
(i) holding executive sessions of the Committee without Company management
present, (ii) aligning compensation structures based on targeting average
competitive pay of peer groups, as advised by its outside consultants, and (iii) aligning
the relative mix of stock options and restricted stock awards to increase the
importance of long-term incentives.
30
General Compensation Philosophy. The Committee believes that
compensation paid to executive officers should be closely aligned with the
performance of our Company on both a short-term and long-term basis, and that
such compensation should assist us in attracting and retaining key executives
critical to its long-term success. The compensation of executive officers is
structured to ensure that a significant portion of an executives compensation
will be directly related to our Companys corporate performance and other
factors that directly and indirectly influence shareholder value. To that end,
it is the view of the Board that the total compensation program for executive
officers should consist of the following:
· Salaries;
· Annual cash bonus awards;
· Long-term incentive
compensation consisting of a mixture of stock options and restricted stock
awards; and
· Certain other benefits.
The overriding
philosophy in setting corporate goals is to ensure that the interests of senior
management are aligned with the interests of stockholders. The Committee
believes that, over time, the financial performance of the Company is reflected
in the value of its stock and that internal results, such as financial
performance, and external results, such as stock price, ultimately move in a
complementary fashion. In particular, the Committee believes that the most
critical performance measures which provide an accurate gauge of managements
success in implementing the Companys strategy are return on average equity and
diluted earnings per share. The executive officers annual discretionary bonus
is tied to financial performance (internal results), while other elements,
specifically stock options and the ultimate value of restricted stock awards,
are tied to stock performance (external results). Under both considerations,
financial performance and stock performance, the emphasis is on steady but
consistent progress over time, achieved through careful execution of a
well-designed business strategy. The Committee believes this formula has worked
well for the Company.
Our financial
performance on a period-to-period basis is principally reflected in salary adjustments
and cash bonuses. The Committee uses these elements of compensation to provide
incentives to executives to achieve continuous, near-term results. Executives
stock-based compensation, on the other hand, is focused on achievement of
long-term success. As is true of most publicly traded entities, our stock
performance fluctuates over time, typically more so than does our financial
performance. However, over time, the Committee believes that the return to
stockholders investing in our stock, including any dividend payout, is a good
indicator of corporate performance. Stock-based awards are thus a way to link
executive compensation to long-term performance.
In 2005, we granted
stock options, with a 4-year vesting period, to Mr. Ramadan and, in
2006, stock options which vest over a 3-year periods from the date of
grant were granted to certain other key employees. This structure reinforces
the executive and key employees incentive to seek long-term growth in stock
value through strong corporate performance. In addition, we have never
re-priced stock options downward or exchanged new lower priced options for
outstanding higher priced options.
In determining the
overall amounts and types of executive compensation, the Committee weighs not
only corporate performance measures but personal factors as well, including
commitment, leadership and teamwork. The Committee also considers executive
compensation practices of our competitors and peers, when appropriate. It is
the intent of the Committee that generally salaries be competitive with its
competitors and peers set.
Role of the Executive
Officer and Management. The
chief executive officer provides recommendations to the Committee on matters of
compensation philosophy, plan design and the general guidelines for executive
officers compensation. These recommendations are then considered by the
31
Committee. The
chief executive officer generally attends Committee meetings but is not present
for executive sessions or for any discussion of his own compensation.
Tax Deductibility of Pay. Section 162(m) of
the Internal Revenue Code of 1986, as amended (the Code), places a limit of
$1.0 million on the amount of compensation that we may deduct in any one year
with respect to each of its five most highly paid executive officers. There is
an exception to the $1.0 million limitation for performance-based compensation
meeting certain requirements. Stock options are performance-based compensation
meeting those requirements and, as such, are fully deductible. Service-based
only restricted stock awards are not considered performance-based compensation
under Section 162(m) of the Code.
To date,
Section 162(m) has not affected our ability to deduct the expense of
the executive compensation paid. To maintain flexibility in compensating
executive officers in a manner designed to promote varying corporate goals, the
Committee has not adopted a policy requiring all compensation to be deductible.
Salaries. With the exception of the Chief
Executive Officer, the salaries of the key management employees are reviewed on
an annual basis, as well as at the time of a promotion or other change in
responsibilities. Increases in salary are based on an evaluation of the
individuals performance and level of pay. Merit increases normally take effect
in January of each year.
For 2006, pursuant
to his 2.5-year employment agreement effective July 1, 2005, the
base annual salary for the named executive officer was $400,000. Base salary is
considered in conjunction with the short-term annual bonus component of the
Companys executive compensation program.
Bonuses. In addition to the 2006 Profit Sharing Plan (see
below), a discretionary cash bonus for the executive officer is determined by
the Compensation Committee, on an annual basis, where applicable. The amount of
the bonus is based on the Companys overall performance as well as an
evaluation of the individuals performance. In 2006, the Committee did not
announce a bonus for the named executive officer. (See Subsequent Event below)
Long-Term Compensation. The Committee believes that, from a motivational
standpoint, the use of stock-based compensation has contributed to our
financial performance, eliciting maximum effort and dedication from its
executive officers. The long-term incentive compensation portion of our compensation
program primarily consists of grants of stock options and, to a lesser extent,
restricted stock awards under our stock incentive and option plans. These
grants and awards are designed to provide incentives for long-term positive
performance by the executive and other key management employees and to align
their financial interests with those of our stockholders by providing the
opportunity to participate in any appreciation in the stock price of our Common
Stock which may occur after the date of grant of stock options or restricted
stock awards.
Under the stock
incentive plans, the Committee has discretion in determining grants of stock
options and restricted stock awards to executive officers, including the
timing, amounts and types of awards. In the case of individual executives, the
Committees award decisions are based in part on corporate performance.
The exercisability
of options and the vesting of restricted stock awards depend upon the executive
officer continuing to render services to the Company. In addition, our 2004
Equity Plan provides that awards may be made based upon specified performance
goals. All options granted under our stock option plans must have an exercise
price at least equal to the market value of the common stock on the date of grant.
Options may be exercised only within a (1) one-year period after the
optionees departure from our Company. Restricted shares awarded carry dividend
rights, if paid, and voting rights from the date of grant if the vesting is
time-based only. If any restricted stock awards were to be granted subject to
the
32
achievement of performance criteria, then voting
rights would not exist with respect to shares subject to the award until the
performance criteria is satisfied and the shares vest.
In the past, our long-term
incentive compensation has primarily consisted of stock options, with
restricted stock awards being granted at a significantly lesser rate. TWC
emphasized stock options primarily for two reasons. First, prior to the
adoption of Financial Accounting Standards (FAS) No. 123(R), the
granting and vesting of stock options did not result in any financial statement
expenses, whereas restricted stock awards had to be expensed over the vesting
period. Second, because the exercise price of all of our stock options equaled
the fair market value of our Common Stock on the date of grant, the executives
only benefit from stock options if the market value of our Common Stock
increases after the date of grant. By comparison, restricted stock awards have
some value to the recipients of the awards even if the market value of the
stock declines after the date of grant.
With the adoption of FAS No. 123(R), all stock
options are now required to be expensed over the applicable vesting period. In
addition, an increasing number of companies are using restricted stock awards,
or a combination of restricted stock awards and stock options. The Committee
may consider granting restricted stock awards to a greater extent in the
future.
Stock Options
In determining the size of stock option grants to
executive officers, the Committee considers our financial performance against
the strategic plan as attributed to executive officers. In this regard, the
Committee granted stock options to Mr. Ramadan, the Chief Executive Officer,
in July 2005, as part of his employment contract renewal. Mr. Ramadan
was granted seven-year options to purchase an aggregate total of 175,000
shares, of which 105,000 remain unvested, of our Common Stock at the following
exercise prices:
At
|
|
|
|
Price per share
|
|
July 1, 2005
|
|
|
$
|
2.80
|
|
|
January 1, 2006
|
|
|
$
|
2.88
|
|
|
July 1, 2006
|
|
|
$
|
2.97
|
|
|
January 1, 2007
|
|
|
$
|
3.06
|
|
|
July 1, 2007
|
|
|
$
|
3.15
|
|
|
January 1, 2008
|
|
|
$
|
3.25
|
|
|
July 1, 2008
|
|
|
$
|
3.34
|
|
|
January 1, 2009
|
|
|
$
|
3.44
|
|
|
July 1, 2009
|
|
|
$
|
3.55
|
|
|
January 1, 2010
|
|
|
$
|
3.65
|
|
|
July 1, 2010
|
|
|
$
|
3.76
|
|
|
January 1, 2011
|
|
|
$
|
3.88
|
|
|
July 1, 2011
|
|
|
$
|
3.99
|
|
|
January 1, 2012
|
|
|
$
|
4.11
|
|
|
33
These options will vest cumulatively as follows, if
Mr. Ramadan is employed by TWC at the time of vesting:
At
|
|
|
|
Number Vested
|
|
Cumulative Number
Vested
|
|
July 1, 2005
|
|
|
35,000
|
|
|
|
35,000
|
|
|
July 1, 2006
|
|
|
35,000
|
|
|
|
70,000
|
|
|
July 1, 2007
|
|
|
35,000
|
|
|
|
105,000
|
|
|
July 1, 2008
|
|
|
35,000
|
|
|
|
140,000
|
|
|
July 1, 2009
|
|
|
35,000
|
|
|
|
175,000
|
|
|
Accordingly, these stock options will have value only
if the market price of the common stock increases after that date.
Restricted Stock
Awards
Under our 2004
Equity Plan, the Committee is authorized to grant share awards, which are a
right to receive a distribution of shares of common stock. Shares of common
stock granted pursuant to a share award are in the form of restricted stock
which vests upon such terms and conditions as established by the Committee. The
Committee determines which officers and key employees will be granted share
awards, the number of shares subject to each share award, whether the share
award is contingent upon achievement of certain performance goals and the
performance goals, if any, required to be met in connection with a share award.
Non-employee directors are not eligible to receive share awards. Under the
amended 2004 Equity Plan, the Committee has the discretion to grant to any
participant annually up to 250,000 shares of Common Stock and to determine
whether to include a one-year vesting requirement for any future grants awarded
under the 2004 Equity Plan to any of our employees.
Pursuant to his renewed employment agreement and the
2004 Equity Plan, Mr. Ramadan was granted 75,000 shares of restricted
Common Stock that vest cumulatively, beginning with the quarter ended
September 30, 2005, as follows:
Number
|
|
Cumulative
Number
Vested
|
|
When Vested
|
|
|
25,000
|
|
|
25,000
|
|
When the trailing twelve
months (TTM) earnings per share from TWCs continuing operations for any
two (2) consecutive fiscal quarters (TTMEPS) is equal to or exceeds
$0.45 for the first time.
|
|
|
|
25,000
|
|
|
50,000
|
|
When TTMEPS is equal to
or exceeds $0.60 for any two (2) consecutive fiscal quarters ended for
the first time.
|
|
|
|
25,000
|
|
|
75,000
|
|
When TTMEPS is equal to or exceeds $0.75 for any two (2) consecutive
fiscal quarters ended for the first time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All unvested
options and unvested restricted stock granted hereunder shall, automatically
and without any further action on the part of Mr. Ramadan or any members
of the Compensation Committee, terminate upon the effective date of the
termination or expiration of his employment agreement, except that all unvested
options and unvested restricted stock granted hereunder shall, automatically
and without any further action on the part of any person, vest to
Mr. Ramadan upon the closing date of a change of control of the Company.
All such vested options and restricted stock must be surrendered or otherwise
converted into cash or securities of the acquiror or exercised as required or
permitted by the terms and conditions of the change of control documents. Any
extension of the terms of his employment agreement
34
beyond December 31, 2007 shall not result in the
extension of any option or stock grant vesting or exercise periods set forth
above. As of December 31, 2006 there were no shares of restricted stock
vested.
Stock Ownership
Guidelines. The
Company has not established any formal policies or guidelines addressing
expected levels of stock ownership by the named executive officer or for other
executive officers. However, this matter remains under consideration.
Additional Components of Executive Compensation. As part of the renewal of the named executive
officers employment agreement, the named executive officer and the Company
amended the change in control provisions therein. The purpose of these
provisions is to retain, for the benefit of the Company, the talents of this
highly skilled officer whose services are integral to the development and
implementation of our business. This agreement, as discussed below, provides
for severance benefits in the event of the termination of the executives
employment under certain circumstances, or in the event of the occurrence of
certain events. The included severance payments are intended to align the named
executive officers and the stockholders interests by enabling the named
executive officer to consider corporate transactions that are in the best
interests of the stockholders and other constituents of the Company without
undue concern over whether the transactions may jeopardize the named executive
officers own employment or impose a financial hardship on him. The grounds
under which severance payments are triggered in the employment and change in
control provisions of Mr. Ramadans employment agreement are similar to,
or the same as, those included in many employment agreements for senior executive
officers of comparable gaming companies.
Deferred
Compensation Plan
On May 17,
2006, the Compensation Committee of the Board unanimously approved and adopted
TWCs Deferred Compensation Plan (the Deferred Plan), which provides certain
key employees and non-employee directors the opportunity to elect 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
ERISA Sections 201(2), 301(a)(3) and 401(a)(1) and the Deferred Plan
shall at all times satisfy Section 409A of the Code. The unfunded Deferred
Plan obligations are payable only in the form of common stock upon the earlier
of: (i) a designated, in-service
distribution date which must be a minimum of three (3) years from the year
of the first deferral; (ii) separation of employment;
(iii) disability; (iv) change in control; or (v) death. A
participants 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 (2) and a maximum of five (5) installments) as may be
directed by the participant in his or her election form.
2006 Profit Sharing
Plan
The 2006 Profit
Sharing Plan was approved by the Compensation Committee of the Board on
August 2, 2006 and is subject to conditions outlined in the Deferred Plan.
The 2006 Profit
Sharing Plan permits designated key management employees (KME) to share in
the profits of the Company. The profit sharing pool will be calculated based on
a graduated scale of the attainment of consolidated year-end net income before
taxes versus the annual budget and the maximum sum to be distributed from that
pool is set at 30% of the aggregate of the annual salaries of the KMEs. Each
KME is required, pursuant to the provisions of the 2006 Profit Sharing Plan, to
defer 20% of his or her annual profit sharing award, if attained, in accordance
with the Deferred Plan described above.
35
Compensation
Committee Interlocks and Insider Participation
No member of the
Compensation Committee has served as an officer or employee of the Company at
any time. None of our executive officers serve as a member of the compensation
committee of any other for-profit company that has an executive officer serving
as a member of our Board of Directors. None of our executive officers serve as
a member of the Board of Directors of any other company that has an executive
officer serving as a member our Compensation Committee.
Effective beginning the quarter ended
September 30, 2003, non-employee directors compensation includes a cash
retainer fee of $6,250 per quarter, per member. In addition, the non-executive
chairman of the Board will receive an additional $1,250 per quarter, while each
chairman of its three Committees will receive $625 per quarter. To recognize
the burden and importance of the Audit Committee, effective June 30, 2006,
each member of this Committee is compensated an additional $1,250 per quarter.
In connection with this change, the automatic grant of a non-qualified option
to purchase 25 shares of Common Stock on the date following each fiscal quarter
in which the director serves was eliminated. All members of the Board are
reimbursed for out-of-pocket expenses in connection with attending Board
meetings. Full-time employee directors of the Company do not receive any fees
for board or committee meetings.
Directors
Compensation
The following table
sets forth information concerning compensation paid or accrued by the Company
to each member of the Board of Directors during the year ended
December 31, 2006. Mr. Ramadan has been omitted from the table as his
compensation is fully reported in the Summary Compensation Table below.
Name
|
|
|
|
Fees
Earned
or Paid
in Cash(1)
|
|
Stock
Awards
|
|
Option
Awards(2)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
All Other
Compensation
|
|
Total
|
|
|
|
In ($000)
|
|
Geoffrey B. Baker
|
|
|
$
|
31.25
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
31.25
|
|
Timothy G. Ewing
|
|
|
$
|
31.25
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
31.25
|
|
Julio E. Heurtematte, Jr.
|
|
|
$
|
31.25
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
31.25
|
|
Malcolm M.B. Sterrett
|
|
|
$
|
33.75
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
33.75
|
|
(1) Includes payment of directors fees for
service on the board of the Company. Also includes the payment of fees for
attendance at meetings of board committees on which the director serves as well
as fees for service as chairman of a board committee. Pursuant to our Companys
adoption of the Deferred Compensation Plan in June 2006, each director
elected to defer a portion of his quarterly retainer, which, for the year ended
December 31, 2006, was $1,250 each for Mr. Baker, Mr. Heurtematte
and Mr. Sterrett, respectively. Mr. Ewing deferred his entire
quarterly retainer fees, which totaled $16,250 for the same period.
(2) Reflects
the amount expensed in accordance with Statement of Financial Accounting
Standards No. 123(R) during fiscal 2006 with respect to the grants of
stock options. Until its termination in June 30, 2006, each non-employee
director was granted, on a quarterly basis, non-qualified options to purchase
25 shares of Common Stock, which were fully vested on the dates of grant, and
at the closing market price of the date of grant. For a discussion of the
assumptions used to establish the valuation of the stock options, reference is
made to Note 10 of the Notes to the Consolidated Financial Statements of the
Company included elsewhere in this prospectus.
36
Code of Ethics
The Board of
Directors adopted a Code of Ethics which covers all executive officers of TWC
and its subsidiaries. The Code of Ethics requires that senior management avoid
conflicts of interest; maintain the confidentiality of information relating to
the Company; engage in transactions in the Common Stock only in compliance with
applicable laws and regulations and the requirements set forth in the Code of
Ethics; and comply with other requirements which are intended to ensure that
such officers conduct business in an honest and ethical manner and otherwise
act with integrity and in the best interest of TWC. In February 2007, all
executive officers of the Company reaffirmed, in writing, their commitment to
our Code of Ethics.
A copy of our Code of Ethics will
be furnished to any person upon written request from any such person. Requests
should be sent to: Rami S. Ramadan,
President, Chief Executive Officer and Chief Financial Officer, Trans World
Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017. If the
Company amends or waives the Code of Ethics with respect to the chief executive
officer, principal financial or principal accounting officer, it will describe
the amendment or waiver in a Form 8-K to be filed with the SEC under
applicable regulations.
Executive
Compensation
Summary of Cash and Certain Other Compensation. The
following table sets forth a summary of certain information concerning the
compensation awarded or paid by the Company or its subsidiaries for services
rendered in all capacities during the last three fiscal years to our principal
executive officer/principal financial officer. The Company refers to this
individual in this report as the named executive officer.
Summary
Compensation Table
Name and Principal Position
|
|
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards
|
|
Option
Awards(1)
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
|
|
Change in
Pension
Value and
Nonquali-fied
Deferred
Compensation
Earnings(2)
|
|
All Other
Compen-
sation(3)
|
|
Total
|
|
|
|
(Dollars in Thousands)
|
|
Rami S. Ramadan
|
|
2006
|
|
|
$
|
400
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
32
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
20
|
|
|
$
|
452
|
|
President, Chief Executive
|
|
2005
|
|
|
$
|
400
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
19
|
|
|
$
|
419
|
|
Officer and Chief Financial
|
|
2004
|
|
|
$
|
400
|
|
|
|
$
|
150
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
|
|
|
|
$
|
19
|
|
|
$
|
569
|
|
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Reflects the amount expensed in accordance
with Statement of Financial Accounting Standards No. 123(R) during
fiscal 2006 with respect to vesting of stock options. For a discussion of the
assumptions used to establish the valuation of the stock options, reference is
made to Note 2 of the Notes to the Consolidated Financial Statements.
Additional information is also included in the table entitled Grants of
Plan-Based Awards.
(2) There
were no above-market or preferential earnings on nonqualified deferred
compensation for the named executive officer.
(3) Consists of the cost of
a leased automobile for business use, as well as employer matching contribution
toward his 401(k) plan.
37
Equity Compensation
Plans
The following table sets forth information concerning
grants of awards pursuant to plans made to the named executive officer during
the year ended December 31, 2006:
Grants of
Plan-Based Awards for the Year Ended December 31, 2006
|
|
|
|
Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards(1)
|
|
Estimated Future
Payouts Under Incentive
Plan Awards(2)
|
|
All Other
Stock
Awards:
Number
of Shares
of Stock/
|
|
All Other
Option
Awards:
Number of
Securities
Underlying
|
|
Exercise
or Base
Price of
Option
|
|
Grant Date
Fair Value
of Stock
and Option
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Options
|
|
Awards
|
|
Awards(3)
|
Name
|
|
|
|
Date
|
|
$000
|
|
$000
|
|
$000
|
|
#
|
|
#
|
|
#
|
|
#
|
|
#
|
|
($/Sh)
|
|
($/Sh)
|
Rami S. Ramadan
|
|
2006
|
|
$
|
24
|
|
$
|
120
|
|
$
|
120
|
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
$
|
2.97
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Pursuant to Mr. Ramadans
participation in the 2006 Profit Sharing Plan, the threshold of which was not
reached in 2006, resulting in no cash payment in that year.
(2) Conditional upon reaching certain company
earnings targets, as stipulated in Mr. Ramadans employment agreement (see
Compensation Discussion and Analysis - Restricted Stock Awards above), which
thresholds were not reached in 2006, resulting in no payment of restricted
stock.
(3) The fair value of the stock options granted is computed
in accordance with Statement of Accounting Standards No. 123(R).
Outstanding Equity
Awards at Fiscal Year-End
The following table sets forth information concerning
outstanding equity awards held by the named executive officer as of
December 31, 2006:
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
Number of Securities
Underlying Unexercised
Options
|
|
Exercise
|
|
Option
Expiration
|
|
Number of
Shares or
Units of
Stock That
Have Not
|
|
Market Value
of Shares
or Units
of Stock
That Have
Not
|
|
Name
|
|
|
|
Exercisable(1)
|
|
Unexercisable
|
|
Price(2)
|
|
Date
|
|
Vested(3)
|
|
Vested(4)
|
|
Rami S. Ramadan
|
|
|
74,500
|
|
|
|
105,000
|
|
|
|
$
|
2.97
|
|
|
|
6/30/12
|
|
|
|
105,000
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) 20% of the stock options to purchase an
aggregate of 175,000 shares of Common Stock, granted on July 1, 2005, were
immediately vested and an additional 20% vest each year thereafter. Options to
purchase 4,500 shares of Common Stock granted under the previous employment
agreement have already vested. (see Compensation Discussion and Analysis -
Stock Options above).
(2) The
exercise price set forth in Mr. Ramadans employment agreement. (see
Compensation Discussion and Analysis - Stock Options above).
(3) The
restricted shares vest according to an earnings formula as stipulated in
Mr. Ramadans employment agreement. (see Compensation Discussion and
Analysis - Restricted Stock Awards above).
(4) Based upon the fair
market value represented by the reported closing price on the over-the-counter
bulletin board of $2.85 per share for our Companys Common Stock as of
December 31, 2006, the options were out-of-the-money.
38
Option Exercises
and Stock Vested
The following
table sets forth certain information with respect to stock options exercised
and restricted stock awards vested for the named executive officer during the
year ended December 31, 2006:
|
|
Option Awards
|
|
Stock Awards
|
|
Name
|
|
|
|
Number of Shares
Acquired On
Exercise
|
|
Value Realized On
Exercise
|
|
Number of Shares
Acquired On Vesting
|
|
Value Realized On
Vesting
|
|
Rami S. Ramadan
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No stock options were exercised and no shares of
restricted stock vested for the named executive officer in 2006.
Nonqualified
Deferred Compensation
The named executive did not earn any nonqualified
deferred compensation in 2006.
Employment and
Change of Control Agreements
The Company entered into an employment agreement
renewal with Mr. Ramadan in 2005 pursuant to which the Company agreed to
employ Mr. Ramadan as President, Chief Executive Officer and Chief
Financial Officer. For additional information, see Compensation Discussion and
Analysis - Employment/Severance Agreements below.
The Company, as part of an employment agreement
renewal, amended the change of control agreement with Mr. Ramadan. See
Compensation Discussion and AnalysisAdditional Components of Executive
Compensation above.
Employment/Severance
Agreement
On July 1, 2005, the Company
renewed Mr. Ramadans employment agreement, pursuant to which the Company
agreed to employ him as President, Chief Executive Officer and Chief Financial
Officer for a term of two and a half years, ending December 31, 2007, with
a current base annual salary of $400,000. Mr. Ramadan is eligible to
participate in the 2004 Equity Plan and any present or future employee benefit
plans, including the 2006 Profit Sharing Plan and the Deferred Compensation
Plan. He will also be reimbursed for reasonable travel and out-of-pocket
expenses necessarily incurred in the performance of his duties. As provided by Mr. Ramadans
renewed agreement and shown in the Stock Options and Restricted Stock
Awards sections above, he received: (i) a
grant of seven year options to purchase an aggregate total of 175,000 shares of
our Common Stock in allotments of 35,000 shares per annum over a four year
vesting period with increasing exercise prices every six months from $2.80 per
share at July 1, 2005 to $4.11 per share at January 1, 2012; and (ii) upon
reaching designated earnings per share targets, up to 75,000 shares of
restricted, Common Stock in 25,000 share allotments.
In the event the
employment agreement is terminated without cause, as defined in the agreement, Mr. Ramadan
will receive one years salary. The agreement is also subject to numerous
termination provisions in the event of death, disability, discharge for cause,
and material breach thereof. In addition, if the Company terminates the
agreement without cause, materially breaches the employment agreement and does
not cure such breach, or if Mr. Ramadan terminates the employment
agreement after a change in control for good reason, the Company will continue
to provide Mr. Ramadan with his medical insurance benefits then in effect
until the date of the earlier of the commencement of his full time employment
with another employer, or the first anniversary date of the termination date of
the employment agreement. Further, the employment agreement expires on December 31,
2007, provided, however, unless either the Company or Mr. Ramadan notifies
the other of its/his intent not to extend the term on or prior to September 30,
2007 or on or prior to each September 30th thereafter, then the Term shall
be automatically extended for a period of one year to the next December 31st.
39
PRINCIPAL
STOCKHOLDERS
The following table sets forth information regarding
the beneficial ownership of the Common Stock as of April 25, 2007 (the Calculation
Date), unless otherwise noted, (a) by each shareholder who is known by
the Company to own beneficially more than 5.0% of the outstanding Common Stock,
(b) by each director, (c) by each executive officer named in the
Summary Compensation Table above and by all executive officers and directors as
a group. Unless otherwise noted, each of the shareholders listed in the table
or included within a group listed in the table possesses sole voting and
investment power with respect to the shares indicated, subject to community
property laws where applicable. The business address for each director and
officer of the Company is 545 Fifth Avenue, Suite 940, New York, New York
10017.
Name of Beneficial Owner
|
|
|
|
Number of Shares of
Common Stock
Beneficially Owned(1)
|
|
Percentage of
Ownership(1)
|
|
Value Partners, Ltd.(2)
|
|
|
3,402,574
|
|
|
|
43.4
|
%
|
|
Rami S. Ramadan(3)
|
|
|
233,000
|
|
|
|
2.9
|
|
|
Julio E. Heurtematte, Jr.(4)
|
|
|
25,171
|
|
|
|
*
|
|
|
Malcolm M.B. Sterrett(5)
|
|
|
25,171
|
|
|
|
*
|
|
|
Geoffrey B. Baker(6)
|
|
|
25,131
|
|
|
|
*
|
|
|
Timothy G. Ewing(7)
|
|
|
3,402,574
|
|
|
|
43.4
|
|
|
Special Situations Funds(8)
|
|
|
1,404,008
|
|
|
|
17.9
|
|
|
Wynnefield Small Cap Value Offshore Fund, Ltd.(9)
|
|
|
1,012,353
|
|
|
|
12.9
|
|
|
SC Fundamental Funds Group(10)
|
|
|
588,235
|
|
|
|
7.5
|
|
|
All directors and the executive officer as a group
(5 persons)(11)
|
|
|
3,711,047
|
|
|
|
46.0
|
%
|
|
* Less than 1%.
(1) The percentage of outstanding shares is based on 7,840,870 shares
outstanding as of April , 2007 and, for certain
individuals and entities, on reports filed with the SEC or on information
provided directly to the Company by such individuals or entities. A person is
deemed to be the beneficial owner of securities that can be acquired by such
person within 60 days from April 25, 2007 upon the exercise of options or
warrants. Each beneficial owners percentage ownership is determined by
assuming that options or warrants that are held by such person (but not those
held by any other person) are exercisable within 60 days from April 25,
2007 have been exercised. Included are shares of Common Stock issuable upon the
exercise of options or warrants to purchase our Companys Common Stock.
(2) Value Partners, Ltd. is a Texas limited
partnership, managed by Ewing & Partners. Mr. Timothy G. Ewing,
who is a member of Trans World Corporations board of directors, is the
managing partner of Ewing & Partners, which manages Value Partners,
Ltd. The business address for Value Partners is 4514 Cole Avenue, Suits 808 Dallas
TX 75205 (See Note (7) below).
(3) Consists of 3,500 shares of Common Stock and 229,500 shares subject
to incentive options, granted to Mr. Ramadan, of which 87,000 have vested.
(See Item 10. Executive Compensation. Above.)
(4) Includes 24,029 shares of Common Stock; warrants to purchase 417
shares of Common Stock at an exercise price of $1.00 per share expiring March 31,
2008; 10 shares of Common Stock subject to non-qualified options granted to Mr. Heurtematte
under the 1998 Plan at the end of each calendar quarter ended June 30,
1998 through December 31, 1998 and 20 shares of Common Stock subject to
non-qualified options granted under the 1999 Plan at the end of each calendar
quarter ended March 31, 1999 through June 30, 2000, and 25 shares of Common
Stock subject to non-qualified options granted under the 1999 Plan at the end
of each calendar quarter ended September 30, 2000 through March 31, 2006,
all of which were fully vested on the dates of grant. Effective the quarter ended June 30,
2006, as part of Mr. Heurtemattes participation in our Deferred
Compensation Plan, quarterly option
40
grants were terminated for members of the Board of
Directors in lieu of a nominal increase in the annual retainer, of which a
minimum of 25% is allocated to the Deferred Compensation Plan.
(5) Includes 24,029 shares of Common Stock;
warrants to purchase 417 shares of Common Stock at an exercise price of $1.00
per share expiring March 31, 2008; 10 shares of Common Stock subject to
non-qualified options granted to Mr. Sterrett under the 1998 Plan at the
end of each calendar quarter ended June 30, 1998 through December 31,
1998 and 20 shares of Common Stock, subject to non-qualified options, granted
under the 1999 Plan at the end of each calendar quarter ended since March 31,
1999 through June 30, 2000, and 25 shares of Common Stock subject to
non-qualified options granted under the 1999 Plan at the end of each calendar
quarter ended September 30, 2000 through March 31, 2006, all of which
were fully vested on the dates of grant. Effective the quarter ended
June 30, 2006, as part of Mr. Sterretts participation in our
Deferred Compensation Plan, quarterly option grants were terminated for members
of the Board of Directors in lieu of a nominal increase in the annual retainer,
of which a minimum of 25% is allocated to the Deferred Compensation Plan.
(6) Includes 24,029 shares of Common Stock;
warrants to purchase 417 shares of Common Stock at an exercise price of $1.00
per share expiring March 31, 2008; 10 shares of Common Stock subject to
non-qualified options granted to Mr. Baker under the 1993 Incentive Stock
Option Plan at December 31, 1998, 20 shares of Common Stock, subject to
non-qualified options, granted under the 1999 Director Plan for the calendar
quarter ended March 31, 1999 and 20 shares of Common Stock subject to
non-qualified options granted under the 1999 Director Plan at the end of each
quarter ended since September 31, 1999 through June 30, 2000, and 25
shares of Common Stock subject to non-qualified options granted under the 1999 Director
Plan at the end of each calendar quarter ended September 30, 2000 through March 31,
2006, all of which were fully vested on the dates of grant. Effective the
quarter ended June 30, 2006, as part of Mr. Bakers participation in
our Deferred Compensation Plan, quarterly option grants were terminated for
members of the Board of Directors in lieu of a nominal increase in the annual
retainer, of which a minimum of 25% is allocated to the Deferred Compensation
Plan.
(7) Mr. Timothy G. Ewing is the managing partner of Ewing &
Partners, which manages Value Partners, Ltd. His beneficial ownership includes
3,402,574 shares of Common Stock, held by Value Partners, Ltd. (See also Note (2) above).
Effective the quarter ended June 30, 2006, as part of Mr. Ewings
participation in our Deferred Compensation Plan, quarterly option grants were
terminated for members of the Board of Directors in lieu of a nominal increase
in the annual retainer, of which a minimum of 25% is allocated to the Deferred
Compensation Plan. Mr. Ewing elected to defer his entire retainer in 2006.
The business address for Ewing & Partners is the same as Value Partners in Note (2)
above.
(8) AWM Investment Company, Inc. (AWM) is the general partner of
and investment adviser to the Special Situations Cayman Fund, L.P. (SSCF) and
the investment adviser to the Special Situations Private Equity Fund, L.P. (SSPEF)
Austin W. Marxe and David M. Greenhouse are the principal owners of AWM.
Through their control of AWM, Messrs. Marxe and Greenhouse share voting
and investment control over the portfolio securities of SSCF and SSPEF. As a
result of the $4.75 million Capital Raise, SSPEF beneficially own 735,300
shares of Common Stock, while SSCF beneficially owns 590,300 shares of Common
Stock, of which 588,300 were from the $4.75 million Capital Raise. The business
address for AWM is 153 East 53rd Street, 51st Floor New York,
NY 10022.
(9) Wynnefield Small Cap Value Offshore Fund, Ltd.,
an investment firm, directly beneficially owns 1,012,353 shares of our Common
Stock, of which 882,353 were from its participation in the $4.75 million
Capital Raise. The business address of Wynnefield Small Cap Value Offshore
Fund, Ltd., is 450 7th Avenue, Suite 509 New York, NY 10123-0097.
41
(10) SC Fundamental Value Funds LP (SCFVF) and SC
Fundamental Value BVI, Ltd (SCFVBVI), collectively referred to as SC
Fundamental Value Funds Group, were participants in the $4.75 million Capital
Raise. SCFVF is managed by SC Fundamental LLC, as general partner, and beneficially
owns 352,941 shares of Common Stock, while SCFVBVI is managed by SC BVI
Partners, as investment advisor, and beneficially owns 235,294 shares of Common
Stock. The business address of SC Fundamental Value Funds Group is 747 3rd Avenue, 27th Floor, New York,
NY 10017.
(11) See Notes (3), (4), (5), (6) and (7) above.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31,
2006 and 2005, approximately $0.00 and $372,000, respectively, of the Interest
Notes were held by Value Partners, Ltd., an approximate 44% owner of our issued
and outstanding Common Stock as of December 31, 2006. Related interest
expense was approximately $9,000 and $60,000 for the years ended December 31,
2006 and 2005, respectively.
As of December 31,
2006, Value Partners holds a controlling 44.4% of our issued and outstanding Common
Stock and none of our long term debt.
During the year
ended December 31, 2006, the Company utilized the services of an attorney
who is the brother of our managing director of Czech operations. Fees paid to
the attorney during 2006 totaled approximately $17,000. At December 31,
2006, approximately $6,500 was owed to the attorney for services rendered
through such date.
There are no arrangements
or understandings between the directors and any other person pursuant to which
such director was selected to be nominee for election as a director. No
director is related to any other director or executive officer of the Company
by blood, marriage or adoption.
DESCRIPTION OF OUR
CAPITAL STOCK
Our authorized capital stock consists of 9,500,000
shares of our common stock, having a par value of $0.001 per share, and
4,000,000 shares of our undesignated preferred stock having a par value of
$0.001 per share. Each outstanding share of common stock entitles the holder
thereof to one vote per share on all matters coming before the shareholders for
a vote. Our Articles of Incorporation do not permit cumulative voting for the
election of directors, which means that the holders of more than 50% of such
outstanding shares voting for the election of directors can elect all of the
directors to be elected, if they so choose; in such event, the holders of the
remaining shares will not be able to elect any of our directors. Our Bylaws
require a majority of votes cast to be the vote necessary for the stockholders
to act on various matters other than the election of directors. The directors
of a Nevada corporation are elected at the annual meeting of the stockholders
by a plurality of the votes cast at the election. Stockholders do not have
preemptive rights to purchase shares in any future issuance of our common
stock.
The holders of shares of our common stock are entitled
to dividends out of funds legally available when and as declared by our board
of directors. Our board of directors has never declared a dividend or otherwise
authorized any cash or other distribution with respect to the shares of our common
stock and does not anticipate declaring a dividend in the foreseeable future.
Should we decide in the future to pay dividends, as a holding company, our
ability to do so and meet other obligations depends upon the receipt of
dividends or other payments from our operating subsidiaries and other holdings
and investments. In addition, our operating subsidiaries, from time to time,
may be subject to restrictions on their ability to make distributions to us,
including as a result of restrictive covenants in loan agreements, restrictions
on the conversion of local currency into dollars and other regulatory
restrictions. In the event of our liquidation, dissolution or winding up,
holders of our common stock are entitled to receive, ratably, the net
42
assets available to
stockholders after payment of all creditors and after any distribution to
stockholders having a preference to our remaining assets on liquidation.
Our board of directors has the authority under our
Articles of Incorporation to issue up to 4,000,000 shares of our preferred
stock from time to time in one or more series at its discretion. The board may
set the rights, preferences, powers, designations and all relative,
participating, optional or special rights of any series of preferred stock without
stockholder approval. Depending on the terms established by our board of
directors, any or all series of preferred stock could have preference over our
common stock with respect to voting, dividends, rights upon liquidation and
other important matters. The board of directors does not presently intend to
issue any preferred stock, but may do so at any time without prior notice to
any stockholder.
All of the issued and outstanding shares of our common
stock are duly authorized, validly issued, fully paid and non-assessable. To
the extent that additional shares of our common stock are issued, the relative
interests of existing stockholders will be diluted. No additional shares of our
common stock are being issued in this offering.
Our transfer agent is Continental Stock Transfer and
Trust Company, 17 Battery Place, New York, New York 10004.
43
SELLING
STOCKHOLDERS
The following table sets forth the names of the
selling stockholders and for each selling stockholder the number of shares of
common stock beneficially owned as of April 25, 2007, and the number of
shares being registered. Except as otherwise indicated in the footnotes to the
table below, each selling stockholder acquired its securities in the $4.75
million Capital Raise, completed in December 2005. Furthermore, except as
set forth in the footnotes below, none of the selling stockholders has held a
position as an officer or director of TWC, nor has any selling stockholder had
a material relationship of any kind with TWC. All information with respect to
share ownership has been furnished by the selling stockholders. The shares
being offered are being registered to permit public secondary trading of the
shares and each selling stockholder may offer all or part of the shares owned
for resale from time to time. A selling stockholder is under no obligation,
however, to sell any shares immediately pursuant to this prospectus, nor is a
selling stockholder obligated to sell all or any portion of the shares at any
time. We will file a supplement to this prospectus to name successors to any
named selling stockholders who are able to use this prospectus to resell the
securities registered hereby.
Selling Stockholders
|
|
Shares of
Common Stock
Beneficially
Owned(1), (2)
|
|
Percent of
Common
Stock(3)
|
|
Shares of
Common
Stock
To Be
Registered
|
|
Shares of
Common
Stock
to be
Held After
Completion
of the
Offering(15)
|
|
Percent of
Common Stock
After
Completion
of the
Offering(15)
|
|
Carr Securities Corporation(4)
|
|
|
15,000
|
|
|
|
*
|
|
|
15,000
|
|
|
0
|
|
|
|
*
|
|
|
Special Situations Cayman Fund, L.P.(5)
|
|
|
590,300
|
|
|
|
7.5
|
%
|
|
588,300
|
|
|
2,000
|
|
|
|
*
|
|
|
Special Situations Private Equity Fund, L.P.(5)
|
|
|
813,708
|
|
|
|
10.4
|
%
|
|
813,708
|
|
|
0
|
|
|
|
*
|
|
|
SC Fundamental Value BVI, Ltd.(6)
|
|
|
235,294
|
|
|
|
3.0
|
%
|
|
235,294
|
|
|
0
|
|
|
|
*
|
|
|
SC Fundamental Value Fund, L.P.(6)
|
|
|
352,941
|
|
|
|
4.5
|
%
|
|
352,941
|
|
|
0
|
|
|
|
*
|
|
|
Wynnefield SmallCap Value Offshore Fund, Ltd.(7)
|
|
|
1,012,353
|
|
|
|
12.9
|
%
|
|
882,353
|
|
|
130,000
|
|
|
|
*
|
|
|
Value Partners, Ltd.(8)
|
|
|
3,402,574
|
|
|
|
43.4
|
%
|
|
3,402,574
|
|
|
0
|
|
|
|
*
|
|
|
Geoffrey B. Baker(9)
|
|
|
25,131
|
|
|
|
*
|
|
|
24,446
|
|
|
685
|
|
|
|
*
|
|
|
Julio E. Heurtematte, Jr.(10)
|
|
|
25,171
|
|
|
|
*
|
|
|
24,446
|
|
|
725
|
|
|
|
*
|
|
|
Malcolm M.B. Sterrett(11)
|
|
|
25,171
|
|
|
|
*
|
|
|
24,446
|
|
|
725
|
|
|
|
*
|
|
|
Harry F. Radcliffe(12)
|
|
|
3,127
|
|
|
|
*
|
|
|
3,127
|
|
|
0
|
|
|
|
*
|
|
|
Palestra Partners, LP(13)
|
|
|
1,251
|
|
|
|
*
|
|
|
1,251
|
|
|
0
|
|
|
|
*
|
|
|
U.S. Bancorp(14)
|
|
|
5,753
|
|
|
|
*
|
|
|
5,753
|
|
|
0
|
|
|
|
*
|
|
|
Total
|
|
|
6,507,774
|
|
|
|
83.0
|
%
|
|
6,373,639
|
|
|
134,135
|
|
|
|
*
|
%
|
|
* Less than 1%.
(1) On April 25, 2007, there were 7,840,870
shares of common stock outstanding and no issued and outstanding preferred
stock. All of the shares of common stock being registered pursuant to this
registration statement are being registered on behalf of the selling
stockholders and were outstanding prior to the filing of this registration
statement except for the shares purchasable by certain of the selling
stockholders (not including Value Partners) upon exercise of their respective
warrants as described below in notes 9, 10, 11, 13, and 14. Following the
offering, assuming that these stockholders do not exercise their warrants,
there will be 7,840,870 shares of common stock outstanding and no issued and
outstanding preferred stock.
44
(2) Under applicable SEC rules, a person is deemed to be the beneficial
owner of a security with regard to which the person directly or indirectly,
has or shares (a) the voting power, which includes the power to vote or
direct the voting of the security, or (b) the investment power, which
includes the power to dispose, or direct the disposition, of the security, in
each case irrespective of the persons economic interest in the security. Under
these SEC rules, a person is deemed to beneficially own securities which the
person has the right to acquire within 60 days through the exercise of any
option or warrant or through the conversion of another security. None of the
selling stockholders who are not natural persons are reporting companies under
the Securities Exchange Act of 1934, as amended (the Exchange Act).
(3) In determining the percent of common stock owned by a person on April 25,
2007, (a) the numerator is the number of shares of common stock
beneficially owned by the person, including shares the beneficial ownership of
which may be acquired within 60 days upon the exercise of options or warrants
or conversion of convertible securities, and (b) the denominator is the
total of (i) the 7,840,870 shares in the aggregate of common stock
outstanding on April 25, 2007, and (ii) any shares of common stock
which the person has the right to acquire within 60 days upon the exercise of
options or warrants or conversion of convertible securities. Neither the
numerator nor the denominator includes shares which may be issued upon the
exercise of any other options or warrants or the conversion of any other
convertible securities. Neither the numerator nor the denominator includes
shares which may be issued upon the exercise of any other options or warrants
or the conversion of any other convertible securities. For purposes of this
selling stockholders table, the calculation for determining the percent of
common stock owned by a person after completion of the offering is the same,
and assumes that no new shares of common stock will be issued by us prior to
the completion of the offering.
(4) Carr Securities Corporation, a New York corporation, whose address
is 14 Vanderventer Avenue, Port Washington, New York 11050, was the placement
agent for our private placement. The board of directors of this company has
sole voting and investment control over these securities.
(5) AWM Investment Company, Inc. (AWM) is the general partner of
and investment adviser to the Special Situations Cayman Fund, L.P. (SSCF) and
the investment adviser to the Special Situations Private Equity Fund, L.P. (SSPEF).
Austin W. Marxe and David M. Greenhouse are the principal owners of AWM.
Through their control of AWM, Messrs. Marxe and Greenhouse share voting
and investment control over the portfolio securities of SSCF and SSPEF. As a
result of the $4.75 million Capital Raise, SSPEF beneficially own 813,708
shares of Common Stock, of which 735,300 were from the $4.75 million Capital
Raise, while SSCF beneficially owns 590,300 shares of Common Stock, of which
588,300 were from the $4.75 million Capital Raise.
(6) SC Fundamental Value Funds LP (SCFVF) and SC Fundamental Value
BVI, Ltd (SCFVBVI), collectively referred to as SC Fundamental Value Funds
Group, were participants in the $4.75 million Capital Raise. SCFVF is managed
by SC Fundamental LLC, as general partner, and beneficially owns 352,941 shares
of Common Stock, while SCFVBVI is managed by SC BVI Partners, as investment
advisor, and beneficially owns 235,294 shares of Common Stock.
(7) Wynnefield Small Cap Value Offshore Fund, Ltd., an investment firm,
directly beneficially owns 1,012,353 shares of the Companys Common Stock, of which
882,353 were from its participation in the $4.75 million Capital Raise.
(8) Mr. Timothy G. Ewing, a director of the Company, is the
managing partner of Ewing & Partners, which manages Value Partners,
Ltd. His beneficial ownership includes 3,402,574 shares of Common Stock, held
by Value Partners, Ltd. Mr. Ewing has sole voting and dispositive power
over these shares. Value Partners purchased no shares in the $4.75 million
Capital Raise. Of the shares registered hereby, 3,270,105 were obtained in the
Public Exchange, 75,894 were obtained in the LA Exchange and 56,575 were
obtained pursuant to the exercise of warrants. Unlike all of the other shares
45
registered hereby, we have
no contractual obligation to register the shares held by Value Partners, but
are doing so as an accommodation to Value Partners.
(9) Mr. Geoffrey B. Baker has been a director of the Company since
1999. His beneficial ownership includes 24,029 shares of common stock acquired
in the Public Exchange and warrants to purchase 417 shares of common stock at
an exercise price of $1.00 per share expiring March 31, 2008. In addition,
Mr. Baker owns options to purchase 685 shares of common stock which are
not part of this prospectus.
(10) Mr. Julio E. Heurtematte, Jr. has been a director of the
Company since 1998. His beneficial ownership includes 24,029 shares of common
stock acquired in the Public Exchange and warrants to purchase 417 shares of
common stock at an exercise price of $1.00 per share expiring March 31,
2008. In addition, Mr. Heurtematte owns options to purchase 725 shares of
common stock which are not part of this prospectus.
(11) Mr. Malcolm M.B. Sterrett has been a director of the Company
since 1998. His beneficial ownership includes 24,029 shares of common stock
acquired in the Public Exchange and warrants to purchase 417 shares of common
stock at an exercise price of $1.00 per share expiring March 31, 2008. In
addition, Mr. Sterrett owns options to purchase 725 shares of common stock
which are not part of this prospectus.
(12) Harry F. Radcliffe, whose address is 40 Wiggins Lane, Uniontown,
Pennsylvania 15401, beneficially owns warrants to purchase 3,127 shares of
common stock at an exercise price of $1.00 per share expiring March 31,
2008.
(13) Palestra Partners, LP, whose address is 955 Lexington Avenue, Apt.
8A, New York, New York 10021, beneficially owns warrants to purchase 1,251
shares of common stock at an exercise price of $1.00 per share expiring March 31,
2008.
(14) U.S. Bancorp, whose address is 11766 Wilshire Boulevard, Suite 870,
Los Angeles, California 90025, beneficially owns warrants to purchase 5,753
shares of common stock at an exercise price of $1.00 per share expiring March 31,
2008.
(15) Except as otherwise noted herein, this
prospectus assumes that all shares registered will be sold in this offering.
SHARES ELIGIBLE FOR
FUTURE SALE
Upon completion of this offering, we will have 7,840,870
shares common stock outstanding. Value Partners, who is our affiliate,
defined in Rule 144 as a person who directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, us, will be required to comply with the resale limitations of Rule 144.
Purchasers acquiring
shares from selling shareholders in one or more transactions to which this
prospectus relates, other than persons who are our affiliates, may resell their
shares immediately. Sales by affiliates will be subject to the volume and other
limitations of Rule 144, including certain restrictions regarding the
manner of sale, notice requirements, and the availability of current public
information about us. The volume limitations generally permit an affiliate to
sell, within any three-month period, a number of shares of common stock or the
average weekly trading volume during the four calendar weeks preceding his
sale. A person who ceases to be an affiliate at least three months before the
sale of restricted securities beneficially owned for at least two years may
sell the restricted securities under Rule 144 without regard to any of the
Rule 144 limitations.
46
PLAN OF
DISTRIBUTION
The selling
stockholders and any of their pledgees, donees, transferees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of our common stock or interests in shares of our common stock after the date
of this prospectus on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale
or at negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
· ordinary
brokerage transactions and transactions in which the broker dealer solicits
investors;
· block
trades in which the broker dealer will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction;
· purchases
by a broker dealer as principal and resale by the broker dealer for its
account;
· an
exchange distribution in accordance with the rules of the applicable
exchange;
· privately
negotiated transactions;
· to
cover short sales made after the date that the registration statement is
declared effective by the SEC;
· through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
· broker
dealers may agree with the selling stockholders to sell a specified number of
such shares at a stipulated price per share;
· a
combination of any such methods of sale; and
· any
other method permitted pursuant to applicable law.
The selling stockholders may also sell all or a
portion of the shares in open market transactions in reliance upon Rule 144
under the Securities Act, rather than under this prospectus, provided that they
meet the criteria and conform to the requirements of that Rule.
We have agreed with the selling stockholders to keep
the registration statement of which this prospectus constitutes a part
effective until the earliest of such time as all of the shares covered by this
prospectus have been disposed of pursuant to and in accordance with the
registration statement, December 31, 2007 or the date on which the shares
may be sold pursuant to Rule 144(k) of the Securities Act.
Broker dealers engaged by selling stockholders may
arrange for other brokers dealers to participate in sales. Broker dealers may
receive commissions or discounts from the selling stockholders (or, if any
broker dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The selling stockholders may from time to time pledge
or grant a security interest in some or all of the shares of common stock owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of our common
stock from time to time under this prospectus, or under an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus. The selling stockholders also may transfer the shares of
our common stock in other circumstances, in which case the
47
transferees, pledges or
other successors in interest will be the selling beneficial owners for purposes
of this prospectus.
Upon TWC being notified in writing by a selling
stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of our common stock through a block trade,
special offering, exchange distribution or secondary distribution or a purchase
by a broker or dealer, a supplement to this prospectus will be filed, if
required, pursuant to Rule 424(b) under the Securities Act,
disclosing (to the extent of our knowledge) (i) the name of each such
selling stockholder and of the participating broker-dealer(s), (ii) the
number of shares involved, (iii) the price at which such shares of our
common stock were sold, (iv) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (v) that
such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and (vi) other
facts material to the transaction. In addition, upon TWC being notified in
writing by a selling stockholder that a donee or pledgee intends to sell more
than 500 shares of common stock, a supplement to this prospectus will be filed
if then required in accordance with applicable securities law.
The selling stockholders and any broker dealers or
agents that are involved in selling the shares may be deemed to be underwriters
within the meaning of the Securities Act in connection with such sales. In such
event, any commissions discounts or concessions received by such broker dealers
or agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar selling expenses, if any, that
can be attributed to the sale of securities will be paid by the selling
stockholder and/or the purchasers. Each selling stockholder has represented and
warranted to us that it acquired the securities subject to this registration
statement in the ordinary course of such selling stockholders business and, at
the time of its purchase of such securities such selling stockholder had no
agreements or understandings, directly or indirectly, with any person to
distribute any such securities. The selling stockholders may indemnify any
broker dealer that participates in transactions involving the sale of the
shares against certain liabilities, including liabilities arising under the
Securities Act.
We have advised each stockholder that it may not use
shares registered on this registration statement to cover short sales of our
common stock made prior to the date on which this registration statement shall
have been declared effective by the SEC. In connection with the sale of our
common stock or interests therein, the selling stockholders may enter into
hedging transactions with broker-dealers or other financial institutions, which
may in turn engage in short sales of the common stock in the course of hedging
the positions they assume. The selling stockholders may also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn
may sell these securities. The selling stockholders may also enter into option
or other transactions with broker-dealers or other financial institutions or
the creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
If a selling stockholder is an underwriter and uses
this prospectus for any sale of shares of our common stock, it will be subject
to the prospectus delivery requirements of the Securities Act. To the extent
applicable, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders will be responsible to comply with the applicable
provisions of the Securities Act and the Exchange Act, and the rules and
regulations thereunder promulgated, including, without limitation, Regulation
M, as applicable to such selling stockholders in connection with resales of
their respective shares under this registration statement.
48
In order to comply with the securities laws of some
states, if applicable, the common stock may be sold in these jurisdictions only
through registered or licensed brokers or dealers. In addition, in some states
the common stock may not be sold unless it has been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
We are required to pay all
fees and expenses incident to the registration of the shares offered hereby,
but we will not receive any proceeds from the sale of the shares of our common
stock. The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock
less discounts or commissions, if any. Each of the selling stockholders
reserves the right to accept and, together with their agents from time to time,
to reject, in whole or in part, any proposed purchase of common stock to be
made directly or through agents. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act, and state securities laws relating to the
registration of the shares offered by this prospectus.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
There have been no changes
in and/or disagreements with Rothstein Kass & Company, P.C., our
independent registered public accounting firm, on accounting and financial
disclosure matters.
LEGAL MATTERS
Certain legal matters in
this offering, including the legality of the common stock offered pursuant to
this prospectus, will be passed upon for us and, at our request, for the
selling stockholders by Elias Matz Tiernan & Herrick L.L.P.,
Washington, D.C.
EXPERTS
Our financial statements
for the years ended December 31, 2006 and 2005 included in this prospectus
have been audited by Rothstein Kass & Company, P.C., an independent
registered public accounting firm, as stated in their opinion, which has been
rendered upon the authority of said firm as experts in accounting and auditing.
INTERESTS OF NAMED
EXPERTS AND COUNSEL
No Expert or Counsel
as defined by Item 509 of Regulation S-B promulgated pursuant to the Securities
Act, whose services were used in the preparation of this Form SB-2,
was hired on a contingent basis or will receive a direct or indirect interest
in us.
DISCLOSURE OF
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, as filed as
in Exhibits 3.1(a), 3.1(b) and 3.1(c) to the Form 10-KSB
for the year ended December 31, 2006, and our Bylaws, as amended, as filed
in Exhibit 3.2 to the Form 10-KSB for the year ended December 31,
2006, provide that we must indemnify our directors to the fullest extent permitted
under Nevada law and may indemnify, if so authorized by our board of directors,
our officers and any other person whom we have the power to indemnify against
liability, reasonable expense or other matter whatsoever. The effect of these
provisions is potentially to indemnify our directors and officers from all
costs and expenses of liability incurred by them in connection with any action,
suit or proceeding in which they are involved by reason of their affiliation
with us.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to our directors, officer and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been
49
advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Our Articles of
Incorporation also permit us to maintain insurance on behalf of our company and
any person whom we have the power to indemnify.
WHERE YOU CAN FIND
MORE INFORMATION
We have filed a post-effective
amendment to our registration statement on Form SB-2 with the SEC
under the Securities Act with respect to the shares of common stock being
offered by means of this prospectus. This prospectus, which is part of the
registration statement, does not contain all of the information set forth in
the registration statement, or the exhibits which are part of the registration
statement. You should refer to the registration statement and its exhibits for
additional information that is not contained in this prospectus. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, you should refer to the exhibits attached to the registration
statement for copies of the actual contract, agreement or other document.
We are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and we are required to file
reports, any proxy statements and other information with the SEC. You can read
our files, including this registration statement, over the Internet at the SECs
web site at http://www.sec.gov. You may also read and copy any documents we
file with the SEC at its public reference facility at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549 and at the SECs regional offices. You may also obtain
copies of the documents at prescribed rates by writing to the Public Reference Section of
the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
50
INDEX
TO
CONSOLIDATED
FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of
Directors and Stockholders
Trans World Corporation
We have audited the
accompanying consolidated balance sheets of Trans World Corporation and
Subsidiaries (collectively, the Company) as of December 31, 2006 and
2005, and the related consolidated statements of income and comprehensive
income (loss), stockholders equity and cash flows for each of the years then
ended. These consolidated financial statements are the responsibility of our
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Trans World Corporation and Subsidiaries as of December 31,
2006 and 2005, and the results of their operations and their cash flows for
each of the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
|
/s/ ROTHSTEIN,
KASS & COMPANY, P.C.
|
Roseland, New Jersey
|
|
February 8, 2007
|
|
F-2
TRANS WORLD
CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2006 and 2005
(dollars in thousands, except for share data)
|
|
December 31, 2006
|
|
December 31, 2005
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
$
|
3,266
|
|
|
|
$
|
6,595
|
|
|
Prepaid expenses
|
|
|
704
|
|
|
|
315
|
|
|
Notes receivable, current
|
|
|
223
|
|
|
|
|
|
|
Other current assets
|
|
|
592
|
|
|
|
269
|
|
|
Total current assets
|
|
|
4,785
|
|
|
|
7,179
|
|
|
PROPERTY AND EQUIPMENT, net
|
|
|
18,099
|
|
|
|
12,647
|
|
|
OTHER
ASSETS:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
5,815
|
|
|
|
4,942
|
|
|
Notes receivable, less current portion
|
|
|
713
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
1,814
|
|
|
|
1,257
|
|
|
Total other assets
|
|
|
8,342
|
|
|
|
6,199
|
|
|
|
|
|
$
|
31,226
|
|
|
|
$
|
26,025
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Long-term debt, current maturities
|
|
|
$
|
604
|
|
|
|
$
|
1,380
|
|
|
Accounts payable
|
|
|
1,904
|
|
|
|
1,762
|
|
|
Interest payable
|
|
|
72
|
|
|
|
51
|
|
|
Czech tax accrual
|
|
|
3,328
|
|
|
|
2,724
|
|
|
Accrued expenses and other current liabilities
|
|
|
1,497
|
|
|
|
1,101
|
|
|
Total current liabilities
|
|
|
7,405
|
|
|
|
7,018
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
2,849
|
|
|
|
3,167
|
|
|
Other
|
|
|
718
|
|
|
|
460
|
|
|
Total long-term liabilities
|
|
|
3,567
|
|
|
|
3,627
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
EQUITY:
|
|
|
|
|
|
|
|
|
|
Preferred stock,
$.001 par value, 4,000,000 shares authorized, none issued
|
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 9,500,000 shares
authorized, 7,840,870 shares issued and outstanding in 2006 and 2005,
respectively
|
|
|
8
|
|
|
|
8
|
|
|
Additional paid-in capital
|
|
|
47,720
|
|
|
|
47,743
|
|
|
Accumulated other comprehensive income
|
|
|
6,330
|
|
|
|
3,460
|
|
|
Accumulated deficit
|
|
|
(33,804
|
)
|
|
|
(35,831
|
)
|
|
Total stockholders equity
|
|
|
20,254
|
|
|
|
15,380
|
|
|
|
|
|
$
|
31,226
|
|
|
|
$
|
26,025
|
|
|
See accompanying notes to consolidated financial statements.
F-3
TRANS
WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2006 and 2005
(dollars in thousands, except for share data)
|
|
2006
|
|
2005
|
|
REVENUES
|
|
$
|
26,216
|
|
$
|
23,249
|
|
COSTS AND EXPENSES:
|
|
|
|
|
|
Cost of revenues
|
|
14,746
|
|
14,007
|
|
Depreciation and amortization
|
|
821
|
|
737
|
|
Selling, general and administrative
|
|
8,395
|
|
8,073
|
|
|
|
23,962
|
|
22,817
|
|
INCOME FROM OPERATIONS
|
|
2,254
|
|
432
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
Interest income
|
|
50
|
|
2
|
|
Interest expense
|
|
(280
|
)
|
(352
|
)
|
Foreign exchange gain (loss)
|
|
3
|
|
(5
|
)
|
Other
|
|
|
|
2
|
|
|
|
(227
|
)
|
(353
|
)
|
NET INCOME
|
|
2,027
|
|
79
|
|
Other
comprehensive income (loss), foreign currency translation
adjustments, net of tax
|
|
2,870
|
|
(1,278
|
)
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
4,897
|
|
$
|
(1,199
|
)
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
Basic
|
|
7,840,870
|
|
5,096,229
|
|
Diluted
|
|
7,875,681
|
|
5,099,872
|
|
EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
$
|
0.02
|
|
Diluted
|
|
$
|
0.26
|
|
$
|
0.02
|
|
See accompanying notes to consolidated financial statements.
F-4
TRANS WORLD
CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years Ended December 31, 2006 and 2005
(dollars in thousands, except for share data)
|
|
Common Stock
|
|
Additional
Paid-in
|
|
Accumulated
Other
Comprehensive
|
|
Accumulated
|
|
Total
Stockholders
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income
|
|
Deficit
|
|
Equity
|
|
Balances, January 1,
2005
|
|
5,031,681
|
|
|
$
|
5
|
|
|
|
$
|
43,228
|
|
|
|
$
|
4,738
|
|
|
|
$
|
(35,910
|
)
|
|
|
$
|
12,061
|
|
|
Exercise of options
|
|
2,809,188
|
|
|
3
|
|
|
|
4,515
|
|
|
|
|
|
|
|
|
|
|
|
4,518
|
|
|
Foreign currency translation
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,278
|
)
|
|
|
|
|
|
|
(1,278
|
)
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
79
|
|
|
Balances, December 31,
2005
|
|
7,840,869
|
|
|
8
|
|
|
|
47,743
|
|
|
|
3,460
|
|
|
|
(35,831
|
)
|
|
|
15,380
|
|
|
Reissuance of stock certificate
(impact of 100-1 reverse adjustment)
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private placement residual costs
|
|
|
|
|
|
|
|
|
(74
|
)
|
|
|
|
|
|
|
|
|
|
|
(74
|
)
|
|
Issuance of stock options
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
2,870
|
|
|
|
|
|
|
|
2,870
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,027
|
|
|
|
2,027
|
|
|
Balances, December 31,
2006
|
|
7,840,870
|
|
|
$
|
8
|
|
|
|
$
|
47,720
|
|
|
|
$
|
6,330
|
|
|
|
$
|
(33,804
|
)
|
|
|
$
|
20,254
|
|
|
See accompanying notes to consolidated financial statements.
F-5
TRANS
WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2006 and 2005
(dollars in thousands, except for share data)
|
|
2006
|
|
2005
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
2,027
|
|
$
|
79
|
|
Adjustments to
reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
821
|
|
737
|
|
Stock options
expense
|
|
51
|
|
|
|
Gain on sale of equipment
|
|
(3
|
)
|
|
|
Gain on settlement
of promissory note
|
|
(108
|
)
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
Prepaid expenses and
other current assets
|
|
(385
|
)
|
(112
|
)
|
Deposits and other
assets
|
|
66
|
|
|
|
Accounts payable
|
|
(123
|
)
|
570
|
|
Interest payable
|
|
22
|
|
|
|
Czech tax accrual
|
|
64
|
|
1,055
|
|
Accrued expenses
and other current liabilities
|
|
83
|
|
(746
|
)
|
NET CASH
PROVIDED BY OPERATING ACTIVITIES
|
|
2,560
|
|
1,538
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
Renovation and
purchases of property and equipment
|
|
(4,013
|
)
|
(2,528
|
)
|
Proceeds from the
sale of equipment
|
|
408
|
|
3
|
|
Refund of security
deposit
|
|
20
|
|
|
|
Payments for
deposits and other assets
|
|
(488
|
)
|
|
|
Issuance of notes
receivable
|
|
(936
|
)
|
|
|
NET CASH
USED IN INVESTING ACTIVITIES
|
|
(5,029
|
)
|
(2,505
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
Proceeds from
private placement
|
|
4,750
|
|
|
|
Payment of
promissory note
|
|
(197
|
)
|
|
|
Proceeds from
long-term debt
|
|
2,084
|
|
|
|
Payments of
long-term debt
|
|
(1,122
|
)
|
(1,658
|
)
|
Payments of
financing costs
|
|
(74
|
)
|
|
|
NET CASH
PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
|
(1,196
|
)
|
4,979
|
|
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
|
|
336
|
|
(103
|
)
|
NET
INCREASE (DECREASE) IN CASH
|
|
(3,329
|
)
|
3,909
|
|
CASH:
|
|
|
|
|
|
Beginning of year
|
|
6,595
|
|
2,686
|
|
End of year
|
|
$
|
3,266
|
|
$
|
6,595
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
Cash paid during
the year for interest
|
|
$
|
211
|
|
$
|
392
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
Stock issuance as
partial finders fee
|
|
$
|
|
|
$
|
25
|
|
Accrued finders
fee for private placement
|
|
$
|
|
|
$
|
212
|
|
Conversion of accrued interest to debt
|
|
$
|
|
|
$
|
20
|
|
See accompanying notes to consolidated financial statements.
F-6
NOTE 1 - Nature of
Business and Liquidity
Nature of
Business
Trans World Corporation and Subsidiaries
(collectively, TWC or the Company), a Nevada corporation, is primarily
engaged in the gaming business in the Czech Republic. The Company owns and operates
four casinos in the Czech Republic (CZ), and manages, under contract, one
casino and nightclub in Croatia. Two of the Czech casinos are located in the
western part of the CZ, close to the border of Germany. The larger of the two,
located in Ceska Kubice (Ceska), currently has 16 gaming tables and 52 slot
machines. The smaller, Rozvadov (Rozvadov) is located in the town of Rozvadov
and currently has 10 gaming tables and 30 slot machines. The other two Czech
casinos are located in the southern part of the CZ, close to the Austrian
border. The larger of these two, Route 55, located in Dolni Dvoriste, now has
21 gaming tables, 100 slot machines, a 70-seat Italian restaurant and a
bar and grill. The other casino, Route 59, which recently underwent a major
building expansion and renovation, is located in Hate, near Znojmo, and
currently has 21 gaming tables and 102 slot machines.
On September 21, 2006, the Company was selected
to manage the Grand Casino Lav and Nightclub (the Grand Casino Lav), located
in the newly opened Le Meridien Lav, Split resort in Podstrana, Croatia. The
management agreement with Grand Hotel Lav d.o.o., the property owner, provides
for a 10-year term, with optional renewal periods of five (5) years
each, subject to certain performance conditions. In addition to marketing to
the existing hotel guests, American Chance Casinos (ACC) will target the
local market of Split, the second largest city in Croatia. As the Grand Casino
Lav opened in the last part of December 2006, its contribution to the year
2006 operational results was immaterial. Thus, all discussions of operational
performance and results herein are limited to the Companys fully-owned and
operated units in the Czech Republic.
Liquidity
At December 31, 2006, the Company had a working
capital deficit of approximately $2,620 versus a working capital surplus of
$161 at December 31, 2005, primarily as a result of weaker than expected
results in Route 59. Since the completion of the extension of the casino in
mid-November 2006, operational results have improved. Management believes
that the completed product will better position Route 59 to recapture the
business that it had missed in 2006 as well as attract new business. Further,
management anticipates improvement in its cash flow in 2007, as a result of the
following major operational enhancements implemented in 2006:
(i) purchases of a sizable number of new slot machines;
(ii) successful renegotiation of equipment leases on a large portion of
its existing inventory of slot machines, from a revenue-based structure to a
fixed-rent basis; and (iii) the continuation of the growth stage of the
Companys newest and largest casino, Route 55.
The Companys management
is seeking to secure additional financing to acquire and develop new business
units. Additionally, the Company is involved in several development projects,
including the potential development of hotels in Hate and in Folmava, Czech
Republic, and the potential acquisition of existing hotels in Europe. There can
be no assurances that managements plans will be realized.
The Companys management believes that its cash
resources at December 31, 2006 and anticipated cash to be provided by 2007
operations are sufficient to fund its activities for the year ending December 31, 2007.
NOTE 2 - Summary of
Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-7
NOTE 2 -
Summary of Significant Accounting Policies (Continued)
Property and
Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization using the straight-line method over the following estimated
useful lives:
Asset
|
|
|
|
Estimated Useful Life
|
|
Building and improvements
|
|
|
4-45 years
|
|
|
Gaming equipment
|
|
|
4-12 years
|
|
|
Furniture, fixtures and other equipment
|
|
|
3-12 years
|
|
|
Preopening Costs - Preopening
costs are expensed as incurred pursuant to AICPA Statement of Position (SOP)
98-5, Reporting on the Costs of Start-up Activities.
Goodwill - Goodwill represents the excess of
the cost of the Companys Czech subsidiaries over the fair value of their net
assets at the date of acquisition, which consists of only the Ceska and
Rozvadov casinos. Under Statement of Financial Accounting Standards (SFAS) No. 142,
goodwill is no longer subject to amortization over its estimated useful life;
rather, goodwill is subject to at least an annual assessment for impairment,
applying a fair-value based test. The impairment assessment requires the
Company to compare the fair value of its Czech Republic reporting unit, which
is comprised of its Ceska and Rozvadov casinos, and the Companys reporting
unit as defined under SFAS No. 142, to its carrying value (the net equity
of the Company) to determine whether there is an indication that an impairment
exists. The fair value of the Czech Republic reporting unit is determined
through a combination of recent appraisals of the Companys real property and a
multiple of earnings before interest, taxes, depreciation and amortization
(EBITDA), which was based on the Companys experience and data from
independent, third parties. During the second quarter of 2006 and 2005, as
required by SFAS No. 142, the Company performed the periodic fair-value
based testing of the carrying value of goodwill related to its Czech Republic
reporting unit, and determined that goodwill was not impaired.
Comprehensive
Income - The Company complies with SFAS No. 130,
Reporting Comprehensive Income. SFAS
No. 130 establishes rules for reporting and display of comprehensive
income (loss) and its components. SFAS No. 130 requires the Companys
change in the foreign currency translation adjustments to be included in other
comprehensive income (loss).
Foreign Currency Translation - The
Company complies with SFAS No. 52, Foreign Currency Translation, which
states that for foreign subsidiaries whose functional currency is the local
foreign currency, balance sheet accounts and cash flows are translated at
exchange rates in effect at the end of the year and resulting translation
adjustments are included in accumulated other comprehensive income. 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 year.
F-8
NOTE 2 -
Summary of Significant Accounting Policies (Continued)
The impact of foreign currency translation on goodwill
is presented below:
|
|
Applicable
|
|
|
|
|
|
Foreign Exchange
|
|
|
|
As of December 31, 2006 (in thousands)
|
|
|
|
Rate (FX) (2)
|
|
Goodwill
|
|
Residual balance,
as of January 1, 2003 (in USD) (1)
|
|
|
USD
|
|
|
|
3,579
|
(A)
|
USD residual balance (A), translated at
March 31, 1998
(date of acquisition), at FX (ie. 2003 CZK Balance)
|
|
|
33.8830
|
|
|
CZK
|
121,267
|
|
2003 CZK balance,
translated to USD:
|
|
|
|
|
|
|
|
|
At December 31, 2006 at FX of:
|
|
|
20.8550
|
|
|
USD
|
5,815
|
(B)
|
Net increase (step-up) to Goodwill (adjustment
made to Translation Adjustment in consolidation):
|
|
|
|
|
|
|
2,236
|
(B-A)
|
Increase
to Goodwill (C) is booked as follows:
|
|
|
|
|
|
|
|
|
(Step-up) for the year ended December 31, 2003
at
FX of
|
|
|
26.0300
|
|
|
USD
|
1,080
|
|
(Step-up) for the year ended December 31, 2004
at
FX of
|
|
|
22.3580
|
|
|
USD
|
765
|
|
(Step-down) for the year ended December 31,
2005
at FX of
|
|
|
24.5390
|
|
|
USD
|
(482
|
)
|
(Step-up) for the year ended December 31, 2006
at FX of
|
|
|
20.8550
|
|
|
USD
|
873
|
|
|
|
|
|
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Goodwill was amortized
over 15 years until the Company started to comply with SFAS No. 142, Goodwill
and Other Intangible Assets. This balance represents the remaining,
unamortized goodwill, after an impairment charge taken prior to January 1,
2003.
(2) Interbank rates taken
from Oanda.com
Earnings Per Common Share - The
Company complies with SFAS No. 128, Earnings per Share, which states
that 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 Companys common stock equivalents
currently include stock options and warrants. Unexercised warrants and stock
options to purchase shares of common stock as of December 31, 2006 and
2005 are approximately 261,117 and 196,742 respectively.
Income Taxes - The
Company complies with SFAS No. 109, Accounting for Income Taxes, which
requires 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.
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 patrons. Revenues
generated from ancillary
F-9
NOTE 2 -
Summary of Significant Accounting Policies (Continued)
services, including sales of food, beverage, cigarettes, and
casino logo merchandise are recognized at the time the related services are
performed and represent less than three percent of total revenues.
Promotional
Allowances - Promotional
allowances primarily consist of food and beverages furnished gratuitously to
customers. For the years ended December 31, 2006 and 2005, revenues do not
include the retail amount of food and beverage of $2,675 and $1,873,
respectively, provided gratuitously to customers. The cost of these items of $997
and $826, respectively, is included in cost of revenues.
External Advertising - The
Company complies with the accounting and reporting requirements of the AICPA
Statement of Position (SOP) 93-7, Reporting on Advertising Costs. External
advertising expenses are charged to operations as incurred and were $924 and $1,418
for the years ended December 31, 2006 and 2005, respectively.
Fair Value of
Financial Instruments - The
fair values of the Companys assets and liabilities that qualify as financial
instruments under SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, approximate their carrying amounts presented in the accompanying
consolidated balance sheets at December 31, 2006 and 2005.
Use of Estimates - The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Impairment of
Long-Lived Assets - The
Company adheres to SFAS No. 144, Accounting for the Impairment on
Disposal of Long-Lived Assets and periodically reviews the carrying value of
its long-lived assets in relation to historical results, as well as managements
best estimate of future trends, events and overall business climate. If such
reviews indicate that the carrying value of such assets may not be recoverable,
the Company would then estimate the future cash flows (undiscounted and without
interest charges). If such future cash flows are insufficient to recover the
carrying amount of the assets, then impairment is triggered and the carrying
value of any impaired assets would then be reduced to fair value.
Stock-based Compensation - The Company complies with SFAS No. 123R, Share-Based
Payment, issued in
December 2004. SFAS No. 123R is a revision of SFAS No. 123, Accounting
for Stock-Based Compensation, and supersedes APB Opinion No. 25 (APB No. 25).
Among other items, SFAS No. 123R eliminates the use of APB No. 25 and
the intrinsic value method of accounting, and requires companies to recognize
the cost of employee services received in exchange for awards of equity
instruments, based on the fair value of those awards as of the vested date in
the financial statements. The effective date of SFAS No. 123R for the
Company is the first quarter of 2006. SFAS No. 123R permits companies to
adopt its requirements using either a modified prospective method, or a modified
retrospective method. Under the modified prospective method, compensation
cost is recognized in the financial statements beginning with the effective
date, based on the requirements of SFAS No. 123R for all share-based
payments vested after that date, and based on the requirements of SFAS No. 123
for all unvested awards granted prior to the effective date of SFAS No. 123R.
Under the modified retrospective method, the requirements are the same as
under the modified prospective method, but also permit entities to restate
financial statements of previous periods, either for all prior periods
presented or to the beginning of the fiscal year in which the statement is
adopted, based on previous pro forma disclosures made in accordance with SFAS No. 123.
Accordingly, the Company has adopted the modified prospective method of
recognition, and began applying the valuation and other criteria to stock
options granted beginning January 1, 2006. The Company is recognizing
expense for the unvested portion of previously
F-10
NOTE 2 -
Summary of Significant Accounting Policies (Continued)
issued grants based on the valuation and
attribution methods used previously to calculate the pro forma disclosures. The
Company did not recognize expense for employee stock options prior to
January 1, 2006.
The Company currently utilizes the Black-Scholes option
pricing model to measure the fair value of stock options granted to certain key
employees. While SFAS No. 123R permits entities to continue to use such a
model, it also permits the use of a lattice model. The Company expects to
continue using the Black-Scholes option pricing model in connection with its adoption
of SFAS No. 123R to measure the fair value of stock options granted.
The assumptions and
resulting fair values of stock options granted in the year ended December 31, 2006
are as follows:
|
|
2006
|
|
Average expected term (in years)
|
|
6.2
|
|
Average risk-free interest rate
|
|
4.6
|
%
|
Average expected volatility
|
|
44
|
%
|
Dividend yield
|
|
0
|
%
|
Weighted average fair value per share of options
granted
|
|
$
|
1.14
|
|
|
|
|
|
|
In 2006, the Company expensed approximately $51 for
vested options to certain key management employees, which was recognized in its
selling, general and administrative expenses in the consolidated statement of income.
New Accounting
Pronouncements - In June 2006, the Financial
Accounting Standards Board (FASB) issued FIN No. 48, Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109.
FIN No. 48 requires that management determine whether a tax position is
more likely than not to be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. Once it is determined that a position meets this recognition
threshold, the position is measured to determine the amount of benefit to be
recognized in the financial statements. The Company will adopt the provisions
of FIN No. 48 beginning in the first quarter of 2007. The Company is
currently evaluating the impact of adopting FIN No. 48 on its financial
condition, results of operations and cash flows.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measures. This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles,
expands disclosures about fair value measurements, and applies under other
accounting pronouncements that require or permit fair value measurements. SFAS
No. 157 does not require any new fair value measurements. However, the FASB
anticipates that for some entities, the application of SFAS No. 157 will
change current practice. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007,
which for the Company would be its fiscal year beginning January 1, 2008.
The Company is currently evaluating the impact of SFAS No. 157 but does
not expect that it will have a material impact on its financial statements.
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities. This Statement permits entities to choose to measure many
financial assets and financial liabilities at fair value. Unrealized gains and
losses on items for which the fair value option has been elected are reported in
earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. The Company is currently assessing the impact of SFAS
No. 159 on its financial position and results of operations.
F-11
NOTE 3 - Property and
Equipment
At December 31, 2006 and 2005, property and
equipment consists of the following:
|
|
2005
|
|
2004
|
|
Land
|
|
$
|
2,440
|
|
$
|
2,067
|
|
Building and improvements
|
|
11,828
|
|
9,973
|
|
Gaming equipment
|
|
1,420
|
|
237
|
|
Furniture, fixtures and other equipment
|
|
7,665
|
|
4,428
|
|
|
|
23,353
|
|
16,705
|
|
Less accumulated depreciation and amortization
|
|
(5,254
|
)
|
(4,058
|
)
|
|
|
$
|
18,099
|
|
$
|
12,647
|
|
NOTE 4 - Long-Term Debt
At December 31,
2006 and 2005, long-term debt consists of the following:
|
|
2005
|
|
2004
|
|
Interest Notes (a)
|
|
$
|
|
|
$
|
455
|
|
Replacement Notes (b)
|
|
1,550
|
|
1,550
|
|
Route 59 building acquisition loan (c)
|
|
|
|
460
|
|
Route 55 construction term loan (d)
|
|
1,903
|
|
2,082
|
|
|
|
$
|
3,453
|
|
$
|
4,547
|
|
(a) The Interest Notes,
which had three-year terms, provided for monthly payments of principal and
interest of approximately $78, matured in June 2006.
(b) The
Replacement Notes, which have seven-year terms, have tiered, simple interest
rates: 6% for the first three years, 9.3% for the fourth year and 10% for the
fifth through the seventh years. For the first three years of the term, one
half of the accrued annual interest was payable, beginning on July 26,
2004, with the accrued interest balance payable at maturity. For the last four
years of the term, all annual interest accrued will be payable in full on July 26
of each of these last four years.
(c) In March 2002, the
Company exercised its right to purchase the Route 59 building lease. The
building lease buyout of 1,600, or approximately $2,100 using 2006
year-end exchange rate, was financed by a loan from a local Czech Republic bank.
The bank note, which was collateralized
by the Route 59 building, the Companys Rozvadov casino and an employee housing
building, matured in December 2006.
(d) In December 2004,
the Company drew 10 million CZK (approximately $408) from the 60 million CZK,
5.95% interest per annum, 58-month term loan it received from GE Capital
Bank a.s. for the construction of Casino Route 55. The Company drew down the
balance of the loan by March 2005 and commenced repayment, as per the loan
agreement in May 2005. The loan is subject to certain financial covenants
and collaterized by the land, building, furniture, fixtures and equipment in
Dolni Dvoriste and the lot in Folmava.
F-12
NOTE 4 - Long-Term Debt
(Continued)
Principal payments due on
long-term debt are as follows:
Year ending December 31,
|
|
|
|
Amount
|
|
2007
|
|
|
$
|
604
|
|
|
2008
|
|
|
604
|
|
|
2009
|
|
|
595
|
|
|
2010
|
|
|
1,650
|
|
|
|
|
|
$
|
3,453
|
|
|
NOTE 5 - Accrued Expenses
and Other Current Liabilities
At December 31, 2006
and 2005, accrued expenses and other current liabilities consist of the
following:
|
|
2006
|
|
2005
|
|
Accrued payroll
|
|
$
|
854
|
|
$
|
628
|
|
Short-term
portion of capital lease obligations
|
|
234
|
|
|
|
Operational accruals
|
|
277
|
|
261
|
|
Gaming equipment purchases
|
|
132
|
|
|
|
Accrued finders fee
|
|
|
|
212
|
|
|
|
$
|
1,497
|
|
$
|
1,101
|
|
NOTE 6Commitments and
Contingencies
Lease Obligations - The
Company is obligated under several operating leases expiring through 2010. Future aggregate minimum annual
rental payments under all of these leases for the next four years are as
follows:
Year ending December 31,
|
|
|
|
Amount
|
|
2007
|
|
|
$
|
97
|
|
|
2008
|
|
|
100
|
|
|
2009
|
|
|
102
|
|
|
2010
|
|
|
47
|
|
|
Rent expense under these operating leases was
approximately $97 and $97 for the years ended December 31, 2006 and 2005,
respectively.
The Company is also obligated under certain five-year,
slot equipment operating leases, which include a monthly rental fee per slot
machine, and an option for replacement to different/newer machines. In 2006,
the Companys slot lease expenses were approximately $2,316 versus $2,835 in
2005.
Lease TerminationIn
December 2005 and pursuant to the lease, the Company closed Hollywood Spin
Restaurant and Slot Bar (Hollywood Spin). The decision to close the unit was
based upon lack of attendance at the mall. As a result of arbitration, the
Company was ordered to pay back rent, with interest up to the date of closure
and legal fees incurred by lessor in connection with this dispute. The Company
had accrued a portion of the unpaid rent, thereby minimizing the impact on its
consolidated financial results.
There were no
significant amounts to accrue in 2005 pursuant to SFAS No. 146 Accounting
for Costs Associated with Exit or Disposal Activities as personnel and a
majority of the property and equipment were relocated from Hollywood Spin to
the Companys other casinos.
F-13
NOTE
6Commitments and Contingencies (Continued)
Employment AgreementsThe
Company has entered into employment agreements with certain of its executives,
which provide for annual compensation, plus in most cases, participation in
future benefit programs and stock options plans. As of December 31, 2006,
only $550 of annual compensation, payable in 2007, remains under these
employment agreements.
Pursuant to a renewal of the employment agreement with
the Companys Chief Executive Officer (CEO) in July 2005, the CEO
received a grant of seven-year options to purchase an aggregate total of
175,000 shares of the Companys Common Stock in allotments of 35,000 shares per
annum over a five year vesting period. These options are exercisable at prices,
depending on point in time, ranging from $2.80 per share on July 1, 2005
to $4.11 per share on January 1, 2012. Also pursuant to the July 2005
employment agreement with the Companys CEO, upon reaching designated earnings
per share targets, the CEO will be granted 75,000 restricted shares of the
Companys Common Stock in 25,000 allotments.
401 (k) and Profit Sharing PlanThe
Company maintains a contributory 401(k) plan and a profit sharing plan. These
plans are for the benefit of all eligible corporate employees, who may have up
to 15% of their salary withheld, not to exceed $15 (in the year ended December 31,
2006). The Company makes a voluntary matching contribution based on a portion
of salary withheld, which totaled $51 in 2006 and $36 in 2005.
Taxing JurisdictionThe
Czech Republic currently has a number of laws related to various taxes imposed
by governmental authorities. Applicable taxes include gaming tax, VAT, charity
tax, and payroll (social) taxes. Tax declarations, together with other legal
compliance areas (as examples, customs and currency control matters) are
subject to review and investigation by a number of authorities, which are
enabled by law to impose extremely severe fines, penalties and interest
charges, create tax risks in the Czech Republic. Management believes that it
has adequately provided for tax liabilities.
NOTE 7Risks and
Uncertainties
Regulation and
LicensingThe Companys operations are subject to
regulation by each local jurisdiction in which it operates or plans to operate,
as well as federal laws and the laws of any foreign country. Each of the Companys
officers may be subject to strict scrutiny and approval from a gaming
commission or another regulatory body of each jurisdiction in which the Company
may conduct gaming operations.
In 1998, the Czech Republics House of Deputies passed
an amendment to the gaming law, which restricted foreign ownership of casino
licenses. In response, the Company restructured its subsidiaries and Czech
legal entities to comply with the amendment and was subsequently granted a 10-year
gaming license. There can be no assurance that the authorities in the Czech
Republic will not amend the gaming law as it pertains to foreign ownership of
casino licenses. In the event the gaming laws are amended in the future, it may
have a material adverse effect on the Companys future profitability and
operations. Further, there has been increased competition in the areas where
the Company operates because local municipalities no longer have control over
the issuance of casino licenses, thereby effectively eliminating exclusivity.
Foreign ActivitiesThe
Companys operations are entirely outside of the United States. Operating
internationally involves additional risks relating to such things as currency
exchange rates, different legal and regulatory environments, political and
economic risks relating to the stability or predictability of foreign
governments, differences in the manner in which different cultures conduct
business, difficulties in staffing and managing foreign operations, differences
in financial reporting, operating difficulties, and different types of criminal
threats, and other factors. The occurrence of any of these risks, if severe
enough, could have a material adverse effect on the consolidated financial
position, results of operations and cash flows of the Company.
F-14
NOTE
7Risks and Uncertainties (Continued)
CashCash consists of
cash in banks and on hand. The Company maintains its bank accounts at several
financial institutions, which, at times, may exceed Federal Deposit Insurance
Corporation (FDIC) insured limits. In addition, the FDIC does not insure the
Companys foreign cash, which totaled approximately $2,927 and $1,995 at December 31,
2006 and 2005, respectively. The Company has not incurred any losses in such
accounts and believes it is not exposed to any significant credit risk on cash.
NOTE 8Related Party Transactions
At December 31, 2006 and 2005, approximately $0
and $372, respectively, of the Interest Notes were held by Value Partners,
Ltd., an approximate 44% owner of the Companys issued and outstanding common
stock as of December 31, 2006. Related interest expense was approximately
$9 and $60 for the years ended December 31, 2006 and 2005, respectively.
During the year ended December 31,
2006, the Company utilized the services of an attorney who is the brother of
the Companys managing director of Czech operations. Fees paid to the attorney
during 2006 totaled approximately $17. At December 31, 2006, approximately
$7 was owed to the attorney for services rendered through such date.
NOTE 9Stockholders
Equity
In December 2005, the
Company completed the private placement of 2,794,188 shares of its common stock
with several accredited investors, as defined in Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, of shares of Common
Stock, for an aggregate purchase price of $4,750 or $1.70 per share, the then
listed market price of the Companys common stock (the $4.75 million Capital
Raise). The placement agent received 15,000 shares of the Companys common
stock at $25 or $1.70 per share, as partial consideration for its finders fee.
Associated costs of the private placement, which included finders fees, and
legal and accounting fees, totaled approximately $306 and have been reflected
as a reduction of additional paid-in capital.
NOTE
10Other Assets and Liabilities
Notes ReceivablesIn connection
with the TWCs management of the Grand Casino Lav and Nightclub, the Company
extended three EUR loans to Grand Hotel Lav, d.o.o., the owner of the Grand
Casino Lav and Nightclub, as follow:
(i) a three-year, 4.0% interest per annum loan up to 1,000,
or approximately $1,322 using 2006 year-end exchange rates, for the equipment
purchases, of which $737 has been drawn as of December 31, 2006;
(ii) a two-year, non-interest bearing loan up to 600,
or approximately $793 using 2006 year-end exchange rates, for preopening costs
related to the casino and nightclub, of which $199 has been drawn as of
December 31, 2006; and (iii) a one-year (renewable), non-interest
bearing loan up to 300,
or $397 using 2006 year-end exchange rates, for working capital, which has not
been drawn. The last possible date of drawing on these loans is
February 28, 2007, and will commence repayments on May 31, 2007.
Other AssetsIncluded
in other assets are restricted deposits, aggregating 24,000 CZK, relating to
Czech license bond requirements. Using year-end exchange rates, these deposits
have been translated to $1,151 and $978 at December 31, 2006 and 2005,
respectively.
F-15
NOTE
10Other Assets and Liabilities (Continued)
Other Long-term LiabilitiesAt
December 31, 2006 and 2005, other long-term liabilities consisted of the
following:
|
|
2006
|
|
2005
|
|
Deferred executive incentives
|
|
150
|
|
315
|
|
Accrued Interest
|
|
141
|
|
93
|
|
Capitalized leases
|
|
427
|
|
52
|
|
Total
|
|
$
|
718
|
|
$
|
460
|
|
|
|
|
|
|
|
|
|
NOTE 11Income
Taxes
In the Czech Republic, gaming income is not subject to
corporate income tax. In lieu of income taxes, gaming income is subject to
other taxes in the Czech Republic, including gaming and charity taxes, which
are primarily based on percentages of gaming revenues. Foreign net operating
loss carry-forwards (disclosed below), were derived from non-gaming activities
and can only be applied against non-gaming activities.
At December 31, 2006, the Company had U.S. and
foreign net operating loss carry forwards (NOLs) of approximately $29,571
and $3,060, respectively, available to offset certain future taxes payable. However,
based on limited analysis, the sizable warrant exercise in February 2001
or earlier events may have triggered significant limitations of preexisting
U.S. NOLs, pursuant to Internal Revenue Code Section 382, to the extent
that substantially all of the Companys existing U.S. NOLs prior to February 2001,
aggregating approximately $15,565, may be significantly limited. The U.S. NOLs
generated subsequent to February 2001, aggregating approximately $14,006
resulted in an estimated $5,602 deferred tax asset at December 31, 2006
and the foreign NOL resulted in an estimated $796 deferred tax asset at December 31,
2006. A full valuation allowance has been established for these deferred tax
assets since its realization is considered unlikely.
The U.S. NOLs expire between 2010 and 2026. The
foreign NOLs expire between 2006 and 2010. During the year ended December 31,
2006, approximately $672 of foreign NOLs expired. The following table presents
the U.S. and foreign components of pretax income before income taxes for the
years ended December 31, 2006 and 2005:
|
|
2006
|
|
2005
|
|
U.S.
|
|
$
|
(1,998
|
)
|
$
|
(1,557
|
)
|
Foreign
|
|
4,025
|
|
1,636
|
|
|
|
$
|
2,027
|
|
$
|
79
|
|
The Companys effective income tax rate differs from
the U.S. federal statutory income tax rate primarily because gaming income, the
Companys primary revenue source, is not subject to income tax. Further, the
Companys effective income tax rate differs from the U.S. statutory income tax
rate as a result of the Company maintaining a full valuation allowance on its
NOLs.
F-16
NOTE 12Stock
Options and Warrants
Stock Options
The
activity in the stock option plans is as follows:
|
|
Number of Options
|
|
Range of
Exercise Price
|
|
Weighted Average
Exercise Price
|
|
Balance outstanding, January 1, 2005
|
|
|
11,060
|
|
|
|
$
|
2.00-83.00
|
|
|
|
$18.32
|
|
|
Granted
|
|
|
175,300
|
|
|
|
2.00-3.05
|
|
|
|
2.80
|
|
|
Expired
|
|
|
(1,000
|
)
|
|
|
61.00
|
|
|
|
61.00
|
|
|
Balance outstanding,
December 31, 2005
|
|
|
185,360
|
|
|
|
$
|
2.00-83.00
|
|
|
|
$
|
3.41
|
|
|
Granted
|
|
|
65,375
|
|
|
|
2.50-2.90
|
|
|
|
2.50
|
|
|
Expired
|
|
|
(1,000
|
)
|
|
|
61.00
|
|
|
|
61.00
|
|
|
Balance outstanding,
December 31, 2006
|
|
|
249,735
|
|
|
|
$
|
2.00-83.00
|
|
|
|
$
|
3.07
|
|
|
Exercisable, December 31, 2006
|
|
|
114,735
|
|
|
|
$
|
2.00-83.00
|
|
|
|
$
|
3.31
|
|
|
The option exercise
price per share was equal to or above the market value of the underlying stock
on the date of grant. Options generally expire between five and ten years after
the date of grant or earlier upon termination, as defined in the plans.
Additional information about the Companys outstanding
stock options at December 31, 2006 is as follows:
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Remaining
|
|
Weighted
|
|
|
|
|
|
Contractual
|
|
Average
|
|
Range of
|
|
Number of
|
|
Life
|
|
Exercise
|
|
Exercise Prices
|
|
|
|
Shares
|
|
(in Years)
|
|
Price
|
|
$0.01 to $2.00
|
|
75
|
|
|
9.00
|
|
|
|
$
|
2.00
|
|
|
$2.01 to $2.50
|
|
65,075
|
|
|
6.16
|
|
|
|
$
|
2.50
|
|
|
$2.51 to $3.00
|
|
176,175
|
|
|
5.51
|
|
|
|
$
|
2.97
|
|
|
$3.01 to $4.00
|
|
2,675
|
|
|
7.41
|
|
|
|
$
|
3.45
|
|
|
$4.01 to $5.00
|
|
1,875
|
|
|
5.12
|
|
|
|
$
|
4.96
|
|
|
$5.01 to $10.00
|
|
1,925
|
|
|
6.34
|
|
|
|
$
|
6.44
|
|
|
$10.01 to $25.00
|
|
1,355
|
|
|
3.73
|
|
|
|
$
|
17.93
|
|
|
$25.01 to $50.00
|
|
420
|
|
|
2.87
|
|
|
|
$
|
36.60
|
|
|
$50.01 to $75.00
|
|
100
|
|
|
2.95
|
|
|
|
$
|
51.00
|
|
|
$83.00
|
|
60
|
|
|
2.75
|
|
|
|
$
|
83.00
|
|
|
|
|
249,735
|
|
|
5.69
|
|
|
|
$
|
3.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
For the years ended December 31, 2006 and 2005,
warrant activity is as follows:
|
|
|
|
Balance,
|
|
,
|
|
|
|
Balance
|
|
|
|
|
|
Balance
|
|
Exercise Price
|
|
Warrants
|
|
January 1,
|
|
Exercised
|
|
Expired
|
|
December 31,
|
|
Exercised
|
|
Expired
|
|
December 31,
|
|
per Share
|
|
Expiring
|
|
2005
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2006
|
|
2006
|
|
|
$
|
150.00
|
|
|
12/31/2005
|
|
|
32,001
|
|
|
|
|
|
|
(32,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.00
|
|
|
12/31/2005
|
|
|
9,600
|
|
|
|
|
|
|
(9,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00
|
|
|
3/31/2008
|
|
|
11,382
|
|
|
|
|
|
|
|
|
|
11,382
|
|
|
|
|
|
|
|
|
|
|
|
11,382
|
|
|
|
|
|
|
|
52,983
|
|
|
|
|
|
|
(41,601
|
)
|
|
11,382
|
|
|
|
|
|
|
|
|
|
|
|
11,382
|
|
|
F-17
NOTE 12Stock Options and Warrants
(Continued)
All warrants outstanding at December 31, 2006 are
exercisable.
NOTE
13Compensation Plans
2004 Equity
Incentive Plan
In May 2004,
TWCs Board of Directors (the Board) unanimously adopted the 2004 Equity
Incentive Plan (2004 Equity Plan), which was subsequently approved by the
shareholders of the Company at its Annual Meeting held in June 2004. The
2004 Equity Plan stipulates that no further grants will be made under the 1998
Stock Option Plan (the 1998 Plan) and the 10,800 shares of Common Stock
remaining available for grant under the 1998 Plan were added to those available
for grant under the 2004 Equity Plan.
The 2004 Equity
Plan provides that certain awards made under the plan may be eligible to
qualify 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. 262,383 shares of Common
Stock will be authorized and available for issuance pursuant to awards granted
under the 2004 Equity Plan, including 10,800 shares previously available for
grant under the 1998 Plan. In June 2005, the Shareholders of the Company,
at its Annual Meeting, approved amendments, facilitating the Committee with
discretion to grant to any participant annually up to 250,000 shares of Common
Stock and to determine whether to include a one-year vesting requirement for
any future grants awarded under the 2004 Equity Plan to any of the Companys
employees. The shareholders of the Company at its Annual Meeting, held in
May 2006, approved amendments to increase the 2004 Equity Plan authorized
shares that may be issued under the provisions by an additional 125,365, which
included the 365 shares remaining in the 1999 Non-Employee Director Stock
Option Plan (the 1999 Plan) that have not been awarded to date, thereby
creating a new total of 387,748 authorized and available for issuance, of which
72,748 remained available for issuance as of December 31, 2006.
Additionally, the amendments provide that 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-incentive stock options. Type of awards which may be granted,
under the 2004 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 2004 Equity Plan contains the following provisions: (i) No stock option repricings (without
the approval of the Companys shareholders); (ii) limitations on shares
other than for stock options; (iii) no discounts on stock options:
(iv) minimum one year vesting periods for all awards (including stock options);
(v) minimum three year vesting periods for restricted stock and other
stock-based awards; and (vi) no evergreen provisions.
Deferred
Compensation Plan
On May 17,
2006, the Compensation Committee of the Board unanimously approved and adopted
TWCs Deferred Compensation Plan (the Deferred Plan), which provides certain
key employees and non-employee directors the opportunity to elect 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
F-18
NOTE
13Compensation Plans (Continued)
under ERISA Sections 201(2), 301(a)(3) and
401(a)(1) and the Deferred Plan shall at all times satisfy
Section 409A of the Code. The unfunded Deferred Plan obligations are
payable only in the form of common stock upon the earlier of: (i) a designated, in-service
distribution date which must be a minimum of three (3) years from the year
of the first deferral; (ii) separation of employment;
(iii) disability; (iv) change in control; or (v) death. A
participants 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 (2) and a maximum of five (5) installments) as may be
directed by the participant in his or her election form.
2006 Profit Sharing
Plan
The 2006 Profit
Sharing Plan was approved by the Compensation Committee of the Board on
August 2, 2006 and is subject to conditions outlined in the Deferred Plan.
The 2006 Profit Sharing Plan permits designated key
management employees (KME) to share in the profits of the Company. The profit
sharing pool will be calculated based on a graduated scale of the attainment of
consolidated year-end net income before taxes versus the annual budget and the
maximum sum to be distributed from that pool is set at 30% of the aggregate of
the annual salaries of the KMEs. Each KME is required, pursuant to the
rule of the 2006 Profit Sharing Plan, to defer 20% of his annual profit
sharing award, if attained, in accordance with the Deferred Plan described above.
NOTE
14Subsequent Event
On January 19,
2007, in consideration of his service to the Company, the Compensation
Committee of the Board granted the CEO, Mr. Ramadan, a merit-based award
of $100 and effective February 4, 2007, seven year options to purchase
50,000 shares of Common Stock, with options to purchase 12,500 shares to be
vested immediately, and options to purchase 12,500 shares to be vested each
subsequent year on the anniversary of the date of grant. The exercise price of
these options is set at $3.75 per share.
F-19
TRANS WORLD CORPORATION
6,373,639
Shares
Common Stock
$0.001 par value per share
April ,
2007
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 24.
Indemnification of Directors and Officers.
Our Articles of Incorporation, as amended, as filed in
Exhibit 3.1 hereof, and our Bylaws, as amended, as filed in Exhibit 3.2
hereof, provide that we must indemnify our directors, our officers and any
other person whom we have the power to indemnify to the fullest extent
permitted under Nevada law, against liability, reasonable expense or other
matter whatsoever. The effect of these provisions is potentially to indemnify
our directors and officers from all costs and expenses of liability incurred by
them in connection with any action, suit or proceeding in which they are
involved by reason of their affiliation with us.
Our amended Articles of
Incorporation and Bylaws also permit us to maintain insurance on behalf of our
company and any person whom we have the power to indemnify. We have purchased
directors and officers liability insurance.
Item 25. Other
Expenses of Issuance and Distribution.
Expenses
incurred (or expected to be incurred relating) to this Registration Statement
are as follows. The amounts set forth below are estimates except for the SEC
registration fee.
Description
|
|
|
|
Amount
|
|
SEC registration fee
|
|
$
|
1,760.44
|
|
Edgarization and printing expenses
|
|
10,000.00
|
|
Professional fees and expenses
|
|
140,000.00
|
|
Transfer agents and registrars fees and expenses
|
|
4,000.00
|
|
Miscellaneous
|
|
10,000.00
|
|
Total
|
|
$
|
165,760.44
|
|
The Registrant will bear
all of the expenses shown above.
Item 26. Recent
Sales of Unregistered Securities.
Set forth below is information regarding the issuance
and sales of our securities without registration for the past three (3) years
prior to the date of this Registration Statement.
On December 22 and 27, 2005, we issued an
aggregate of 2,809,188 shares of our common stock to certain accredited
investors as that term is defined in Rule 502 of Regulation D promulgated
under the Securities Act of 1933, as amended, at a purchase price of $1.70 per
share. The securities were issued in reliance upon the exemption contained in
Section 4(2) of the Securities Act of 1933, as amended (the
Securities Act), and Rule 506 of Regulation D promulgated under the
Securities Act. The purchasers were not solicited through any form of general
solicitation or advertising. The purchasers represented to us, among other
things, that they were acquiring the securities for investment purposes only
and not with a view to, or for sale in connection with, any distribution
thereof, that they were accredited investors as that term is defined in
Rule 502 of Regulation D promulgated under the Securities Act and
appropriate legends were placed upon the securities issued. All purchasers were
provided, and acknowledged that they had adequate access to, information about
us.
Other than the securities mentioned above, we have not
issued or sold any securities without registration for the past three
(3) years from the date of this Registration Statement.
Item 27. Exhibits
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).
|
3.1 (d)
|
|
Certificate of Amendment to Articles of Incorporation
|
|
Incorporated by reference to Exhibit 3.1 contained in the
Form 8-K for December 22, 2005 (File No. 0-25244).
|
3.2
|
|
Bylaws
|
|
Incorporated by reference to Exhibit 3.2 contained in the
Registration Statement on Form SB-2 (File No. 33-85446-A).
|
4.1
|
|
Specimen Common Stock Certificate
|
|
Incorporated by reference to Exhibit 4.1 contained in the
Registration Statement on Form SB-2 (File No. 33-85446-A).
|
4.2
|
|
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).
|
Item No
|
|
Item
|
|
Method of Filing
|
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).
|
5.1
|
|
Opinion of Elias, Matz, Tiernan & Herrick, L.L.P. regarding
the legality of shares issued
|
|
Incorporated by
reference to Exhibit 5.1 contained in the Registration Statement on
Form SB-2 (File No. 333-134766).
|
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).
|
|
|
|
|
|
|
|
|
Item No
|
|
Item
|
|
Method of Filing
|
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).
|
|
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 Exhibit 10.17 contained in the
Registration Statement on Form SB-2 (File No. 333-134766).
|
|
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 for the year ended December 31, 2005 (File
No. 0-25244).
|
|
10.19
|
|
Selling Stockholder Agreement
|
|
Incorporated by reference to Exhibit No. 10.19 contained in
the Registration Statement on Form SB-2 (File No. 333-134766).
|
|
10.20
|
|
Registration Rights Agreement
|
|
Incorporated by reference to Exhibit 10.20 contained in the
Registration Statement on Form SB-2 (File No. 333-134766).
|
|
10.21
|
|
Form of Amendment to Selling Stockholder Agreement
|
|
Incorporated by reference to Exhibit 10.21 contained in the
Registration Statement on Form SB-2 (File No. 333-134766).
|
|
21.1
|
|
Subsidiaries of the Registrant
|
|
Incorporated by a reference to Exhibit No. 21.1 contained in
the Registration Statement on Form SB-2 (File No. 333-134766).
|
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
Filed herewith.
|
|
24.1
|
|
Power of Attorney
|
|
Included on Signature page.
|
|
|
|
|
|
|
|
|
|
|
|
Item 28.
Undertakings.
The small business
issuer will:
(1) file, during any period in which it offers or
sells securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the Calculation
of Registration Fee table in the effective registration statement; and
(iii) include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove
from registration any of the securities that remain unsold at the end of the
offering.
(4) For determining liability of the undersigned
small business issuer under the Securities Act to any purchaser in the initial
distribution of the securities, the undersigned small business issuer
undertakes that in a primary offering of securities of the undersigned small
business issuer pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned small business issuer will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
(i) Any preliminary prospectus or prospectus of
the undersigned small business issuer relating to the offering required to be
filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned small business issuer or
used or referred to by the undersigned small business issuer;
(iii) The portion of any other free writing
prospectus relating to the offering containing material information about the
undersigned small business issuer or its securities provided by or on behalf of
the undersigned small business issuer; and
(iv) Any other communication that is an offer in
the offering made by the undersigned small business issuer to the purchaser.
Insofar as indemnification for the liabilities arising
under the Securities Act of 1933 (the Act) may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities
Act of 1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on form SB-2 and
authorizes this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, State of New
York, on April 25, 2007.
By:
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/s/ Rami S. Ramadan
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Rami S. Ramadan
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President and Chief Executive Officer
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By:
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/s/ Rami S. Ramadan
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Rami S. Ramadan
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Chief Financial Officer and
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Principal Accounting Officer
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In accordance with the requirements of the Securities
Act of 1933, this registration statement has been signed by the following
persons in the capacities and on the date stated. Each person whose signature
appears below hereby constitutes and appoints Rami S. Ramadan as such persons
true and lawful attorney and agent with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign for such person and in such persons name and capacity
indicated below, any and all amendments to this Registration Statement, hereby
ratifying and confirming such persons signature as it may be signed by said
attorney to any and all amendments (pre-effective and post-effective
amendments).
By:
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/s/ Rami S. Ramadan
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Date: April 25, 2007
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Rami S. Ramadan
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President, Chief Executive Officer and Director
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By:
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/s/ Malcolm M.B. Sterrett
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Date: April 25,
2007
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Malcolm M.B. Sterrett
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Director
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By:
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/s/ Geoffrey B. Baker
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Date: April 25,
2007
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Geoffrey B. Baker
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Director
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By:
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/s/ Timothy G. Ewing
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Date: April 25,
2007
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Timothy G. Ewing
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Director
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By:
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/s/ Julio E. Heurtematte
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Date: April 25,
2007
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Julio E. Heurtematte
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Director
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