Summary of Selected Significant Accounting Policies. (Policies)

6 Months Ended

Jun. 30, 2012

Summary of Selected Significant Accounting Policies.

Revenue recognition

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, and is recognized on the day it is earned. Revenues generated from ancillary services, including lodging, sales of food, beverage, cigarettes, and casino logo merchandise are recognized at the time the related services are performed and represent, on an individual basis, less than three percent of total revenues.

Earnings per share

Earnings per share- Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share incorporate the dilutive effect of common stock equivalents on an average basis during the period. The Company’s common stock equivalents currently include stock options, warrants and deferred compensation stock. Thus, unexercised stock options to purchase up to 662,425 and 838,025 shares as of June 30, 2012 and June 30, 2011, respectively, were included in the computation of diluted earnings per common share, if such unexercised stock options were “in-the-money” and vested. Warrants to purchase up to 75,000 shares were also included, if they were “in-the-money” and vested. In addition, 149,654 and 51,538 issuable shares, as of June 30, 2012 and June 30, 2011, respectively, under the Company’s Deferred Compensation Plan were also included in the computation.

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

	(UNAUDITED)
	For the Six Months Ended				For the Three Months Ended
(amounts in thousands, except for	June 30,				June 30,
share information)	2012		2011		2012		2011
Basic Earnings Per Share:
Net earnings	$	749	$	1,337	$	246	$	894
Weighted average common shares	8,871,635		8,871,640		8,871,635		8,871,640
Basic earnings per share	$	0.08	$	0.15	$	0.03	$	0.10
Diluted Earnings Per Share:
Net earnings	$	749	$	1,337	$	246	$	894
Weighted average common shares	8,871,635		8,871,640		8,871,635		8,871,640
Addition due to the effect of dilutive securities:
Stock options and warrants (1)	10,038				10,038
Stock issuable under the Deferred Compensation Plan	149,654		51,538		149,654		51,538
Dilutive potential weighted average common shares	9,031,327		8,923,178		9,031,327		8,923,178
Diluted earnings per share	$	0.08	$	0.15	$	0.03	$	0.10

(1) Per the treasury stock method.

Goodwill

Goodwill- Goodwill represents the excess of the cost of the Company’s Czech subsidiaries over the fair value of their net assets at the date of acquisition, which consisted of the Ceska and Rozvadov casinos and the land in Hate, which is currently, the Route 59 Casino. Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. The Company has allocated the goodwill over two reporting units that are components of the operating segment “Czech subsidiaries” and are classified as the “German reporting unit” which consists of the Ceska and Rozvadov casinos, and the “Austrian reporting unit” which consists of the Route 55 and Route 59 casinos and the Hotel Savannah. Despite the sale of the Rozvadov property in July 2012, there was no impact on goodwill since goodwill associated with the German reporting unit was all assigned to Ceska.  The impairment assessment requires the Company to compare the fair value of its two reporting units to their respective carrying values to determine whether there is an indication that an impairment exists. The fair value of the two reporting units were determined through a combination of recent appraisals of the Company’s real property and a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which was based on the Company’s experience and data from independent, third parties. As required, the Company performed its required annual fair-value based testing of the carrying value of goodwill related to its two reporting units at September 30, 2011, and determined that goodwill was not impaired. The Company will perform its required annual assessment of goodwill during the third quarter of 2012. There were no indicators of impairment present during the interim periods following the annual testing date, therefore the Company determined that there was no impairment of goodwill at June 30, 2012.

Discontinued Operations / Assets Held for Sale

Discontinued Operations / Assets Held for Sale-The Company’s assets held for sale are reported separately on the condensed consolidated balance sheets by class of asset and/or liability, and these new line items are reclassified on the financial statements (Balance Sheets) for the prior year(s). The net income or loss from the operations of the assets held for sale are reported separately on the Income Statement, located below Income from Continuing Operations; and similar to the Balance Sheets presentation, the prior year(s) are also reclassified.

Property and Equipment

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

Asset	Estimated Useful Life
Building and improvements	5-50 years
Furniture, fixtures and other equipment	4-12 years

At June 30, 2012 and December 31, 2011, property and equipment consisted of the following:

	As of June 30, 2012			As of December 31, 2011
	(unaudited)
Land	$	2,467		$	2,498
Building and improvements	28,230			29,418
Furniture, fixtures and other equipment	11,608			12,260
	42,305			44,176
Less accumulated depreciation and amortization	(11,100		)	(11,108		)
	$	31,205		$	33,068

Impairment for long-lived assets

Impairment for long-lived assets-The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used are recoverable. If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived assets, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists. If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable market value. There were no impairment losses for long-lived assets recorded for the six months ended June 30, 2012.

Foreign currency translation

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

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

	Applicable	Goodwill
	Foreign Exchange	German		Austrian
As of June 30, 2012 (in thousands, except FX)	Rate (“FX”) (2)	reporting unit		reporting unit		Total
Residual balance, as of January 1, 2003 (in USD) (1)		USD	3,042	USD	537	USD	3,579
USD residual balance, translated at June 30, 1998 (date of acquisition) FX rate of:	33.8830	CZK	103,077	CZK	18,190	CZK	121,267
2003 CZK balance, translated to USD, at June 30, 2012 FX of:	20.6857	USD	4,983	USD	879	USD	5,862
Net increase to Goodwill		USD	1,941	USD	342	USD	2,283

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

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

Stock-based compensation

Stock-based compensation-The Company recognizes the fair value of stock-based compensation in the statement of operations. The fair value of the Company’s stock option awards are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award.  In addition, the calculation of compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of stock-based awards is amortized over the vesting period of the award.

Comprehensive income (loss)

Comprehensive income (loss) — The Company’s change in the foreign currency translation adjustments is included in other comprehensive income (loss).

Promotional allowances

Promotional allowances — Promotional allowances primarily consist of food and beverages (“F&B”) and, to certain of its valuable players, hotel accommodations, all of which are furnished gratuitously.  For the six months ended June 30, 2012 and 2011, revenues do not include the retail amount of F&B and hotel accommodations of $2,442 and $3,221, respectively, provided at no-charge to customers. The retail value of the F&B given away is determined by dividing the F&B costs charged to the gaming operation of $871 and $1,291, for the respective periods, by the average percentage of cost of F&B sold.  The cost of hotel accommodations is either the out-of-pocket expenses paid to other hotels or the retail charge of rooms at the Hotel Savannah. The promotional allowances are summarized below:

	(UNAUDITED)
	For the Six Months Ended						For the Three Months Ended
	June 30,						June 30,
(amounts in thousands)	2012			2011			2012			2011
Cost of gratuitous food and beverages (A)	$	871		$	1,291		$	284		$	624
Average cost of food and beverages sold (B)	35.9		%	40.2		%	38.3		%	38.9		%
Retail value of food and beverages (A/B)	$	2,426		$	3,211		$	742		$	1,604
Retail value of hotel accommodations	16			10			8			3
Total promotional allowances	$	2,442		$	3,221		$	750		$	1,607

Czech taxes

Czech gaming taxes — The majority of TWC’s revenues are derived from gaming operations in the Czech Republic, which were subject to, prior to January 1, 2012, only gaming taxes and charity taxes, while its non-gaming revenues, which were not material, were subject to correspondingly non-material corporate income tax liabilities under Czech law.

Gaming taxes were computed on gross gaming revenues, which were comprised of live (table) games and slot games revenues. For live game revenue, the applicable taxes and fees were: (i) a 10% administration tax; (ii) a 1% state supervision fee; and (iii) a charity “contribution” (i.e., a tax), herein referred to as the charity tax, for publicly beneficial, cultural, sporting and welfare purposes, according to a gross revenue formula specified by the Czech Ministry of Finance.

Charity taxes were also computed on the reported slot revenues of each of our three former slot subsidiary companies, ACC Slot, s.r.o., Hollywood Spin s.r.o. and LMJ Slot s.r.o., net of gaming taxes and fees. Therefore, for all gaming revenue, net of applicable taxes and fees, of up to CZK 50,000 (or $2,800 at the annualized daily exchange rate for 2011), a 6% charity tax applies; of up to CZK 100,000 (or $5,700 at the same exchange rate), an 8% rate applies; of up to CZK 500,000 (or $28,300 at the same exchange rate), a 10% rate applies; and of above the CZK 500,000 gaming revenue threshold, a 15% rate applies. For slot game revenue, the applicable assessment is the charity tax, net of local (municipality) administration and slot state-licensing fees.

Effective January 1, 2012, TWC merged its three Czech slot subsidiary companies, ACC Slot, s.r.o., Hollywood Spin s.r.o. and LMJ Slot s.r.o. into its primary Czech operating entity company, American Chance Casinos a.s., in an effort to eliminate and/or reduce redundancy in operations, maintenance and operating costs.

Effective January 1, 2012, the charity taxes have been eliminated in lieu of the New Gaming Tax on all live game and slot revenues, as well as an applicable corporate income tax on adjusted Czech net income, net of exemptions.  Additionally, the administration tax and state supervision fee have been eliminated in lieu of minor license renewal fees. A summary of the changes is summarized in the following table:

		New Gaming Tax Law *
	Pre-2012 Gaming Tax Law	(effective January 1, 2012)
Live Games:	10% Gaming Tax from Win (administration fee); 1% Gaming Tax from Win (state supervision); 6-15% Charity Tax from Win, net of Gaming Taxes (the Charity Tax rate is based on tiered revenue thresholds).	20% Gaming Tax from Win (70% of receipt to state; 30% to municipal).
Slots:	16,000 CZK (or $800) License per machine, per every 6 months; 1,000 CZK (or $50) Municipality Fee per machine, per quarter; 6-15% Charity Tax from Win, net of License and Municipality fees (the Charity Tax rate is based on tiered revenue thresholds).	20% Gaming Tax from Win (20% of receipt to state; 80% to municipal); 55 CZK (or $3) Gaming Tax per Machine, per Day.
Net Income	No corporate income tax.	19% corporate income tax on adjusted net income, net of exemptions.

* The new Gaming Tax is to be paid quarterly, while corporate income tax obligation is to be paid in June of the subsequent year.

Gaming taxes payable for year 2011 were due and paid to the Czech Ministry of Finance in April 2012, while charity taxes payable, despite having no stated due dates, were paid as mutually agreed with the charities, customarily by May of the subsequent year. The Company was permitted to allocate this charity contribution to local schools, sports clubs, subsidized or volunteer organizations, or municipalities in which each of the Company’s casinos operate. The distribution was subject to the prior approval of the Czech Ministry of Finance. The New Gaming Tax is payable at the end of each quarter. The Company was in full compliance with all tax payment deadlines at June 30, 2012.

TWC’s gaming-related taxes and fees for the six and three months ended June 30, 2012 and 2011 are summarized in the following table:

	For the Six Months Ended						For the Three Months Ended
	June 30,						June 30,
(amounts in thousands)	2012			2011			2012			2011
Gaming revenues	$	16,044		$	16,613		$	7,481		$	8,731
Gaming taxes, live games and slots	3,342			783			1,578			401
Charity taxes (eliminated in 2012)				1,447						758
Licensing fees (eliminated in 2012) (1)	283			357			139			190
Total gaming taxes and fees	$	3,625		$	2,587		$	1,717		$	1,349
as % of gaming revenue (2)	22.6		%	15.6		%	23.0		%	15.4		%

(1) As the non-refundable, six-month licensing fees effective for January 2012 through June 2012 were paid in October 2011, prior to the passing of the New Gaming Tax laws in December 2011, the Company incurred additional fees for the first six months of 2012.  Excluding the non-recurring licensing fees, the gaming taxes for the three and six months of 2012 would have been 21.1% and 20.8% of gaming revenues, respectively.

(2) The tax percentages in 2012 vary slightly from the 20% flat rate, due to minor administrative fees.

In conformity with the European Union (“EU”) taxation legislation, when the Czech Republic joined the EU in 2004, its VAT increased from 5% to 22%, from January 2004 through December 2009, and ranged between 9% and 19% for all intra-EU generated purchases. Beginning January 1, 2010, VAT rates increased to between 10% and 20%. All non-EU generated purchases were impacted by identical VAT increases, beginning in May 2004. The Company pays its VAT directly to its vendors in connection with any purchases that are subject to this tax. Unlike in other industries, VATs are not recoverable for gaming operations. The recoverable VAT under the Hotel Savannah operation was non-material for the six and three months ended June 30, 2012 and 2011.

On February 28, 2012, TWC transferred the ownership of its fully-owned Czech subsidiary, Trans World Hotels, s.r.o., which owns the Hotel Savannah, to TWC’s primary Czech subsidiary, American Chance Casinos a.s., in an effort to consolidate and reduce redundancy and maintenance costs.

Income taxes

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.  Accounting for income taxes prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company’s income tax return. Accounting for income taxes utilizes a two-step approach for evaluating uncertain tax positions. Step One, or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step Two, or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority. The Company is subject to income tax examinations by major taxing authorities for all tax years subsequent to 2008. The adoption of the provisions of the FASB standard, “Accounting for Income Taxes” did not have a material impact on the Company’s consolidated financial statements. However, management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulation and interpretations, thereof.  During the six-month period ended June 30, 2012, the Company recognized no adjustments for uncertain tax positions.

Effective January 1, 2012, the Czech government instituted an effective corporate income tax, currently at 19.0%, on gaming revenues, which prior to the law changes were subject only to gaming taxes.  As a result of the new tax laws and due to the potential and material income tax liability, the Company accrued an estimated income tax liability of $309 and $684 for the three and six months ended June 30, 2012, respectively.  Corporate income tax is payable by June of the subsequent year.

Recently issued and adopted accounting standards

Recently issued and adopted accounting standards:

In September 2011, the FASB amended the authoritative guidance regarding the testing for Goodwill Impairment. Under the amendments, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value reporting of a reporting unit is less than the carrying amount, then performing the two-step impairment test is unnecessary. The changes are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The adoption of this guidance on January 1, 2012 did not have a material effect on the Company’s consolidated financial statements.

In December 2011, the FASB issued an update on comprehensive income, which pertains to the deferral of the effective date for amendments to the presentation of reclassification of items out of accumulated other comprehensive income in a previous accounting standard update that pertained to the presentation of comprehensive income. The update defers the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods. All other requirements of the previous accounting standard on the presentation of comprehensive income, issued in June 2011, are not affected. The previous presentation related to the comprehensive income standard required that entities report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. Under the continuous statement approach, the statement would include the components and total of net income, the components and total of other comprehensive income and the total of comprehensive income. Under the two statement approach, the first statement would include the components and total of net income and the second statement would include the components and total of other comprehensive income and the total of comprehensive income. It does not change the items that must be reported in other comprehensive income and it is effective retrospectively for interim and annual periods beginning after December 15, 2011, with early adoption permitted. The Company adopted the update on January 1, 2012 resulting in no impact to the Company’s consolidated balance sheets, statements of income and cash flows.