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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                           .

Commission File No.:  0-25244

TRANS WORLD CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s telephone number, including area code: (212) 983-3355

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  x  NO  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  x  NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.  (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o  NO  x

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of August 5, 2014 was 8,809,435.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014

INDEX

PART I — FINANCIAL INFORMATION

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ITEM 1.                                                FINANCIAL STATEMENTS

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2014 and December 31, 2013

(in thousands, except for share data)

See accompanying notes to condensed consolidated interim financial statements.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENT

AND COMPREHENSIVE INCOME (LOSS)

Six and Three Months Ended June 30, 2014 and 2013

(in thousands, except for share data)

See accompanying notes to condensed consolidated interim financial statements.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2014 and 2013

(in thousands)

See accompanying notes to condensed consolidated interim financial statements.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

1.              Basis of Presentation and Consolidation.

The accompanying unaudited condensed consolidated interim financial statements of Trans World Corporation and Subsidiaries (collectively, the “Company,” “TWC,” “we,” “our” or “us”) as of June 30, 2014 and December 31, 2013 and for the six and three months ended June 30, 2014 and 2013 reflect all adjustments of a normal and recurring nature to fairly present the consolidated financial position, results of operations and cash flows as of and for the periods. The financial statements of all foreign subsidiaries consolidated herein have been converted in accordance with accounting principles generally accepted in the United States of America (“US GAAP” or “GAAP”) for financial presentation purposes. All significant intercompany transactions and account balances have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements have been prepared by the Company according to the instructions of Form 10-Q and pursuant to the U.S. Securities and Exchange Commission’s (“SEC”) accounting and reporting requirements under Regulations S-X and S-K. Pursuant to these instructions, certain financial information and footnote disclosures normally included in such consolidated financial statements have been condensed or omitted.  In presenting the condensed consolidated interim financial statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Certain prior year amounts have been reclassified to conform to this year’s financial statements presentation.  Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.

These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, together with management’s discussion and analysis, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may occur for the year ending December 31, 2014.

The condensed consolidated balance sheet as of December 31, 2013 was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by US GAAP. All monetary amounts set forth in these financial statements are in United States dollars (“USD” or “$”) unless otherwise stated herein.

2.              Nature of Business.

Trans World Corporation, a Nevada corporation, and Subsidiaries are primarily engaged in the gaming and hotel business in the Czech Republic (“CZ”).

The Company owns and operates three casinos in the CZ, all under the registered brand, American Chance Casinos (“ACC”). The Ceska casino (“Ceska”), located in the town of Ceska Kubice, in the western part of the CZ, close to the German border, currently has 15 gaming tables and 100 slot machines. The Route 55 casino (“Route 55”), located in Dolni Dvoriste, in the southern part of the CZ, close to the Austrian border, has 23 gaming tables and 130 slot machines. The Route 59 casino (“Route 59”), is located in Hate, near Znojmo, also in the southern part of the CZ, close to the Austrian border, and currently has 21 gaming tables and 120 slot machines.

In addition to the above gaming operations, TWC also owns and operates a 77-room, four-star deluxe hotel, the Hotel Savannah, which is physically connected to its Route 59 casino, and a full-service spa, the Spa at Savannah (the “Spa”), which is operated by an independent contractor and is attached to the hotel. The hotel features eight banquet halls for meetings and special events as well as a full-service restaurant and bar.

Effective November 28, 2013, in order to reflect the Company’s industry diversification, TWC renamed its primary Czech subsidiary, American Chance Casinos a.s. to Trans World Hotels & Entertainment, a.s. (“TWH&E”), while still operating its casinos under the ACC brand, without interruption.  Effective January 1, 2014, in the final stage of consolidation, the Trans World Hotels k.s. legal entity, which owns the Hotel Savannah & the Spa, was merged into TWH&E.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

3.              Commitments and Contingencies.

Lease Obligations - The Company is obligated under one operating lease, for its corporate office space in New York City, expiring in March 2015.  Future aggregate minimum annual rental payments under this lease for the next twelve months are as follows:

Rent expense under this lease was approximately $44 and $43 for the six months ended June 30, 2014 and 2013, respectively.

The Company is also obligated under a number of five-year, slot equipment operating leases, the projected costs of which are not included in the table above due to fluctuating inventory, expiring over staggered years, which provide for a monthly fixed rental fee per slot machine, and an option for replacement with different/newer machines during the term of the lease.  In the second quarter of 2014, the Company’s slot lease expense was $674 versus $597 in the comparable quarter in 2013, while in the six months ending June 30, 2014, the Company’s slot lease expense was $1,342 as compared with $1,196 in the comparable period in 2013.  The expense increase resulted from the addition of 28 slot machines.

Employment Agreements - The Company’s July 1, 2005 employment agreement with its Chief Executive Officer (“CEO”), Mr. Rami S. Ramadan, absent the intervention of either party by September 30th of each year, will renew automatically for another calendar year, currently ending December 31, 2014.  In addition to a perpetually renewable employment term of one year absent the intervention of either party, the agreement provides for annual compensation, plus participation in the Company’s benefits programs and equity incentive plans.  As of June 30, 2014, the Company is contractually obligated to pay approximately $225 of the remainder of the annual base compensation for the year 2014.

401(k) Plan - The Company maintains a contributory 401(k) plan.  This plan is for the benefit of all eligible corporate employees, who may have up to 16.5% of their salary withheld, not to exceed the maximum federally allowed amount.  The Company makes an employer-matching contribution of 60 cents for each employee dollar contributed.

Profit Sharing, Deferred Compensation and Individual Performance Plans - The Company also maintains a profit sharing plan, a deferred compensation plan,  as well as a personal performance plan for the benefit of all eligible key management employees (“KME”s).  The profit sharing plan is based on achieving certain annual financial targets, while the individual performance plan is based on each KME’s personal performance relative to pre-set performance criteria throughout the operating year.  The non-qualified, deferred compensation plan provides certain KMEs and non-employee directors the opportunity to defer receipt of specified portions of their compensation and to have such deferred amounts treated as if invested in the Common Stock of the Company.  Pursuant to a participant’s election, the unfunded Deferred Plan obligations are payable in the form of Common Stock and cash upon the earlier of: (i) a designated, in-service distribution date which must be a minimum of three years from the year of the first deferral; (ii) separation from service; (iii) disability; (iv) change in control of the Company; or (v) death.  The board-approved 2014 Profit Sharing Plan stipulates that 50% of each KME’s profit sharing plan award, if any, be deferred into the Company’s Deferred Compensation Plan.

Taxing Jurisdiction - The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities.  Applicable taxes include corporate income tax, gaming tax, value-added tax (“VAT”), and payroll (social) taxes.  Tax declarations, together with other legal compliance areas (e.g. customs and currency control matters) are subject to review and investigation by a number of governmental authorities, which are enabled by law to

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

impose fines, penalties and interest charges, and create tax risks in the Czech Republic.  Management believes that it has adequately provided for all of its Czech tax liabilities.

The Company is subject to an overall flat gaming tax (the “Gaming Tax”) of 20.0% on all live game and slot revenues.  The Company is subject to an applicable 19% corporate income tax on adjusted Czech net income, as defined by the Czech Republic taxing authorities.  Additionally, we are also subject to a per slot, per diem tax, payable along with the Gaming Tax.  The Gaming Tax is payable by the 25th day following the end of each quarter, while the corporate income tax is payable by June 30th of the subsequent year, and estimated quarterly income tax payments that began in September 2013. (See also Note 4(k) “Czech Gaming Taxes” and Note 4(l) “Income Taxes” below).

Legal Proceedings - The Company is sometimes subject to various contingencies, the resolutions of which, its management believes, will not have a material adverse effect on the Company’s consolidated financial position or results of operations.  TWC was not involved in any material litigation as of June 30, 2014, or through the date of this filing.

4.              Summary of Selected Significant Accounting Policies.

(a)         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 or product sales, including hotel lodging, sales of food, beverage, cigarettes, and casino logo merchandise are recognized at the time the related services are performed or the products are sold and represent, on an aggregate basis, less than ten percent of total revenues.

(b)         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, restricted stock, and deferred compensation stock. Thus, unexercised stock options to purchase up to 522,325 and 660,325 shares as of June 30, 2014 and June 30, 2013, respectively, were included in the computation of diluted earnings per common share, if such unexercised stock options were “in-the-money” and vested. Warrants and restricted stock to purchase up to an aggregate of 150,000 shares were also included, if they were “in-the-money” and vested.  In addition, 310,740 and 224,762 issuable shares, as of June 30, 2014 and June 30, 2013, respectively, under the Company’s Deferred Compensation Plan were also included in the computation.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

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

(1) Per the treasury stock method.

(c)          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 casino and a parcel of land in Hate (upon a portion of which the Route 59 Casino and Hotel Savannah and the Spa are situated).  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 will be recorded.  TWC has allocated the goodwill over two geographical reporting units that are components of the operating segment “Czech subsidiaries” and are classified as the “German reporting unit” which consists of the Ceska casino and the “Austrian reporting unit” which consists of the land in Hate.  There were no indicators of impairment present during the second quarter of 2014; therefore TWC determined that there was no impairment of goodwill at June 30, 2014.  The Company expects to perform its next required annual assessment of goodwill during the third quarter of 2014.  Changes to goodwill during the periods presented are strictly related to the fluctuation in foreign currency exchange rates.

(d)         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:

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

At June 30, 2014 and December 31, 2013, property and equipment consisted of the following:

(e)          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. 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 ending June 30, 2014 and 2013.

(f)           Foreign currency translation - The functional currency of foreign subsidiaries is the local foreign currency. Accordingly, balance sheet accounts are translated at exchange rates in effect at the end of each reporting period (with the exception of stockholders’ equity) and resulting translation adjustments are included in “accumulated other comprehensive income.”  Income statement accounts are translated by applying the monthly averages of the daily exchange rates of one (1) US dollar (“USD”) to the Czech Koruna (“CZK”) on the respective monthly local Czech income statement accounts for the period.

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

(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.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

(g)          Stock-based compensation - The Company recognizes the fair value of stock-based compensation in the condensed consolidated income statements. 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. There were no award expenses for the six months ended June 30, 2014 and 2013, respectively.

(h)         Stock repurchase program -  On November 12, 2013, TWC’s board of directors renewed the Company’s stock repurchase program (the “program”), in accordance with the retirement method, authorizing the repurchase of up to 500,000 shares of the Company’s Common Stock, over a 12-month period ending November 12, 2014.  The program does not obligate the Company to acquire any particular amount of common stock, and it could be modified, extended, suspended or discontinued at any time.

The repurchase transactions for the six months ended June 30, 2014 are listed in the table below:

ISSUER PURCHASES OF EQUITY SECURITIES

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

(j)            Promotional allowances — Promotional allowances primarily consist of food and beverages (“F&B”) furnished gratuitously.

The promotional allowances for the three and six months ended June 30, 2014 and 2013 are summarized below:

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

(k)         Czech gaming taxes — The Gaming Tax Law is summarized in the following table:

*       Gaming taxes are paid quarterly, by the 25th day following the end of a quarter, while estimated quarterly income tax payments were required commencing at the beginning of the third quarter of 2013, with the 2013 corporate income tax obligation paid by June 30, 2014.  The Company currently pays estimated quarterly income taxes with its annual taxes due by June 30th of the next year.

TWC’s gaming-related taxes for the six and three months ended June 30, 2014 and 2013 are summarized in the following table:

In conformity with the European Union (“EU”) taxation legislation, VAT rates were 15% and 21%, depending on the product or services sold and/or received.  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 on expenses under the Hotel Savannah operation was non-material for the six and three months ended June 30, 2014 and 2013, respectively.

(l)                                     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 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

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TRANS WORLD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

(All figures in thousands, except for exchange rate and share data.)

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. 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.   No interest expense or penalties have been recognized as of and for the six months ended June 30, 2014 and 2013, respectively. The Company is subject to income tax examinations by major taxing authorities for all tax years since 2011.

The Czech government instituted an effective corporate income tax of 19% on income derived from 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 material income tax liability, the Company incurred an estimated foreign income tax expense of $498 and $355 for the six months ended June 30, 2014 and 2013, respectively.  Corporate income tax is payable by the end of June of the subsequent year.  Effective since September 2013, the Company began making estimated quarterly corporate income tax payments.

(m)     Recently issued and adopted accounting standards:

In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group of assets within a foreign entity. The guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. This guidance was effective prospectively for fiscal years beginning on or after December 15, 2013, and for interim periods within those fiscal years. The Company adopted the guidance on January 1, 2014, as required. There was no material impact on its consolidated financial statements resulting from the adoption.

In July 2013, the FASB issued guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, which requires that an unrecognized tax benefit, or portion of an unrecognized tax benefit, be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. If an applicable deferred tax asset is not available or a company does not expect to use the applicable deferred tax asset, the unrecognized tax benefit should be presented as a liability in the financial statements and should not be combined with an unrelated deferred tax asset. This guidance was effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. This guidance should be applied prospectively to all unrecognized tax benefits that exist at the effective date; however retrospective application is permitted. The Company adopted the guidance on January 1, 2014, as required. There was no material impact on its consolidated financial statements resulting from the adoption.

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ITEM 2.                                                MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Note on Forward-Looking Information

This Form 10-Q contains certain statements that may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the use in those statements of terminology such as “may,” “will,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. The forward-looking statements included in this Form 10-Q address activities, events or developments that we expect or anticipate will or may occur in the future.

Although we believe the expectations expressed in the forward-looking statements included in this Form 10-Q are based on reasonable assumptions within the bounds of our knowledge of our business at the time the statements are made, a number of factors outside of our control could cause actual results to differ materially from those expressed in any of the forward-looking statements included in this Form 10-Q. Any one or a combination of these factors could materially affect our financial performance, business strategy, business operations, plans, goals and objectives. These factors include but are not limited to:

·                                          the market’s acceptance of our gaming offerings;

·                                          the effect of competition in our markets;

·                                          the political, legislative, and regulatory climates and changes upon our business;

·                                          the impact of fluctuations of currencies on revenue we receive or expenses we incur;

·                                          the weather conditions in the markets that we serve; and

·                                          other factors described in our Form 10-K for the year ended December 31, 2013 under the headings “Risk Factors” and “Quantitative and Qualitative Disclosures About Market Risk.”

Forward-looking statements that we make or that are made by others on our behalf are based on a knowledge of our business and the environment in which we operate, but because of the factors listed above, actual results may differ significantly from those in forward-looking statements. Consequently, these cautionary statements qualify all of the forward-looking statements we make herein. The results or developments we anticipate may not be realized. Even if substantially realized, those results or developments may not result in the expected consequences for us or affect us, our business or our operations in the ways we expect. We caution readers not to place undue reliance on any of these forward-looking statements in this Form 10-Q, which speak only as of their dates. We assume no obligation to update any of the forward-looking statements.

Nature of Business and Competition

We are engaged in the acquisition, development and management of niche casino operations in Europe, which feature gaming tables and mechanized gaming devices, such as video slot machines, as well as the acquisition, development and the management of midsize hotels, which may include casino facilities.  Our expansion into the hotel industry was founded on management’s belief that hotels in the midsize class are complementary to our casino brand; that opportunities in one of these two industries often lead to, or are tied to, opportunities in the other industry; and that a more diversified portfolio of assets will give us greater stability and make us more attractive to potential investors.  Further, several of our top management executives have extensive experience in the hotel industry.  In this pursuit, we have developed our first hotel, Hotel Savannah, a 77-room, European four-star deluxe hotel, adjoining our Route 59 Casino, which primarily draws customers from the Vienna, Austria regional area.

Currently, we own and operate three casinos and a hotel in the Czech Republic (“CZ”).  Our Ceska casino, located at Ceska Kubice, in the western part of the CZ close to the border of Germany, currently has six competitors.  Our other two Czech casinos are located in the southern part of the CZ, close to the Austrian border.  The larger of these two, “Route 55,” located in Dolni Dvoriste, has two competitors, and our other casino, “Route 59,” is located in Hate,

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near Znojmo, and currently has three competitors.  Our Hotel Savannah features eight banquet halls for meetings and special events as well as a full-service restaurant and bar, and is connected to our Route 59 casino with the joint facility’s main restaurant linking the two buildings.  Along with the hotel operation, we also launched a full-service spa operation, the Spa at Hotel Savannah (the “Spa”), the operations of which are outsourced to a private, independent contractor and are attached to Hotel Savannah.  The Spa offers Ayurvedic massage therapies and an indoor pool.  Hotel Savannah and the Spa has eight regional competitors, five of which are located in Austria.

On November 23, 2011, we acquired the Ceska casino building and associated land and an adjacent outbuilding and related plot from the town of Ceska Kubice, from which we had been renting the facilities. The acquisition allowed us to undertake much needed capital improvements to the building, as competition in the Ceska area has increased dramatically in recent years.  We invested approximately CZK 36.0 million, or $1.8 million, for the first phase of the capital improvements, which was to expand the Ceska facility by connecting the existing casino with an annex building, in which five VIP guest rooms, offices, and storage areas are located.  The work encompassed additional renovation and reconfiguration of existing slot areas.  The remodeled slot room permitted the addition of 20 video slot machines, which were added on September 1, 2013.  The second phase, with a budget of CZK 4.6 million, or around $231,000, was completed by the end of the first quarter of 2014.  The total cost of the casino purchase, facility expansion and renovation has been funded by excess cash flow from the Company’s operations.

Exchange Rates

Due to the fact that the Company’s operations are located in Europe and principally in the Czech Republic, TWC’s financial results are subject to the influence of fluctuations in foreign currency exchange rates.  The revenue generated by our Czech operations is generally denominated in Euro (“EUR”) and the expenses incurred by these facilities are generally denominated in CZK.  As our primary reporting subsidiary, American Chance Casinos a.s., is a Czech entity, all revenues and expenses, regardless of sources of origin, are recognized in the Czech currency and translated to USD for reporting purposes.  A substantial change in the value of either of these currencies in relation to the value of the USD would have an impact on the results from our operations when translated into USD.  We do not hedge our foreign currency holdings.

The actual 2014 and 2013 operating results in local currency for the Czech casino units were converted to USD using the average of the daily exchange rates of each month in the reporting periods.  The monthly average exchange rates for the CZK versus the USD and EUR, respectively, are presented in the following graphical chart.

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The consolidated balance sheet total amounts of the Company’s foreign subsidiaries at June 30, 2014 and December 31, 2013 were converted to USDs using the interbank exchange rates, as reported at www.oanda.com, which are depicted in the following table:

Critical Accounting Policies

The discussion and analysis of our consolidated financial condition and results of operations are based upon our condensed consolidated financial statements. These condensed consolidated financial statements have been prepared following US GAAP and Article 10 of Regulation S-X for interim periods and require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates, including those related to potential impairment of goodwill and share-based compensation expense. As these are condensed consolidated financial statements, the reader should also review expanded information about our critical accounting policies and estimates provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2013. There have been no material changes to our critical accounting policies and estimates from the information provided in our Form 10-K for the year ended December 31, 2013.

RESULTS OF OPERATIONS

Performance Measures and Indicators

In discussing the consolidated results of operations, we may use or refer to performance measures and indicators that are common to the gaming industry, such as: (i) total live game drop, the dollar value of gaming chips purchased in a given period; (ii) live game drop per head (“DpH”), the per guest average dollar value of gaming chips purchased for cash; (iii) daily income per slot machine; (iv) net win, the difference between gaming wagers and the amount paid out to patrons; (v) win percentage (“WP”), the ratio of net win over total drop; (vi) occupancy rate, the number of rooms sold divided by the number of rooms available; (vii) average daily rate (“ADR”), the average of room rental rates paid per day; and (viii) revenue per available room for rent (“RevPAR”), revenue generated per available room.  These measures are “non-GAAP financial measures.”

Review of the Condensed Consolidated Interim Results of the Company:

Three Months Ended June 30, 2014 and 2013:

For the quarter ended June 30, 2014, our total revenues rose 4.5%, to $9.4 million, from $9.0 million for the quarter ended June 30, 2013.  The revenue increase was primarily attributable to stronger business volume in our slot

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business.  Consolidated casino attendance, was down 3.3% in live games, mainly due to the impact of the FIFA World Cup that began on June 12, 2014, but up 19.8% in slots.  Although DpH rose by 5.9% versus last year, the live game revenue decline was attributable to a 1.8 percentage point (“ppt”) reduction in WP from the same quarter last year.  Thus, live game revenue was down 5.0% from the same quarter in 2013, while slot revenue increased by 9.8% for the same comparison.

Our total costs and expenses increased by $78,000, or 0.9%, from $8.4 million to $8.5 million for the comparative quarters, mainly due to higher internal promotional costs and revenue-driven gaming taxes.

Income before foreign income taxes increased by $328,000, or 55.9%, from the second quarter in 2013, as a result of the above factors.

We recognized $268,000 for foreign income taxes, which were higher than the $182,000 of foreign income taxes incurred a year ago this quarter.  The increase resulted from the higher income earned.

Consequently, net income for the three months ended June 30, 2014 increased to $647,000, or a 59.8% increase from $405,000, achieved for the three months ended June 30, 2013.

Costs and Expenses

Total costs and expenses for the three months ended June 30, 2014 and 2013 are presented below:

Cost of revenues for the quarter ended June 30, 2014 increased by $155,000, or 3.2%, primarily due to higher revenue-driven gaming taxes and in-house amenity expenses.  The complimentary F&B and hotel accommodations costs were recognized in the gaming departmental expenses, which totaled approximately $626,000 or 7.1% of gaming revenues for the three months ended June 30, 2014, compared with $607,000 or 7.1% of gaming revenues for the comparable quarter last year.  General gifts and giveaways represented $176,000 or 2.0% of gaming revenues, versus $160,000 or 1.9% of gaming revenues in the same quarter of 2013.  These expenses were also recognized in the gaming departmental expenses.

Depreciation and amortization expense increased by $24,000, or 6.2%, mainly due to additional assets related to the expansion of the Ceska casino, completed last June.

Selling, general and administrative costs decreased by $86,000, or 2.7%, due primarily to the absence of the marketing and promotional costs associated with the re-launching of the newly-expanded Ceska casino on June 29, 2013.

Other expense for the three months ended June 30, 2014 represents interest on capital leases, while in 2013 included interest on two loans, the Commerzbank loan and the Ceska municipal loan, which were paid off in July 2013 and January 2014, respectively.

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Six Months Ended June 30, 2014 and 2013: