Summary of Selected Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2017

Summary of Significant Accounting Policies

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

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, 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 10.3% and 6.4% of consolidated total revenue for the three months ended March 31, 2017 and 2016, respectively. Food and beverage (“F&B”) revenues from the hotel and casino segments represented approximately 8.7% and 5.2% of consolidated total revenue for the three months ended March 31, 2017 and 2016, 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. At March 31, 2017, TWC has reviewed the measurement procedures used in valuing the assets acquired and liabilities assumed for Hotel Kranichhöhe and determined that all assets and liabilities have been correctly identified and recognized. The estimated fair values of assets acquired and liabilities assumed for Hotel Donauwelle are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation no later than the first quarter of 2018.

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 March 31, 2017, the Company’s Common Stock equivalents include 665,000 unexercised stock options, 25,000 shares of restricted stock, and 714,549 shares issuable under the Company’s Deferred Compensation Plan. As of March 31, 2016, the Common Stock equivalents included 635,000 unexercised stock options, 75,000 shares of restricted stock, and 609,298 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 “in-the-money,” 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 Three Months Ended
	March 31,
	2017		2016
	(Unaudited)		(Unaudited)
Basic earnings per share:
Net income	$	594	$	1,006

Weighted average common shares		8,859,289		8,829,011

Basic earnings per share	$	0.07	$	0.11

Diluted earnings per share:
Net income	$	594	$	1,006

Weighted average common shares		8,859,289		8,829,011

Addition due to the effect of dilutive securities using the treasury stock method:
Stock options		315,275		562
Stock issuable under the Deferred Compensation Plan		714,549		609,298

Dilutive potential common shares		9,889,113		9,438,871

Diluted earnings per share	$	0.06	$	0.11

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 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 2017 for the Czech reporting units, nor for the Hotel Freizeit Auefeld; therefore, TWC determined that there was no impairment of goodwill at March 31, 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 March 31, 2017 and December 31, 2016, property and equipment consisted of the following:


	As of		As of
	March 31, 2017		December 31, 2016
	(Unaudited)

Land	$	4,644	$	4,576
Building and leasehold improvements		41,977		37,580
Furniture, fixtures and other equipment		15,174		13,295
		61,795		55,451
Less accumulated depreciation and amortization		(14,616)		(13,927)

	$	47,179	$	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 three months ending March 31, 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
	Casino Segment						Hotel Segment			Total
	Pilsen			South-Moravia			Lower Saxony
As of March 31, 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 ($ to Kč or € to Kč) ("FX")		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)		25.282			25.282			25.282
Balance as of March 31, 2017	$	4,077		$	720		$	128		$	4,925
Net cumulative change to goodwill due to foreign currency translation	$	1,035		$	183		$	(3)		$	1,215

(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 Auefeld, with the date of acquisition CZK to EUR FX rate of 27.2450.

(4)

Czech central bank foreign exchange rates at March 31, 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 $41 for the three months ended March 31, 2017 and 2016, respectively, and is 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 three months ended March 31, 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 $3.20) 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 $364). 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 from revenue earned from live games (70% of tax allocated to the federal government; 30% of tax allocated to the local municipality).

Slot and other technical games		The greater of either: (a) the aggregate amount collected from 35% gaming tax from revenue earned from slot and other technical games (35% of tax allocated to the federal government; 65% of tax allocated to the local municipality), or (b) a "minimum tax," calculated as the product of the sum of all gambling positions of individual approved terminal devices referred to in the permit for the location of the gambling premises times Kč 9,200 (approximately $364).


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

Slots		28% gaming tax from revenue earned from slot games (20% of tax allocated to the federal government; 80% of tax allocated to the local municipality); and a per diem fixed fee of Kč 80 (approximately $3.20) 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 March 31, 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 three months ended March 31, 2017 and 2016 are summarized in the following table:



(amounts in thousands)	For the Three Months Ended
	2017			2016
	(Unaudited)			(Unaudited)

Gaming revenues (excluding ancillary revenues)	$	10,528		$	10,351

Gaming taxes and fees		3,357			2,855
Gaming taxes and fees as % of above gaming revenues		31.89	%		27.58	%

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 three months ended March 31, 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. Although TWC’s 10-year gambling license expires in September 2018, and its slot operating one-year license expires at the end of 2017, the Company has begun to take steps to conform to these requirements for when it applies for its slot and other technical game license, which is due to expire at the end of 2017. The Company is also awaiting the Czech Ministry of Finance’s (“MOF”) final interpretation of these new measures, some of which were clarified in August 2016 and others are awaiting further clarifications from the MOF. The notable changes and requirements are summarized in the section, “New Gambling Acts and their Impact” in Item 2. “Management Discussion and Analysis 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 three months ended March 31, 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 $334 and $471 for the three months ended March 31, 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 has an applicable corporate income tax rate 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 March 31, 2017 and through the date of this report.