Summary of Selected Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Summary of Significant Accounting Policies

Cash and Cash Equivalents

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

Revenue Recognition

(b)Revenue Recognition-Casino revenue is defined as the net win from gaming activities, which is the difference between gaming wagers and the amount paid out to wagering patrons, and is recognized on the day it is earned.  Revenues generated from ancillary services, which includes room rentals, sales of food, beverage, cigarettes, spa services, and casino logo merchandise, are recognized at the time the related services are performed or goods sold.  Room revenue from the hotel and casino segments represented 6.4% and 5.9% of consolidated total revenue for the three months ended March 31, 2016 and 2015, respectively.  Food and beverage (“F&B”) revenues from the hotel and casino segments represented approximately 5.2% and 4.4% of consolidated total revenue for the three months ended March 31, 2016 and 2015, respectively.

Business Acquisitions

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

Segment Reporting

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

Earnings Per Common Share

(e)Earnings per Share - The Company complies with accounting and disclosure requirements

regarding earnings per share.  Basic earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted earnings per common share incorporate the dilutive effect of Common Stock equivalents on an average basis during the period.  The Company’s Common Stock equivalents currently include stock options, restricted stock, and deferred compensation stock.  As of March 31, 2016, the Company’s Common Stock equivalents include 635,000 unexercised stock options, 75,000 shares of restricted stock, and 609,298 shares issuable under the Company’s Deferred Compensation Plan.  As of March 31, 2015, the Common Stock equivalents included 585,100 unexercised stock options, 75,000 shares of restricted stock, and 423,664 deferred compensation shares.  These shares for the respective years were included in the computation of diluted earnings per common share, if such unexercised stock options, restricted stock, and deferred compensation stock were vested and “in-the-money.”

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

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

	For the Three Months Ended
	March 31,
	2016		2015
	(Unaudited)		(Unaudited)
Basic earnings per share:
Net income	$	1,006	$	523
Weighted average common shares		8,829,011		8,821,205
Basic earnings per share	$	0.11	$	0.06
Diluted earnings per share:
Net income	$	1,006	$	523
Weighted average common shares		8,829,011		8,821,205
Addition due to the effect of dilutive securities using the treasury stock method:
Stock options and restricted stock		562		14
Stock issuable under the Deferred Compensation Plan		609,298		423,664
Dilutive potential common shares		9,438,871		9,244,883
Diluted earnings per share	$	0.11	$	0.06

Goodwill

(f)Goodwill- Goodwill represents the excess of the cost of the Company’s subsidiaries over the fair value of their net assets at the date of acquisition.  In Czechia, this consisted of the Ceska casino and a parcel of land in Hate (upon a portion of which the Route 59 Casino and Hotel Savannah are situated). In Germany, it consists of the newly acquired Hotel Freizeit Auefeld.  Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Goodwill impairment tests require the Company to first assess qualitative factors, which include macroeconomic conditions, financial performance, and industry and market considerations, to determine whether it is necessary to perform a two-step quantitative goodwill impairment test.  TWC assesses the potential impairment of goodwill annually (as of September 30th) and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Upon completion of such review, if impairment is found to have occurred, a corresponding charge to earnings will be recorded. TWC allocates its Czech goodwill over two geographical reporting units, which are components of the casino segment, and are classified as the “Pilsen reporting unit” (“PRU”), which consists of the Ceska casino, and the “South Moravia reporting unit” (“SMRU”), which consists of the land in Hate. The German goodwill is derived from the Hotel Freizeit Auefeld, and is represented by the “Lower Saxony reporting unit” (“LSRU”).  There were no indicators of impairment present during the first quarter of 2016 for the Czech reporting units, nor for the Hotel Freizeit Auefeld; therefore, TWC determined that there was noimpairment of goodwill at March 31, 2016.

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

Property and Equipment

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

Asset	Estimated Useful Life
Buildings	30-50  years
Furniture, fixtures and equipment	4-10  years
Leasehold improvements	5-20  years

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

	As of		As of
	March 31, 2016		December 31, 2015
	(Unaudited)
Land	$	3,004	$	2,874
Building and improvements		36,575		34,950
Furniture, fixtures and other equipment		13,185		12,253
		52,764		50,077
Less accumulated depreciation and amortization		(14,020)		(12,955)
	$	38,744	$	37,122

Impairment of Long-lived Assets

(h)Impairment of Long-lived Assets - The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used may be recoverable.  If such circumstances are determined to exist, an estimate of undiscounted future cash flows produced by the long-lived assets, or the appropriate grouping of assets, is compared to the carrying value to determine whether an impairment exists.  If an asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. An estimate of the asset’s fair value is based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. The Company reports an asset to be disposed of at the lower of its carrying value or its estimated net realizable market value.  There were no indicators of impairment for long-lived assets for the three months ending March 31, 2016 and 2015.

Foreign Currency Translation

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

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

	Goodwill
(Unaudited)	Casino Segment						Hotel Segment			Total
	Pilsen			South-Moravia			Lower Saxony
As of March 31, 2016 (in thousands, except FX)	reporting unit			reporting unit			reporting unit
Balance in USD ($)	$	3,042	(1)	$	537	(1)	$	131		$	3,710
Balance in EUR (€)							€	119		€	119
Foreign Exchange Rate ("FX")		33.8830			33.8830			27.2450
Balance in CZK (Kč)	Kč	103,072	(2)	Kč	18,195	(2)	Kč	3,242	(3)	Kč	124,509
Applicable FX(4)		23.7570			23.7570			23.7570
Balance at March 31, 2016	$	4,339		$	766		$	136		$	5,241
Net cumulative change to goodwill due to foreign currency translation	$	1,297		$	229		$	5		$	1,531

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

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

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

(4) FX central bank foreign exchange rates taken from www.CNB.CZ.

Stock-based Compensation

(j)Stock-based Compensation - The Company accounts for stock options using the modified prospective method in accordance with accounting and disclosure requirements for stock compensation.  Under this method, compensation costs include the estimated grant date fair value of the awards amortized over the options’ vesting period.  The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of stock options granted to certain key management employees (“KME”s).  Stock-based compensation was approximately $41 and $15 for the three months ended March 31, 2016 and 2015, respectively, and is included in selling, general and administrative expenses in the consolidated statements of income. 

Comprehensive Income (Loss)

(k)Comprehensive Income (Loss) – The Company complies with requirements for reporting comprehensive income (loss).  Those requirements establish rules for reporting and display of comprehensive income and loss and their components.  Except for the Company’s change in the foreign currency translation adjustments to be included in other comprehensive income (loss), there were no other components of the Company’s comprehensive income (loss) in three months ended March 31, 2016 and 2015.

Czech Gaming Taxes

(l)Czech Gaming Taxes - The gaming taxes are summarized in the following table:

	2012 Gaming Tax Law
	(Effective from January 1, 2012 to December 31, 2015)
Live Games	20% gaming tax from revenue earned from live games (70% of tax paid to the federal government; 30% paid to the local municipality).
Slots	20% gaming tax from revenue earned from slot games (20% of tax paid to the federal government; 80% paid to the local municipality);
	CZK 55 (or approximately $2.22) gaming tax per slot machine, per day (paid to the federal government).
	2016 Gaming Tax Amendment
	(Effective from January 1, 2016)
Live Games	23% gaming tax from revenue earned from live games (70% of tax paid to the federal government; 30% paid to the local municipality).
Slots	28% gaming tax from revenue earned from slot games (20% of tax paid to the federal government; 80% paid to the local municipality);
	CZK 80 (or approximately $3.37) gaming tax per slot machine, per day (paid to the federal government).

Gaming taxes are to be paid quarterly, by the 25th day following the end of a quarter.  TWC was current on all of its Czech gaming tax payments at March 31, 2016 and through the date of this report.

TWC’s gaming-related taxes and fees, which are recognized in the cost of revenues, for the three months ended March 31, 2016 and 2015 are summarized in the following table:

	For the Three Months Ended
	2016			2015
		(Unaudited)			(Unaudited)
Gaming revenues (excluding ancillary revenues)	$	10,351		$	8,199
Gaming taxes		2,855			1,709
Gaming taxes as % of gaming revenues (above)		27.6	%		20.8	%

In conformity with the European Union (“EU”) taxation legislation, Czechia’s VAT has gradually increased from 5%, when that country joined the EU in 2004, to 21%, the effective rate since 2013. Unlike in other industries, VATs are not recoverable for gaming operations. The recoverable VAT under the Hotel Savannah, Hotel Columbus and Hotel Freizeit Auefeld was not material for the three months ended March 31, 2016 and 2015, respectively.

Income Taxes

(m)Income Taxes —The Company complies with accounting and reporting requirements with respect to accounting for U.S. federal, state, local and foreign income taxes, which require an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and the tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. This guidance also provides directions on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. However, management’s conclusions regarding this guidance may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.  The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of and for the three months ended March 31, 2016 and 2015, respectively. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2011.

The Company incurred an estimated foreign income tax expense of $471 and $282 for the three months ended March 31, 2016 and 2015, respectively.  There were no income tax liabilities from the hotel segment, due to a net loss. Czechia has an applicable corporate income tax of 19%, while Germany has an applicable corporate income tax rate of 30%.  Estimated Czech corporate income tax payments are required to be paid quarterly.  TWC was current on all of its tax reporting and payments at March 31, 2016 and through the date of this report.

Recent Accounting Pronouncements

(n)Recent Accounting Pronouncements  In May 2014, the FASB issued guidance on recognizing revenue from contracts with customers. The guidance clarifies the principles for recognizing revenue and establishes a common revenue standard for US GAAP and International Financial Reporting Standards.  Early adoption is permitted, but not before the original effective date for public companies with annual reporting periods beginning after December 15, 2016.  This guidance was deferred to after December 15, 2017 for public companies. Retrospective application is required.  The Company is currently evaluating the impact of adopting this standard and does not expect the standard to have any material impact on its consolidated financial statements.

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

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

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

In April 2015, the FASB issued an update on its guidance on the presentation of debt issuance costs.  This update requires debt issuance costs to be presented as a direct deduction from the carrying amount of the related debt liability. The standard is effective for reporting periods beginning after December 15, 2015. Early adoption is permitted for financial statements that have not been previously issued. The update requires application of the updated guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The debt issuance costs of the Company were not material as of March 31, 2016.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

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

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

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