Summary of Selected Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2017

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 foreign and domestic banks and similar institutions, and term deposits of three months or less with banks and similar institutions.  The carrying amounts of cash at banks and on hand and term bank deposits approximate their fair values.

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 other services or sales of goods, which include room rentals, sales of food, beverage, cigarettes, spa services, and casino logo merchandise, are recognized at the time the related services are performed or goods sold.  Room revenue from the hotel and casino segments represented 15.2% and 7.4% of consolidated total revenue for the three months ended June 30, 2017 and 2016, respectively, and 12.9% and 5.2% for the six months ended June 30, 2017 and 2016, respectively.  Food and beverage (“F&B”) revenues from the hotel and casino segments represented approximately 10.9% and 5.6% of consolidated total revenue for the three months ended June 30, 2017 and 2016, respectively, and 9.8% and 3.7% of consolidated total revenue for the six months ended June 30, 2017 and 2016.

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 7 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 June 30, 2017, the Company’s Common Stock equivalents include 665,000 unexercised stock options, 25,000 shares of restricted stock, and 720,199 shares issuable under the Company’s Deferred Compensation Plan.  As of June 30, 2016, the Common Stock equivalents included 665,000 unexercised stock options, 75,000 shares of restricted stock, and 616,053 deferred compensation shares.  These restricted stock, deferred compensation stock, and any “in-the-money” unexercised stock options, for the respective years, were included in the computation of diluted earnings per common share, regardless of vesting.

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

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

	For the Six Months Ended				For the Three Months Ended
	June 30,				June 30,
	2017		2016		2017		2016
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Basic earnings per share:
Net income	$	2,779	$	2,614	$	2,185	$	1,608
Weighted average common shares		8,869,204		8,829,011		8,879,011		8,829,011
Basic earnings per share	$	0.31	$	0.30	$	0.25	$	0.18
Diluted earnings per share:
Net income	$	2,779	$	2,614	$	2,185	$	1,608
Weighted average common shares		8,869,204		8,829,011		8,879,011		8,829,011
Addition due to the effect of dilutive securities using the treasury stock method:
Stock options		308,637		4,797		302,861		8,645
Stock issuable under the Deferred Compensation Plan		720,199		616,053		720,199		616,053
Dilutive potential common shares		9,898,040		9,449,861		9,902,071		9,453,709
Diluted earnings per share	$	0.28	$	0.28	$	0.22	$	0.17

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 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 September30th) 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 second quarter of 2017 for the Czech reporting units, nor for the Hotel Freizeit Auefeld; therefore, TWC determined that there was no impairment of goodwill at June 30, 2017.

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
Leasehold improvements	5-20  years
Furniture, fixtures and other equipment	4-10  years

At June 30, 2017 and December 31, 2016, property and equipment consisted of the following:

	As of		As of
	June 30, 2017		December 31, 2016
	(Unaudited)
Land	$	5,024	$	4,576
Buildings and leasehold improvements		49,523		37,580
Furniture, fixtures and other equipment		19,907		13,295
		74,454		55,451
Less accumulated depreciation and amortization		(16,664)		(13,927)
	$	57,790	$	41,524

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 six months ending June 30, 2017 and 2016.

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.”  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									Total
(Unaudited)	Casino Segment						Hotel Segment
	Pilsen			South-Moravia			Lower Saxony
As of June 30, 2017 (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") ($ to Kč or € to Kč)		33.883			33.883			27.245
Balance in CZK (Kč)	Kč	103,072	(2)	Kč	18,195	(2)	Kč	3,242	(3)	Kč	124,509
Applicable FX(4)		22.952			22.952			22.952
Balance as of June 30, 2017	$	4,491		$	793		$	141		$	5,425
Net cumulative change to goodwill due to foreign currency translation	$	1,449		$	256		$	10		$	1,715

(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 33.883.

(3) EUR balance translated to CZK at June 1, 2015, the date of acquisition of the Hotel Freizeit Auefeld, with the date of acquisition CZK to EUR FX rate of 27.245.

(4) Czech central bank foreign exchange rates at June 30, 2017, 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 $51 and $42 for the three months ended June 30, 2017 and 2016, respectively, and $101 and $83 for the six months ended June 30, 2017 and 2016, respectively.  These costs were included in selling, general and administrative expenses in the consolidated statements of income. 

Comprehensive Income

(k)Comprehensive Income – The Company complies with requirements for reporting comprehensive income.  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, there were no other components of the Company’s comprehensive income for the six and three months ended June 30, 2017 and 2016.

Czech Gaming Taxes

(l)Czech Gaming Taxes – On June 7, 2016, the President of Czechia signed the 2017 Gambling Act (186/2016 Coll.) (the “Gambling Act”) and the 2017 Gambling Tax Act (187/2016 Coll.) (the “2017 Gambling Tax Act”) (collectively referred to as the “Gambling Acts”).  The Gambling Acts became law on June 15, 2016, when they were published in the official Collection of Laws, maintained by the Czech Ministry of the Interior.  The 2017 Gambling Tax Act, which took effect on January 1, 2017, raised the gaming tax rate on technical game (i.e. slot machine or electromechanical roulette or dice) revenues to the greater of a “minimum tax” or 35%, and eliminated the per diem fixed fee of Kč 80 (approximately $3.50) on each slot machine.  This new “minimum tax” on technical games is equal to the product of:  (x) the sum of all gambling positions of individual approved terminal devices (such as slot machines, electromechanical roulette and dice machines) permitted for the location of the gambling premises, times (y) Kč 9,200 (approximately $401).  Therefore, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is lower than the computed “minimum tax,” then the casino operator must pay the “minimum tax” and not the aggregate tax amount collected from the 35% gaming tax.  Otherwise, if the aggregate tax amount collected from the 35% gaming tax on technical game revenues is greater than the computed “minimum tax,” then the casino operator need only pay the aggregate tax amount collected from the 35% gaming tax and not the “minimum tax.”  The gaming tax rate on live game (i.e. cards, roulette or dice) revenues remained unchanged at 23%.  Further, the 2017 Gambling Tax Act modified the tax revenue allocation between the federal government and local municipalities.  A summary table of the 2017 Gambling Tax Act is shown below.  The gaming taxes are summarized in the following tables (all monetary figures in the immediate three tables below are in actual amounts, not in thousands):

	2017 Gambling Tax Act
(in actual amounts)	(Effective from January 1, 2017)
Live Games	23% gaming tax on revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).
Slot and other technical games	The greater of either: (a) the aggregate amount collected from a 35% gaming tax on revenue earned from slot and other technical games (35% of tax allocated to the federal government; 65% of tax allocated to the local municipality), or (b) a "minimum tax," calculated as the product of the sum of all gambling positions of individual approved terminal devices referred to in the permit for the location of the gambling premises times Kč 9,200 (approximately $401).
Net Income	No change from the 19% corporate income tax noted below.

Prior to the effective date of the Gambling Tax Act, the Company was subject to the following tax regime:

	2016 Gaming Tax Amendment
(in actual amounts)	(Effective from January 1, 2016 to December 31, 2016)
Live Games	23% gaming tax on revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).
Slots	28% gaming tax on revenue earned from slot games (20% of tax allocated to the federal government; 80% of tax allocated to the local municipality); and a per diem fixed fee of Kč 80 (approximately $3.50) per slot machine (allocated to the federal government).
Net Income	No change from the 19% corporate income tax noted below.

Gaming taxes are required by law 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 June 30, 2017 and through the date of this report.

TWC’s gaming-related taxes and fees, which are recognized in the cost of revenues, for the six and three months ended June 30, 2017 and 2016, are summarized in the following table:

(amounts in thousands)	For the Six Months Ended						For the Three Months Ended
	2017			2016			2017			2016
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Gaming revenues (excluding ancillary revenues)	$	21,135		$	21,642		$	10,607		$	11,292
Gaming taxes and fees		6,722			5,953			3,364			3,098
Gaming taxes and fees as % of above gaming revenues		31.8	%		27.5	%		31.7	%		27.4	%

In conformity with the European Union (“EU”) taxation legislation, Czechia’s value added tax (“VAT”) has gradually increased from 5%, when that country joined the EU in 2004, to 21%, the effective rate since 2013. Unlike in other industries, VATs are not recoverable for gaming operations. The recoverable VAT under the Company’s hotel segment was not material for the six months ended June 30, 2017 and 2016, respectively.

The 2017 Gambling Act introduced many new changes, requirements and conditions, some taking effect on the date of enactment, some on January 1, 2017 and certain provisions taking effect upon the renewal of the casino operator’s gambling licenses.  TWC’s 10-year gambling license expires in September 2018, and its one-year slot operating license expires at the end of 2017, the timing of which required the Company to reapply for both  gambling licenses under the new legislation.  Therefore, TWC took all the proper measures to conform to the underlying requirements for each basic gambling license, one to cover live games and the other to cover technical games (e.g. slots), when TWC submitted its renewal applications to the Czech Ministry of Finance’s (“MOF”) on June 23, 2017.  Upon receipt of its new gambling license, TWC will submit operating license applications to the respective municipalities in which it has casino operations.  The Company is also awaiting the MOF’s final interpretation of these new measures, some of which were clarified in August 2016.  The notable changes and requirements are summarized in the section, “New Gambling Acts and their Impact” in Item 2. “Management Discussion and Analysis of Financial Condition and Results of Operations” below. 

Income Taxes

(m)Income Taxes – The Company complies with accounting and reporting requirements with respect to accounting for U.S. federal 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 U.S. 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 policy also provides guidance 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.  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 six and three months ended June 30, 2017 and 2016. 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, regulations and interpretations thereof. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2013.

The Company incurred an estimated foreign income tax expense of $792 and $1,316 for the six months ended June 30, 2017 and 2016, respectively.  There were no income tax liabilities from the hotel segment, due to an aggregate net loss in that segment.  TWC does not anticipate any U.S. income tax liability for 2017.

Czechia has an applicable corporate income tax of 19%, while Germany and Austria have an applicable corporate income tax rates of 30% and 25%, respectively.  Estimated Czech and German corporate income tax payments are required to be paid quarterly.  TWC was current on all of its tax reporting and payments at June 30, 2017 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. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is not permitted. Retrospective application is required. The Company is currently evaluating the impact of adopting 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 organizations by reporting lease assets and lease liabilities, both finance (capital) and operating leases, on the balance sheet and disclosing key 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 2017 and is currently evaluating the impact of adopting this standard. The adoption of this standard would require the Company to report its leases on slot machines, land and commercial space in assets and liabilities of its consolidated balance sheets.

In March 2016, the FASB issued updated guidance, as part of its Simplification Initiative, which covers several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public business entities, the amendments in this updated guidance are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.  Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period.  The adoption of this guidance in 2017 is reflected in the Company’s consolidated financial statements.

In August 2016, the FASB issued updated guidance on the classification of certain cash receipts and cash payments in the statement of cash flows.  The guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  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 November 2016, the FASB issued updated guidance on the treatment of restricted cash in the statement of cash flows.  The updated standard requires that the statement of cash flows explain the change during the period of cash, cash equivalents, and amounts generally described as restricted cash. Entities will also be required to reconcile to the balance sheet and disclose the nature of the restrictions.  For public business entities, the guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  While TWC is continuing to assess all potential impacts of the standard, the Company believes the most significant impact relates to the presentation of its statement of cash flows where the Company will be required to reconcile to total cash, cash equivalents, and restricted cash. Currently, the Company’s statement of cash flows reconciles to total cash and cash equivalents.

In January 2017, the FASB issued updated guidance (the “Update”) to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.  Under the current implementation guidance, there are three elements of a business—inputs, processes, and outputs. While an integrated set of assets and activities (collectively referred to as a “set”) that is a business usually has outputs, outputs are not required to be present. In addition, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes. The amendments in this Update provide a screen to determine when a set is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. If the screen is not met, the amendments in this Update: (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output, and (2) remove the evaluation of whether a market participant could replace missing elements. The updated guidance provides a framework to assist entities in evaluating whether both an input and a substantive process are present. The framework includes two sets of criteria to consider that depend on whether a set has outputs. Although outputs are not required for a set to be a business, outputs generally are a key element of a business; therefore, the FASB has developed more stringent criteria for sets without outputs. Lastly, the updated guidance narrows the definition of the term output so that the term is consistent with how outputs are described in another guidance regarding revenue from contracts with customers.  Public business entities should apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods within those periods.  Early adoption is available.  This updated guidance should be applied prospectively on or after the effective date. No disclosures are required at transition.  The Company is currently evaluating the impact of adopting and does not expect the standard to have any material impact on its consolidated financial statements.   

In January 2017, the FASB issued updated guidance to simplify the subsequent measurement of goodwill, by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity must perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.  An entity should apply this updated guidance on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is an SEC filer should adopt this updated guidance for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.  Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The Company has not adopted this updated guidance for 2017 and is currently evaluating the impact of adopting this standard.