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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

For the quarterly period ended September 30, 2014

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  November 5, 2014 was 8,820,905.

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TRANS WORLD CORPORATION AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

INDEX

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ITEM 1.                FINANCIAL STATEMENTS

TRANS WORLD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 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)

Nine and Three Months Ended September 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

Nine Months Ended September 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 September 30, 2014 and December 31, 2013 and for the nine and three months ended September 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.  Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.  Certain prior year amounts have been reclassified to conform to this year’s financial statements presentation.

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 nine and three months ended September 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 engaged in the gaming and hotel business in the Czech Republic (“CZ”) and Germany (“DE”).

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 124 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 23 gaming tables and 118 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.

On September 10, 2014, TWC, through its Czech subsidiary, Trans World Hotels & Entertainment a.s. (“TWH&E”), entered into a purchase agreement to acquire all of the partnership interests of a private family partnership that owned the Hotel Columbus, a four-star 117-room hotel (the “Hotel Columbus”) located in Seligenstadt, near Frankfurt, Germany, for approximately $7.4 million, excluding transfer taxes and closing costs.  The Hotel Columbus features five meeting rooms, a restaurant and separate breakfast room, each with its own kitchen, two bars, a 32-space parking

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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)

garage and 27 surface lot parking places, including a satellite parking area located across the street from the Hotel.  See also Note 5 “Acquisition” below for more details.

Effective January 1, 2014, in the final stage of an intercompany consolidation, Trans World Hotels k.s., which owns the Hotel Savannah & the Spa, was merged with and into TWH&E.

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 $66 and $65 for the nine months ended September 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 annual option for replacement with different/newer machines during the term of the lease.  In the third quarter of 2014, the Company’s slot lease expense was $651 versus $619 in the comparable quarter in 2013, while in the nine months ending September 30, 2014, the Company’s slot lease expense was $1,992 versus $1,815 in the comparable period in 2013.  The expense increase resulted from the addition of 12 leased slot machines in September 2013.

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, 2015.  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 September 30, 2014, the Company is contractually obligated to pay an aggregate of approximately $563, which includes the annual base salary for the remaining quarter of 2014 and the annual base salary for the full year of 2015.  TWC also has a three-year employment agreement with our Director of Development, which is perpetually renewable and stipulates that in the event of termination without cause he will receive a lump sum severance payment equaling one-year’s base salary in effect at the time of his termination, currently totaling $233.  In the event his employment agreement is not renewed at the end of his current three-year term on December 31, 2016, he will receive a severance payment equaling three-month salary in effect at the date of the expiration of his employment agreement.

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,

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

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

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 (“PSP”) 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 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 September 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 520,450 and 598,750 shares as of September 30, 2014 and September 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, 301,391 and 226,441 issuable shares, as of September 30, 2014 and September 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:

(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 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.  Based on TWC’s own assessment of qualitative factors which included an analysis of macroeconomic conditions, financial performance, and industry and market considerations, the Company concluded that it was not necessary to perform a two-step quantitative goodwill impairment test and that the goodwill of the Company was not impaired as of September 30, 2014, its annual assessment date.  The Company expects to perform its next required annual assessment of goodwill during the third quarter of 2015.  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 September 30, 2014 and December 31, 2013, property and equipment consisted of the following:

(e)          Impairment for long-lived assets - The Company periodically evaluates whether current facts or circumstances indicate that the carrying value of its depreciable assets to be held and used 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 impairment losses for long-lived assets recorded for the nine months ending September 30, 2014 and 2013.

(f)           Foreign currency translation – The functional currency of the Czech subsidiaries is the local Czech Koruna (“CZK”) and the functional currency of the German subsidiary is the Euro (“EUR”) currency.  However, as our primary reporting subsidiary, TWH&E, is a Czech entity, all revenues and expenses, regardless of sources of origin, are recognized (and in the case of the German hotel operation, are recognized first) in the Czech currency and translated to USD for reporting purposes.  Accordingly, the balance sheet accounts of Trans World Hotels Germany GmbH (“TWHG”), the German subsidiary that owns the Hotel Columbus, are first translated at exchange rates of one (1) EUR to CZK 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 (loss).”  Subsequently, the consolidated Czech balance sheets (inclusive of the translated German subsidiary balance sheets) are then translated at exchange rates of CZK to US dollar (“USD”) 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 (loss).”  Income statement accounts for TWHG are translated by applying the monthly averages of the daily exchange rates of one (1) EUR to the CZK on the respective monthly EUR income statement accounts for the period, which then follows the same translation method of Czech income statement accounts to USD.  The Czech consolidated income statement accounts are then translated by applying the monthly averages of the daily exchange rates of one (1) USD to the CZK on the respective consolidated monthly local Czech income statement accounts for the period.

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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)

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.

(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 nine months ended September 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 can be modified, extended, suspended or discontinued at any time.

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

ISSUER PURCHASES OF EQUITY SECURITIES

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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)

(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 nine months ended September 30, 2014 and 2013 are summarized below:

(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. Estimated quarterly income tax payments were required commencing at the beginning of the third quarter of 2013, payable by the 25th day following the end of a quarter, with the final annual corporate income tax returns and payment obligation payable by June 30th of the following year.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

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

TWC’s gaming-related taxes for the nine and three months ended September 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 not material for the nine and three months ended September 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 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 nine months ended September 30, 2014 and 2013, respectively. The Company is subject to income tax examinations by major Czech 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 net foreign income tax expense of $767 and $623 for the nine months ended September 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.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

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

(m)     Recently issued and adopted accounting standards:

In March 2013, the Financial Accounting Standards Board (“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.

(n)         Segment reporting — On September 10, 2014, the Company acquired Hotel Columbus and after this acquisition, the Company determined, due to the significance of the assets acquired (see Note 5 below), and pursuant to FASB Accounting Standards Codification (“ASC”) 280, Segment Reporting, that the Company had two reportable segments, a casino segment, which consists of the three Czech casinos and Hotel Savannah, and a hotel segment which solely consists of newly acquired Hotel Columbus.  ASC 280 designates the internal reporting that is used by management for making operating decision and assessing performance as the source of the Company's reportable segments.  The Company considered segment reporting in this interim period with respect to operational disclosures and determined it was not material as there was only one month of operations for the newly acquired Hotel Columbus.  The Company intends to enhance its segment reporting disclosures during the next quarter as operations are expected to be material.

5.                                      Acquisition.

On September 10, 2014, TWC, through its Czech subsidiary, TWH&E, entered into a purchase agreement to acquire all of the partnership interests of a private family partnership that owned the Hotel Columbus, a four-star 117-room hotel property (the “Hotel Columbus”) located in Seligenstadt, Germany, near Frankfurt, for approximately $7,400, excluding transfer taxes and closing costs.  Although the transaction closed, and TWH&E acquired the Hotel Columbus on September 10, 2014, the signing parties agreed to set the acquisition date retroactive to September 1, 2014, which had no impact on the purchase price.  The purchase agreement called for the cash purchase by TWC of all of the partnership interests subject to a final reconciliation of the purchase price.

The Company acquired the partnership through a combination of cash payment from its available cash, totaling approximately EUR 2,100, or approximately $2,700, and financed the remainder by means of a EUR 3,600, or approximately $4,700, 15-year amortizable loan from a local German bank, Bank Sparkasse Langen-Seligenstadt (the “Sparkasse Loan”), at a fixed interest rate of 3.1% for the first ten years, followed by a prevailing market-based rate for this type of loan for the remainder of the term.  The loan is secured by a cash deposit equaling one year’s principal and interest payments and is held in a savings account with, and a mortgage on the hotel in favor of, the lender.  The restricted cash arising from this deposit of approximately $375 is recognized within the Company’s “Deposits and other assets” of the consolidated balance sheets.

The Sparkasse Loan was signed on September 9, 2014 and the purchase agreement was signed on September 10, 2014.  The Hotel Columbus is owned under TWC’s wholly-owned German subsidiary, Trans World Hotels Germany GmbH (“TWHG”).  Operating results from the Hotel Columbus for the month of September are included in the Company’s condensed consolidated income statement and comprehensive income (loss) for the three and nine months ended September 30, 2014, and the assets and liabilities are reflected in TWC’s condensed consolidated balance sheet as of September 30, 2014.

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NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(UNAUDITED)

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

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB Accounting Standards Codification 805 (“ASC 805”), Business Combinations, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed, and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities, based on fair value estimates as of the date of acquisition.

The fair value of all acquired assets and liabilities assumed summarized below is provisional pending finalization of the Company’s acquisition accounting. The Company believes that such preliminary allocations provide 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 fair value. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date. Final determination of the fair value may result in further adjustments. There have been no measurement period adjustments to date.

There were no intangible assets acquired and no goodwill derived from the purchase.

The following unaudited pro forma results of operations for the interim period presented are provided for illustrative purposes only and assume the acquisition occurred as of January 1, 2013 and do not assume any cost savings from TWC’s management of the operations. The unaudited pro forma financial results do not purport to be indicative of the results of operations for future periods or the results that actually would have been realized had TWC operated the Hotel Columbus during these periods. The unaudited pro forma results are presented in thousands, except share and per share information.

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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.

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.

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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, 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 have 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 approximately $231,000, was completed in the first quarter of 2014.  The total cost of the building purchase, facility expansion and renovation has been funded by excess cash flow from the Company’s operations.

On September 10, 2014, TWC, through its Czech subsidiary, Trans World Hotels & Entertainment (“TWH&E”), entered into a purchase agreement to acquire all of the partnership interests of a private family partnership that owned the Hotel Columbus, a four-star 117-room hotel (the “Hotel Columbus”) located in Seligenstadt, Germany, near Frankfurt, for approximately $8.0 million, inclusive of transfer taxes and closing costs.  Although the transaction closed, and TWH&E acquired the Hotel Columbus on September 10, 2014, the signing parties agreed to set the acquisition date retroactive to September 1, 2014, which had no impact on the purchase price.  The purchase agreement called for the cash purchase by TWC of all of the partnership interests subject to a final reconciliation of the purchase price (see also Note 5 of the Notes to the Condensed Consolidated Interim Financial Statements above).

Exchange Rates

Due to the fact that the Company’s operations are located in Europe and principally in the Czech Republic and Germany, TWC’s financial results are subject to the influence of fluctuations in foreign currency exchange rates.  For our Czech operations, the revenue generated is generally denominated in Euro’s (“EUR” or “€”) and the expenses incurred by these facilities are generally denominated in CZK.  For our German hotel operation, the revenue generated and expenses incurred are primarily denominated in EUR.  As our primary reporting subsidiary, TWH&E a.s., is a Czech entity, all revenues and expenses, regardless of sources of origin (including that of Hotel Columbus), 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.

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In our financial statements, the actual 2014 and 2013 operating results for the Czech casino and hotel units and for the German hotel operation were first converted to CZK, and then were converted to USD using the average of the daily exchange rates of each month in the reporting periods.  The monthly average of daily exchange rates for the CZK versus the USD and EUR, respectively, are presented in the following graphical chart.

The consolidated balance sheet total amounts of the Company’s foreign subsidiaries at September 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 the 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, other than management’s current application of the acquisition method of accounting as indicated in ASC 805, Business Combinations.

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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 (or hold) 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 by patrons 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 September 30, 2014 and 2013: