Item 1. Business.
General Development of Business
Trans World Corporation (hereinafter referred to as “we”, “us”, “Company”, or “TWC”) was organized as a Nevada corporation in October 1993 for the acquisition, development and management of gaming establishments, to the extent permitted by applicable local laws, featuring live and mechanized gaming, including video gaming devices such as video poker machines, primarily in Louisiana. In 1998, we amended our operating strategy by shifting our focus to the casino market in Europe. Today, we operate three full-service casinos; all of which are fully-owned. The three casinos are in the Czech Republic, located in Ceska Kubice (“Ceska”), Hate (“Route 59”), and Dolni Dvoriste (“Route 55”). On June 30, 2012, we sold our smallest, and then underperforming, casino, located at Rozvadov, after ceasing all gaming operations there on March 31, 2012. Thus all operational, financial and table presentations and discussions herein this report exclude the impact of these discontinued operations for the prior year 2012, and certain prior year amounts have also been reclassified to reflect this impact. (See a further discussion of this matter in Note 4 of the Notes to the Consolidated Financial Statements). We also agreed with the owners to terminate our management contract of the Grand Casino Lav and InMotion Nightclub (collectively referred to as the “Grand Casino Lav”), located in Podstrana, Croatia, near the city of Split in April 2013, when the property underwent bank receivership.
The Czech casinos, which conduct business under our registered brand name, American Chance Casinos (“ACC”), are situated at border locations and draw the majority of their customers from Germany and Austria. Each of the casinos has a distinctive theme, portraying a recognizable era of American history: Frank Lloyd-Wright-inspired “Organic Modern” in the 1930’s for Ceska; New Orleans in the 1920’s for Route 59; and Miami Beach “Streamline Moderne” in the early 1950’s for Route 55. ACC’s operating strategy centers on differentiating its products and service offerings from its direct competitors, the very formal German and Austrian casinos in our market areas, and as a result, management has strived to create gaming environments with casual and exciting atmospheres, emphasizing entertainment and state-of-the-art equipment. Further, as part of the ACC operating formula, our management endeavors to uphold the integrity and professionalism of our operations as a means to dispel any concerns that customers and governments might have about gambling.
In addition to the above operations, we also own and operate a 77-room, four-star deluxe hotel, the Hotel Savannah, which is physically connected to our Route 59 casino in Hate, 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 January 1, 2012, we merged our three Czech slot subsidiary companies, ACC Slot, s.r.o., Hollywood Spin s.r.o. and LMJ Slot s.r.o. into our primary Czech operating entity company, American Chance Casinos a.s., in an effort to eliminate and/or reduce redundancy in operations, maintenance, legal and administrative costs. Further, for similar reasons, on February 28, 2012, TWC transferred ownership of its fully-owned Czech subsidiary, Trans World Hotels, k.s., which owns the Hotel Savannah, to American Chance Casinos a.s. Effective November 28, 2013, in order to reflect the Company’s industry diversification, we renamed our primary Czech subsidiary, American Chance Casinos a.s. to “Trans World Hotels & Entertainment, a.s.” (“TWH&E”), while still operating our casinos under the ACC brand, without interruption. Effective January 1, 2014, in the final stage of consolidation, Trans World Hotels k.s. was merged into TWH&E.
Although our principal executive offices are located in New York City, we have no operating presence in the United States. Financial information about our reporting units and geographic areas of operation is incorporated by reference from Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report in Part II, Item 8. Any acquisition of the stock or assets of another company could result in the dilution of our $0.001 par
value, common stock (“Common Stock”), an increase in our borrowings, additional operational risks and exposure to new liabilities and other factors that could adversely affect our operating results or financial condition.
Corporate Information
Our corporate offices are located at 545 Fifth Avenue, Suite 940, New York, New York 10017, our telephone number is (212) 983-3355, our website is www.transwc.com and the ACC website is www.acc.cz. Neither website is a part of this Form 10-K.
Description of Business
TWC is 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 management of mid-size hotels, which may include casino facilities. Our expansion into the hotel industry is founded on management’s belief that hotels in the mid-size 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 gives us greater stability and makes TWC more attractive to potential investors. Further, several of our top management executives have extensive experience in the hotel industry.
Market Overview and Competition
Historically, casinos in Germany and Austria have been characterized by formal atmospheres and an air of exclusivity, while our casinos offer a relaxed but exciting ambiance, which has become a desirable alternative for many of our patrons. Further, we have established ACC as a reputable casino company in the Czech Republic through our more than fifteen years of consistent high customer service standards, professionalism, and strict adherence to all local gaming regulations.
As of December 31, 2013, six casinos operate in direct competition with our Ceska casino, one of which opened in July 2012. Each of our Route 59 and Route 55 casinos currently has two direct competitors. Some of these competitors are larger and have financial and/or other resources that are greater than ours.
While we do not consider our business to be seasonal, it is occasionally negatively impacted by extreme weather conditions and major sporting events, such as the Football (i.e., soccer) World Cup and the (Football) Euro Cup, that keep potential customers from visiting our casinos. See also Item 1A
Item 1A. Risk Factors.
We have described below what we currently believe to be the material risks and uncertainties in our business.
Before making an investment decision with respect to our Common Stock, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K. We also face other risks and uncertainties beyond what is described below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. Further, past financial performance may not be a reliable indication of future performance and historical trends should not be used to anticipate results or trends in future periods. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be materially and adversely affected. If this were to happen, the value of our Common Stock could decline significantly. You could lose all or part of your investment.
General Economic Trends are Unfavorable
The recent worldwide economic downturn in 2009 and the anemic economic growth that followed since, as well as the current debt crisis in the EU, had, and may, in the future, have, a negative impact on our financial performance. Lingering adverse conditions in local, regional, national and global markets could negatively impact our operations in the future. During periods of economic contraction like that recently experienced, certain costs can remain fixed or even increase, while revenues decline. The gaming services we provide are similar to other leisure activities in that they depend on personal discretionary expenditures, which are likely to decline during economic downturns. Continued adverse developments affecting economies throughout the world, and particularly in Europe, including a general tightening of the availability of credit, potentially rising interest rates, unemployment, increasing energy costs, rising prices, inflation, political or economic turmoil, acts of war or terrorism, natural disasters, declining consumer confidence or significant declines in world stock markets could lead to a further reduction in discretionary spending on entertainment and leisure activities, which could adversely affect our business, financial condition, results of operations and prospects. In some cases, even the perception of an impending economic downturn or the continuation of a recessionary climate can be enough to discourage consumers from spending on leisure activities. We cannot predict at this time what the full effect and extent will be of the global recession and the subsequent extended period of slow-growth on our business, financial condition, or results of operations.
We Face Significant Competition
We operate in a highly competitive industry with a large number of participants, many of which have financial and other resources that are greater than ours. The gaming industry faces competition from a variety of
sources for discretionary consumer spending including spectator sports and other entertainment and gaming options, as well as home entertainment alternatives. Competitive gaming activities include traditional casinos, video lottery terminals, internet gaming, state-sponsored lotteries and other forms of legalized gaming in the Czech Republic and in other jurisdictions.
Legalized gaming is currently permitted in various forms in the Czech Republic, Austria and Germany. Moreover, established gaming jurisdictions could award additional gaming licenses or permit the expansion of existing gaming operations. If additional gaming opportunities become available near our operations, such gaming opportunities could have a material, adverse impact on our business, financial condition, results of operations and prospects.
Additionally, internet gaming and wagering is growing rapidly and may be affecting competition in our industry. Web-based businesses may offer consumers a wide variety of events to wager on, including other games, racetracks and sporting events. Unlike most web-based gaming companies, we pay taxes in the jurisdictions in which we operate and our operations require ongoing capital expenditures for both their continued smooth operations, maintenance, renovation and growth. We could also face significantly greater costs in operating our business compared to these internet gaming companies. We cannot offer the same number of gaming options as internet-based gaming companies. Many internet-based gaming companies are located off-shore and avoid regulation under applicable Czech laws. These companies may divert wagering dollars from live wagering venues, such as our casinos. The continued growth and success of these on-line ventures could have a material, adverse impact on our business, financial condition, results of operations and prospects.
Fluctuations in currency exchange rates could adversely affect our business.
Our facilities in the Czech Republic represent a significant portion of our business, and the revenue generated is generally denominated in Euros (“EUR” or “”) and the expenses incurred by these facilities are generally denominated in CZK. The potential depreciation in the value of either of these currencies against the USD would adversely impact the revenue and operating profit from our operations when translated into USD, which would have a commensurate effect on our consolidated results of operations. (See also “Item 7A. Quantitative and Qualitative Disclosure about Market Risk - Foreign Currency Exchange Rate Risk”). We do not currently hedge our exposure to fluctuations of these foreign currencies, and there is no guarantee that we will be able to successfully hedge any future foreign currency exposure, if we subsequently choose to do so in the future.
Need to Diversify
At this time, our operations are primarily located in the Czech Republic. Therefore, any future adverse legislation in the Czech Republic may have an adverse impact on our operations, financial results, financial condition and prospects. We are currently seeking to develop and/or acquire additional interests in gaming operations and hotels in other European countries. However, there can be no assurance that we will be able to develop or acquire such new operations in the future.
Need for Additional Financing
Although we have achieved positive net income for the eleventh consecutive year, pursuant to our growth strategies, we may require additional debt and/or equity financing for the acquisition and development of new businesses or business units. We may also need to access the capital markets or otherwise obtain additional funds to finance the continuing maintenance, renovation, or re-theming of currently owned facilities or the development of new operations (such as Hotel Savannah). There is no guarantee that we could obtain such financing or funds on favorable terms to us or at all.
Potential changes in legislation and regulation of our operations
Regulations governing the conduct of gaming activities and the obligations of gaming companies in any jurisdiction in which we have or in the future may have gaming operations are subject to change and could impose additional operating, financial or other burdens on the way we conduct our business.
Moreover, legislation to prohibit, limit, or add burdens to our business may be introduced in the future in the Czech Republic or elsewhere where gaming has been legalized. In addition, from time to time, legislators and special interest groups have proposed legislation that would expand, restrict or prevent gaming operations or which may otherwise adversely impact our operations in the jurisdictions in which we operate. Any expansion of gaming or restriction on or prohibition of our gaming operations or enactment of other adverse regulatory changes could have a material adverse effect on our business, financial condition, operating results and prospects.
Taxation of Gaming Operations
Gaming operators are typically subject to significant taxes, which may increase at any time. Any material increase in these taxes or fees would adversely affect our business, results of operations, financial condition and prospects. The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities. Applicable taxes include VAT, gaming tax, corporate income tax, and payroll (social) taxes. In December 2011, the Czech government passed sweeping gaming tax legislation that became effective in 2012. These tax changes have negatively and materially impacted and will continue to negatively impact our results of operations for the years ended December 31, 2012, 2013 and beyond. In this new tax law, the government eliminated the “charity contribution tax” scheme and, in lieu of it, changed the existing revenue-based, tiered rate gaming tax structure to a flat 20% gaming tax on all gaming revenues, plus an applicable corporate income tax (19% for 2012 and the foreseeable future) on adjusted net income (derived from any revenue sources, including gaming). These tax changes and other tax declarations, together with other legal compliance areas (for example, customs and currency control matters) are subject to review and investigation by a number of different Czech governmental authorities, which are authorized by law to impose fines, penalties and interest charges. These reviews may create additional tax risks that, if applied to TWC, could have a material adverse effect on our business, results of operations, financial condition and prospects.
Dependence upon Key Personnel
Our ability to successfully implement our strategy of expansion, manage the existing casinos, and maintain a competitive position will continue to depend, in large part, on the ability of Mr. Rami S. Ramadan, the Company’s President, Chief Executive Officer (“CEO”), and Chief Financial Officer (“CFO”). The Company is also dependent upon other key employees, casino managers, and consultants, whom we retain from time to time.
International Activities
Our operations are completely outside of the United States. Operating internationally involves additional risks including, but not limited to currency exchange rates, different legal or regulatory environments, political and economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures do business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, different types of criminal threats and other factors. The occurrence of any of these risks, if severe enough, could have a material adverse effect on our financial condition or results of operations.
Climate Impact
The operations of our facilities are subject to disruptions or reduced patronage as a result of severe weather conditions, natural disasters and other casualty events, including loss of service due to casualty, forces of nature, mechanical or electrical or telecommunications failure, traffic and road conditions, extended or extraordinary maintenance, flood, wind, snow, ice or other severe weather conditions. As the majority of our clientele travel from German and Austrian border regions by automobile, we are highly dependent on the volume and frequency of these players’ visitations, which impact our operating revenues. Inclement weather conditions on the roads to our casinos can serve to drastically reduce the number of visitations, which did in fact occur in the first and second quarter of 2013. On the other hand, warm and favorable outdoor weather can also divert players to alternative activities, such as family outings. The frequency and strength of any of these aforementioned climate conditions could have a material adverse effect on our business and results of operations.
Licensing and Regulation
Our operations are subject to regulation by each federal and local jurisdiction in which we operate. Each of our officers may be subject to strict scrutiny and approval from the gaming commission or other regulatory body of
each jurisdiction in which we conduct gaming operations. Furthermore, the operations of our casinos are contingent upon maintaining all necessary regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate to the operations of the casinos, the payment of taxes, the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations. All of our casinos are duly licensed by the Ministry of Finance of the Czech Republic, and we are subject to ongoing regulation to maintain these operations.
Czech regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related approval and to approve changes in our operations. The suspension or revocation of any license which may be granted to us could significantly harm our business, financial condition, results of operations and prospects. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business or gaming licenses could require us to make substantial expenditures or could otherwise negatively affect our gaming operations.
Liability Insurance
We may not have sufficient insurance coverage in the event of a catastrophic property or casualty loss. We may also suffer disruption of our business in the event of a terrorist attack (at our premises or elsewhere) or other catastrophic property or casualty loss or be subject to claims by third parties injured or harmed while visiting our locations. While we currently carry adequate general liability insurance and business interruption insurance, such insurance may not be sufficient to cover all losses in such event.
No Dividends
We have not paid any dividends to date on our Common Stock and do not expect to declare or pay any dividends in the foreseeable future. We intend to retain future earnings, if any are generated, for investment in our current operations and for future project developments. We have, however, repurchased shares of our Common Stock, from time to time. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Share Repurchase.”
Dilutive Effect of Options, Warrants, Restricted Stock and Deferred Compensation Stock
As of February 28, 2014, there were 548,175 options and 75,000 warrants outstanding to purchase shares of our Common Stock, plus 228,049 shares issuable under the Company’s Deferred Compensation Plan and 75,000 shares of performance-tied restricted stock, which, if all were vested and exercised, would represent 9.5% of the 9,736,259 shares of Common Stock that would be outstanding. The issuance of such securities would have a dilutive effect on any earnings per share that we may generate when the earnings per share are evaluated on a fully diluted basis.
Possible Adverse Effect of Issuance of Preferred Stock
Our Articles of Incorporation authorize the issuance of four million shares of “blank check” preferred stock, with designations, rights and preferences to be determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without further stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the dividend rights and/or voting power or other rights of the holders of the Common Stock. In the event of issuance, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Our Board of Directors has no current plans to issue any shares of preferred stock. However, there can be no assurance that preferred stock will not be issued at some time in the future.
Failure to maintain the security of personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of the Company’s privacy and security policies with respect to such information, could adversely affect us.
In connection with our business, we collect and retain large volumes of certain types of personally identifiable and other information pertaining to our customers, stockholders and employees. Such information
includes, but is not limited to, large volumes of customer credit and payment card information. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving and under increasing attack by cyber-criminals in the U.S. and Europe. A significant actual or potential theft, loss, fraudulent use or misuse of customer, employee or our corporate data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data, or a violation of our privacy and security policies with respect to such data could adversely impact our reputation, business integrity, and ultimately, our business prospects, and could result in fines, litigation or regulatory action against us.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
A recap of our properties as of February 28, 2014 is presented below in square feet and in square meters:
Our Corporate Offices
Our corporate offices are located at 545 Fifth Avenue, Suite 940, New York, New York, occupying 1,915 square feet of office space pursuant to a renewal in 2010 of our five-year lease, expiring in March 2015.
We believe that our existing office and other operating properties are in good condition and are sufficient and suitable for the conduct of our business. In the event we need to expand our operations, we believe that suitable space will be available on commercially reasonable terms.
Czech Republic
On November 23, 2011, we acquired the Ceska casino building and associated land and an adjacent outbuilding and related parcel of land from the town of Ceska Kubice, from which we had been renting the facilities. We built out the casino by constructing an annex building to it, making it the largest casino we own to date. See Part I, Item 1, “Our Facilities” above for more details.
We also own a parcel of raw land in Folmova, Czech Republic, in the same region as the existing Ceska casino.
In Hate, we own the casino building and a parcel of land upon a portion of which the casino building sits. On another portion of this land, we constructed and opened Hotel Savannah and the Spa, which are connected to the Route 59 casino. We opened the hotel on January 14, 2009, and on April 16th of the same year, we held the official launch of Hotel Savannah and the Spa. The combined facilities have effectively become a thriving entertainment complex that has attracted visitors and regular guests and players from the surrounding region.
In April 2002, we acquired a parcel of land in Dolni Dvoriste, Czech Republic. On this parcel, we constructed what was at the time, our fourth and largest casino, Route 55, which was completed and opened in December 2004.
On an annual basis, we also lease accommodations for staff in Ceska Kubice, Hate (Route 59) and in Dolni Dvoriste (Route 55).
Item 3.
Item 3. Legal Proceedings.
We may be, from time to time, a party to various legal proceedings and administrative actions, all arising from the ordinary course of business. We are not currently involved in any material legal proceeding nor were we involved in any material litigation during the year ended December 31, 2013.
PART II
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our Common Stock is quoted on the Over-The-Counter (“OTC”) Bulletin Board under the symbol “TWOC.OB.”
Return Analysis
The stock performance graph and related information presented below is not deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing.
The following graph illustrates a six-year comparison of cumulative total return performance of our Common Stock from December 31, 2008 through December 31, 2013, and compares it to the cumulative total return of the “NASDAQ Composite” and the “S&P SmallCap 600” indices. The comparison assumes a $100 investment on December 31, 2008, in our Common Stock and in each of the foregoing indices, and assumes reinvestment of dividends, if any. We paid no dividends during this period.
The above table is not intended to forecast future performance of our Common Stock.
Market Prices and Liquidity
As of February 28, 2014, our stock price was $2.90. The following table sets forth the high and low prices of the Company’s Common Stock for fiscal years 2012 and 2013 as quoted on OTC Bulletin Board. All such quotations reflect inter-dealer prices, without retail mark up, mark down or commission, and may not represent actual transactions. There is minimal market liquidity for our Common Stock, as 88.7% of the stock is held by institutional investors. Thus, there is infrequent and minor trades that can occur, which precipitates wide spreads in the “bid” and “ask” quotes of our Common Stock, on any given day.
As of February 28, 2014, there were 8,810,035 outstanding shares of Common Stock held of record by approximately 400 shareholders and outstanding options to purchase an aggregate of 548,175 shares of Common Stock, all of which are immediately exercisable. At such date, there were also outstanding warrants to purchase 75,000 shares of Common Stock, all of which have vested and are exercisable, as well as 75,000 shares of restricted stock, none of which have vested. In addition, there are 228,049 shares of Common Stock issuable under the Company’s Deferred Compensation Plan at February 28, 2014.
Dividends
We have not paid any dividends to date on our Common Stock, and do not expect to declare or pay any dividends in the foreseeable future. We intend to retain future earnings, if and when generated, for investment in our current operations and for future project developments. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, capital requirements, restrictions contained in current or future financing instruments and such other factors as our board of directors deems relevant.
Share Repurchase
On November 12, 2012, TWC’s board of directors approved a renewable stock repurchase 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. 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 program was renewed upon its first anniversary for another year, expiring on November 12, 2014. Thus, pursuant to the stock repurchase program and through a registered broker-dealer, we conducted repurchases on the open market, arriving at an outstanding 8,810,135 shares at December 31, 2013. The repurchase transactions are listed in the table below:
ISSUER PURCHASES OF EQUITY SECURITIES
Sales of Unregistered Equity Securities - Use of Proceeds From
During the years ended December 31, 2013 and 2012, we did not issue or sell any unregistered equity securities.
Item 6.
Item 6. Selected Financial Data.
The selected financial data below has been derived from our audited consolidated financial statements (except for the variance data) and should be read in conjunction with “Part II, Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Information set forth in this discussion and analysis (as well as in other sections of this Form 10-K) contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (the “PSLRA”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this Annual Report on Form 10-K is made pursuant to the PSLRA. The reader is cautioned that such forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. Forward-looking statements speak only as of the date the statement was made. We assume no obligation to update forward-looking information to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. Forward-looking statements are typically identified by the use of terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “should,” “will,” and similar words, although some forward-looking statements are expressed differently. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from expectations include those factors described in Item 1A, “Risk Factors” of this Annual Report on Form 10-K.
Further information on potential factors that could affect our financial condition, results of operations and business are included in this Annual Report and our other filings with the SEC. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us. You should read this discussion with the financial statements and other financial information included in this report. Our significant accounting policies are described in Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
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 drop, the dollar value of gaming chips purchased in a given period; (ii) drop per head (“DpH”), the per guest average dollar value of gaming chips purchased; (iii) slot revenue per head, the per guest average dollar value of revenue generated in our slot machines; (iv) our net win, the difference between gaming wagers and the amount paid out to patrons; and (v) our win percentage (“WP”), the ratio of net win to total drop, or commonly referred to as “hold percentage”. We may also use or refer to performance measures and indicators common to the hospitality industry, such as: (i) occupancy, the percentage derived from rooms sold to available rooms; (ii) average daily rate (“ADR”), the average of room rental rates paid per day; and (iii) revenue per available room (“RevPAR”), revenue generated per available room. In this report and in our quarterly and annual earnings release, we may use or refer to another performance measure, earnings before income taxes, depreciation and amortization (“EBITDA”). All of these measures and indicators are non-GAAP financial measures that we believe provide useful information to investors and potential investors, as well as to others who might be interested in purchasing shares of TWC Common Stock. This belief is based on conversations and meetings our management has had with our investors where the substance of these talks has typically centered on historical and prospective EBITDA measurements. Based on management’s observations, even though the EBITDA and other noted measurements are not “GAAP,” they do enhance investors’ understanding of the Company’s business. In short, these performance measurements give an analytic view of the Company’s operational earnings and EBITDA, in particular, reflects earnings on a cash-basis, excluding the impact of debt obligations and (non-cash) depreciation and amortization.
Exchange Rates
Due to the fact that the Company’s operations are located in Europe and principally in the Czech Republic, our 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 EUR and the majority of the expenses incurred by these facilities are generally denominated in local currency, the CZK. As our primary reporting subsidiary, TWH&E, 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 the CZK and/or
the EUR 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 (see also “Item 7A
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. TWC does not maintain any instruments in a trading portfolio to offset or to hedge market risk.
Interest Rate Risk
Due to the nominal amounts of borrowing that were outstanding in 2013, interest rate risk was not material for the year ended December 31, 2013, and through the date of this filing.
Foreign Currency Exchange Rate Risk
The information in this section should be read in conjunction with information related to changes in the exchange rates of foreign currency in “Part I, Item 1A. Risk Factors.” Changes in foreign currency exchange rates could materially adversely affect our consolidated results of operations or financial condition.
Due to the fact that our operations are all located overseas, our overall results are subject to the impact of fluctuations in foreign currency exchange (“FX”) rates. Pursuant to the January 2002 adoption of the EUR by Germany and Austria (but not the Czech Republic) as the sole trading currency by all European Union member nations that had previously tied their local currencies to it, our operations conducted business in EURs and CZKs. Because the vast majority of our customers are German and Austrian, our revenues are generally received in EUR. However, because our operations are situated in the CZ, the majority of our expenses are denominated in CZKs. As our primary reporting subsidiary, TWH&E, 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.
Based on our sensitivity analysis, as of the year ended December 31, 2013, we determined that hypothetical 10% movements in the two functional currencies, the CZK, when converted to the USD, and the EUR, when converted to the CZK, would have resulted in the following changes to our operating results:
· A hypothetical 10% strengthening of the USD to the CZK would have decreased our operating results by an approximate $589,000;
· A hypothetical 10% weakening of the USD to the CZK would have increased our operating results by an approximate $720,000;
· A hypothetical 10% strengthening of the EUR to the CZK would have increased our operating results by an approximate $2.7 million; and
· A hypothetical 10% weakening of the EUR to the CZK would have decreased our operating results by an approximate $2.7 million.
In real world situations, the impact of the FX on our operating results could be positive or negative, depending on the combination, the variability and intensity of the above probabilities, coupled with the strength of the correlation of the functional currencies to the USD, among other factors We have not in the past, and do not currently hedge, our currency holdings or transactions.
Item 8.
Item 8. Financial Statements and Supplementary Data.
The following items are included in this Report of Rothstein Kass, the independent registered public accounting firm that has audited the Company’s financial statements for the periods set forth below:
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets, December 31, 2013 and 2012
Consolidated Statements of Operations and Comprehensive Income, Years Ended December 31, 2013 and 2012
Consolidated Statements of Stockholders’ Equity, Years Ended December 31, 2013 and 2012
Consolidated Statements of Cash Flows, Years Ended December 31, 2013 and 2012
Notes to Consolidated Financial Statements
29-46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Trans World Corporation
We have audited the accompanying consolidated balance sheets of Trans World Corporation and Subsidiaries (collectively, the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Trans World Corporation and Subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the two year period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
/s/ Rothstein Kass
Roseland, New Jersey
March 4, 2014
TRANS WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
(in thousands, except for share data)
See accompanying notes to consolidated financial statements
TRANS WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Years Ended December 31, 2013 and 2012
(in thousands, except for share data)
See accompanying notes to consolidated financial statements
TRANS WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2013 and 2012
(in thousands, except for share data)
See accompanying notes to consolidated financial statements
TRANS WORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2013 and 2012
(in thousands, except for share data)
See accompanying notes to consolidated financial statements
TRANS WORLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Figures in thousands, except for statistics and share data)
NOTE 1 - Nature of Business
Nature of Business
Trans World Corporation and Subsidiaries (collectively, “TWC” or the “Company”), a Nevada corporation, is primarily engaged in the gaming business in the Czech Republic.
The Company owns and operates three casinos in the Czech Republic (“CZ”), all under the American Chance Casinos (“ACC”) brand. One casino is located in the western part of the CZ, close to the German border, in Ceska Kubice (“Ceska”), which currently has 14 gaming tables and 100 slot machines. The other two 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 23 gaming tables and 130 slot machines. The other casino, “Route 59,” is located in Hate, near Znojmo, and currently has 21 gaming tables and 118 slot machines. In addition to the Czech casinos, TWC also owns and operates a 77-room, European four-star deluxe hotel, the Hotel Savannah, which is physically connected to our Route 59 casino, and also a full-service spa, the Spa at Savannah (the “Spa”), which is operated by an independent contractor and is attached to the hotel.
The Company and the Grand Casino Lav and Nightclub (collectively known as the “Grand Casino Lav”), mutually agreed to terminate TWC’s contract to manage the operation, located in Podstrana, Croatia, near the city of Split, in April 2013, when the property underwent bank receivership. The bank satisfactorily retired the former owners’ existing debt (i.e. notes receivable) in full to TWC on December 31, 2013.
Discontinued Operations
The Company had owned and operated a fourth casino in the western part of CZ, in the town of Rozvadov. The Company terminated live games operation at Rozvadov at the end of January 2012, and continued running the unit as a slot-only operation until March 31, 2012, when all gaming operations were ceased and the property was leased out to a third-party operator. On July 11, 2012, the lessee exercised its option to buy out the lease by making the full purchase payment of 1,000, or then $1,369 to TWC. The net gain from the sale of the Rozvadov casino and associated buildings, less all related costs, and inclusive of rental income was approximately $314. Rozvadov’s net gain (loss), shown as discontinued operations for the year ended December 31, 2012 was $162. No write-downs of inventories or furniture, fixtures and equipment (“FF&E”) were incurred because its slot machines were leased, while the Company’s owned FF&E was subsequently rented out and remaining inventories were transferred to other operating units at an immaterial cost. Employees at Rozvadov received cash severance benefits aggregating approximately $79.
NOTE 2 - Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation - The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and pursuant to the accounting and disclosure rules and regulations of the Securities and Exchange Commission (the “SEC”) and Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation.
Discontinued Operations - The Company complies with the accounting and reporting requirements for reporting on discontinued operations. The results of operations of a component of an entity that either has been disposed of or is classified as held for sale is reported in discontinued operations if the operations and cash flows of the component have been eliminated from the ongoing
operations of the entity as a result of the disposal transaction, and the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.
In a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statement of the Company for current and prior periods will report the results of operations of the component, including any gain or loss recognized, in discontinued operations. The results of operations of a component classified as held for sale shall be reported in discontinued operations in the period(s) in which they occur.
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:
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, the Rozvadov casino (which was sold in 2012) and a parcel of land in Hate, upon which the Route 59 Casino and the Hotel Savannah and Spa reside. Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. The Company 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 a parcel of land in Hate. Goodwill impairment tests require the Company to first assess qualitative factors to determine whether it is necessary to perform a two-step quantitative goodwill impairment test. The Company is not required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The Company 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.
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 December 31, 2013.
Comprehensive Income - The Company complies with requirements for reporting comprehensive income. Those requirements establish rules for reporting and display of comprehensive income and its components. Furthermore, they require the Company’s change in the foreign currency translation adjustments to be included in other comprehensive income (loss).
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 year 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 year.
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 received GAAP requirements, as of January 1,2002. This balance represents the remaining, unamortized goodwill, after an impairment charge taken prior to January 1, 2013.
(2) FX (interbank) rates taken from www.Oanda.com.
Earnings Per Common 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. As of December 31, 2013, the Company’s Common Stock equivalents include 598,475 unexercised stock options, 75,000 outstanding warrants, 75,000 shares of restricted stock, and 228,049 shares issuable under the Company’s Deferred Compensation Plan. As of December 31, 2012, the Common Stock equivalents included 660,575 unexercised stock options, 75,000 outstanding warrants, 75,000 shares of restricted stock, and 151,642 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, warrants, restricted stock, and deferred compensation stock were vested and “in-the-money.”
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.
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, including room rentals, sales of food, beverage, cigarettes, and casino logo merchandise are recognized at the time the related services are performed or goods sold, and represent, in the aggregate, 4.4% and 4.9% of total revenues for the years ended December 31, 2013 and 2012, respectively. Food and beverage revenues, which are included in revenues from ancillary services, represent approximately 1.7% and 1.8% of total consolidated revenues for the years ended December 31, 2013 and 2012, respectively.
Promotional Allowances - Promotional allowances primarily consist of the provision of complimentary food and beverages and, to certain of its valuable players, hotel accommodations. For the years ended December 31, 2013 and 2012, revenues do not include the retail amount of food and beverages and hotel accommodations of $7,003 and $6,064, respectively, provided at no-charge to customers. The retail value of the food and beverages given away is determined by dividing the food and beverage costs charged to the gaming operation of $2,412 and $2,265, for the respective periods, by the average percentage of cost of food and beverages sold. The cost of hotel accommodations is either the out-of-pocket expenses paid to other hotels to accommodate TWC’s customers or the retail charge of room accommodations at the Company’s Hotel Savannah and at its VIP guest rooms at Route 59 and at Route 55.
The promotional allowances are summarized below:
External Advertising - The Company complies with the accounting and reporting requirements for reporting on advertising costs. External advertising expenses are charged to operations as incurred and were $664 and $584 for the years ended December 31, 2013 and 2012, respectively.
Fair Value of Financial Instruments - The fair values of the Company’s assets and liabilities that qualify as financial instruments approximate their carrying amounts presented in the accompanying consolidated balance sheets at December 31, 2013 and 2012, respectively.
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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 by 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 years ended December 31, 2013 and 2012, respectively.
Stock-based Compensation - The Company complies with the accounting and reporting requirements for share-based payments which permit companies to adopt the requirements using either a “modified prospective” method, or a “modified retrospective” method. Under the “modified prospective” method, compensation cost is recognized in the consolidated financial statements beginning with the effective date, based on the requirements of share-based payments for all share-based payments vested after that date, and based on these requirements for all unvested awards granted prior to the effective date of this accounting requirement. Under the “modified retrospective” method, the requirements are the same as under the “modified prospective” method, but also permit entities to restate the consolidated financial statements of previous periods, either for all prior periods presented or to the beginning of the fiscal year in which the statement is adopted, based on previous pro forma disclosures made in accordance with this reporting requirement. Accordingly, the Company has adopted the modified prospective method of recognition, and began applying the valuation and other criteria to stock options and warrants granted beginning January 1, 2006. The Company is recognizing expense for the unvested portion of previously issued grants based on the valuation and attribution methods used previously to calculate the pro forma disclosures. The Company did not recognize expense for employee stock options prior to January 1, 2006.
The Company currently utilizes the Black-Scholes option pricing model to measure the fair value of stock options granted to certain key management employees (“KMEs”), as well as for warrants issued for services. While this accounting requirement permits entities to continue to use such a model, it also permits the use of a “lattice” model. The Company expects to continue using the Black-Scholes option pricing model in connection with its adoption of accounting and reporting requirements to measure the fair value of stock options and warrants granted.
In 2013 and 2012, the Company expensed approximately $0 and $135, respectively, for granted options to certain KMEs, which was recognized in its selling, general and administrative expenses in the consolidated statements of operations.
Czech Gaming Taxes - Effective January 1, 2012, the Czech government passed a new tax legislation that imposed a new tax scheme on casino operators. The New Gaming Tax applies on all live game and slot revenues, as well as an applicable corporate income tax on adjusted Czech net income, net of exemptions. The New Gaming Tax also imposed a new daily tax on each slot machine. A summary of the New Gaming Tax Law is presented below, in actual monetary amounts (not in thousands):
New Gaming Tax Law *
(Effective January 1, 2012)
* The new Gaming Tax is to be paid quarterly, by the 25th day following the end of a quarter, while the 2012 corporate income tax obligation was paid by June 30, 2013, followed by estimated quarterly income tax payments beginning for the third quarter ending September 30, 2013.
TWC’s gaming-related taxes and fees for the years ended December 31, 2013 and 2012 are summarized in the following table:
(1) As the non-refundable, six-month licensing fees, effective for January 2012 through June 2012, were paid in advance in October 2011, prior to the passing of the New Gaming Tax laws in December 2011, the Company incurred these fees for the first six months of 2012. Excluding these non-recurring licensing fees, the gaming taxes for the year 2012 would have been 21.0% of gaming revenues.
(2) The tax as a percentage of gaming revenue varies slightly from the 20% flat rate, due to the gaming tax imposed per slot machine, per day.
In conformity with the European Union (“EU”) taxation legislation, when the Czech Republic joined the EU in 2004, its VAT increased from 5% to 22%, from January 2004 through December 2009, and ranged between 9% and 19% for all intra-EU generated purchases during that period. Between January 1, 2010 and December 31, 2012, VAT rates increased to between 10% and 20%. All non-EU generated purchases were impacted by identical VAT increases, beginning in May 2004. The VAT top rate was increased to 21% beginning in 2013. 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 under the Hotel Savannah operation was non-material for the years ended December 31, 2013 and 2012, respectively.
Effective January 1, 2012, TWC merged its three Czech slot subsidiary companies, ACC Slot, s.r.o., Hollywood Spin s.r.o. and LMJ Slot s.r.o. into its primary Czech operating entity company, American Chance Casinos, a.s.. Furthermore, for similar reasons, on February 28, 2012, TWC transferred the ownership of its fully-owned Czech subsidiary, Trans World Hotels, k.s., which owns the Hotel Savannah, to American Chance Casinos a.s. 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 was merged into TWH&E.
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. No interest expense or penalties have been recognized as of and for the years ended December 31, 2013 and 2012. The Company is subject to income tax examinations by major taxing authorities
for all tax years since 2010. 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.
Effective January 1, 2012, 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.
New Accounting Pronouncements - 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 is effective prospectively for fiscal years beginning on or after December 15, 2013, and for interim periods within those fiscal years. The Company is in the process of evaluating this guidance and does not expect that it will have a significant impact on its consolidated financial statements.
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 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date; however retrospective application is permitted. The Company is in the process of evaluating this guidance and does not expect that it will have a significant impact on its consolidated financial statements.
Recently Issued and Adopted Accounting Standards - In February 2013, the FASB issued guidance to improve the reporting of amounts reclassified out of accumulated other comprehensive income (“AOCI”). The guidance amends the presentation of changes in AOCI and requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the statement of income or as a separate disclosure in the notes. This guidance was effective prospectively for fiscal years beginning after December 15, 2012. The Company adopted the guidance on January 1, 2013, as required. There was no material impact on its consolidated financial statements resulting from the adoption.
NOTE 3 - Property and Equipment
At December 31, 2013 and 2012, property and equipment consisted of the following:
Depreciation and amortization expense for the years ended December 31, 2013 and 2012 were approximately $1,600 and $1,728, respectively.
NOTE 4 - Long-Term Debt
At December 31, 2013 and 2012, long-term debt consisted of the following:
(i) In November 2009, the Company amended its long-term debt (former revolving credit line) with a new credit facility from Commerzbank Aktiengesellschaft, pobocka Praha (“Commerzbank”). The new credit facility allowed the Company to retire its prior revolving credit line and replace it with a combination of a term loan and a new smaller revolving credit line. The revolving credit line was paid off and closed on November 1, 2012, while the term loan was retired on July 4, 2013.
(ii) In August 2009, as part of TWC’s partnership with Vigotop Limited, a Cyprus-based company, to form a Hungarian company, KC Bidding Kft. (“KCB”), in which TWC became holder of a 25% equity interest, TWC extended KCB a 3-year, 1.0% interest per annum loan of approximately 930, or $1,200, to form a Hungarian license concession company, SDI Europe Kft. (“SDI”), for the purpose of eventually operating a Class I casino in Hungary. SDI is a wholly-owned subsidiary of KCB. Through SDI’s intermediary, IMT LLC, a Delaware limited liability company, TWC received a three-year, 2.1505% interest per annum loan of approximately $1,200. In November 2010, the loan agreement between ACC and KCB was amended to change the maturity date to January 31, 2016 from December 31, 2012 and to establish an interest rate of 1% from January 1, 2012 through the new maturity date of the loan. In March 2011, the loan agreement between IMT and ACC was amended to change the maturity date to February 21, 2016 from January 31, 2013, and to establish an interest rate of 1% from January 1, 2012 through the new maturity date of the loan. In July 2013, TWC and Vigotop mutually agreed to cross-assign their respective rights to KCB and SDI, thereby effectively cancelling the IMT obligation with the KCB receivable.
(iii) In November 2011, TWC purchased the Ceska casino building, associated land and an adjacent outbuilding and related plot from the town of Ceska Kubice, from which TWC had been renting the facilities. In conjunction with this purchase, TWC was granted by the township of Ceska Kubice a three-year municipal loan of CZK 9,000, or $452. The loan, which was due to mature on November 23, 2014, was paid in full on January 16, 2014. (See “Note 13 - Subsequent Event.”)
Principal payments due on long-term debt are as follows:
NOTE 5 - Accrued Expenses and Other Current Liabilities
At December 31, 2013 and 2012, accrued expenses and other current liabilities consisted of the following:
NOTE 6 - Commitments and Contingencies
Lease Obligations - The Company is obligated under several financial leases expiring through 2018. Future aggregate minimum annual rental payments under all of these leases for the lesser of five years or until their expiration dates are as follows:
Rent expense under operating leases was approximately $88 and $87 for the years ended December 31, 2013 and 2012, respectively.
The Company’s slot machines are subject to operating leases, which range from five years to indefinite terms, depending on the vendors, and all include a free annual replacement per machine, upon request.
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, renewed automatically for another calendar year 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. Annual compensation of $450 will be paid in 2014, pursuant to the evergreen renewal terms of said employment agreement, excluding any bonus awards that may be or have been granted in 2013 at the discretion of the Board of Directors.
Pursuant to the renewal of the employment agreement with Mr. Ramadan in July 2005, Mr. Ramadan was also granted seven-year options to purchase 175,000 shares of Common Stock, all of which expired on July 1, 2012. Also, pursuant to this July 2005 employment agreement, upon reaching designated earnings per share targets, Mr. Ramadan will be granted 75,000 restricted shares of the Company’s Common Stock in 25,000 share allotments. None of the restricted shares have been vested to date.
On February 4, 2007, Mr. Ramadan was granted seven year options to purchase 50,000 shares of Common Stock, all of which expired on February 4, 2014.
Further, on October 23, 2007, pursuant to the Company’s 2004 Equity Incentive Plan, Mr. Ramadan was granted seven year options to purchase 125,000 shares of Common Stock. As of December 31, 2013 and 2012, these options have all vested. The exercise price of all these options is set at $4.85 per share, the closing stock price on October 23, 2007, and escalated to $5.05 on its first anniversary. On May 26, 2009, the Company’s Board of Directors froze the exercise price at $5.05 for the entire grant.
The weighted average exercise price of all of Mr. Ramadan’s vested options was $4.67 and $4.68 at December 31, 2013 and 2012, respectively. No vested options have been exercised by Mr. Ramadan as of December 31, 2013.
401 (k) and Profit Sharing Plan - The Company maintains a contributory 401(k) plan and a profit sharing plan. These plans are for the benefit of all eligible U.S. corporate employees, who may have up to 17% of their salary withheld, not to exceed the maximum federally allowed amount. The Company makes a voluntary employer-matching contribution of 60 cents for each employee dollar contributed, which totaled $45 and $44 for the years 2013 and 2012, respectively.
Taxing Jurisdiction - The Czech Republic currently has a number of laws related to various taxes imposed by governmental authorities. Beginning in 2012, applicable taxes include gaming tax, VAT, and payroll (social) taxes and corporate income tax. In December 2011, the Czech parliament passed sweeping gaming tax legislation, which was signed by the Czech President into law. The new gaming tax law took effect beginning January 1, 2012. Tax declarations, together with other legal compliance areas (for example, customs and currency control matters) are subject to review and investigation by a number of Czech governmental authorities, which are enabled by law to impose fines, penalties and interest charges, and, ultimately, create tax risks in the Czech Republic. Management believes that it has adequately provided for its Czech tax liabilities.
Legal Matters - The Company may be, from time to time, a party to various legal proceedings and administrative actions, all arising from the ordinary course of business. The Company is not currently involved in any material legal proceeding nor was it involved in any material litigation during the year ended December 31, 2013.
NOTE 7 - Risks and Uncertainties
Regulation and Licensing - The Company’s operations are subject to regulation by each federal and local jurisdiction in which it operates. Each of the Company’s officers may be subject to strict scrutiny and approval from the gaming commission or other regulatory body of each jurisdiction in which TWC conducts gaming operations. Furthermore, the operations of its casinos are contingent upon maintaining all necessary regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate to the operations of the casinos, the payment of taxes, the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations. All of TWC’s Czech casinos are duly licensed by the Ministry of Finance of the Czech Republic, however, the Company is subject to ongoing regulation and oversight to maintain these operations.
Czech regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related approval and to approve changes in the Company’s operations. Substantial fines for violations of gaming laws or regulations may be levied. The suspension or revocation of any license which may be granted to the Company or the levy of substantial fines for violations could significantly harm its business, financial condition and results of operations. Furthermore, compliance costs associated with gaming laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to its business or a violation of any current or future laws or regulations applicable to its business or gaming licenses could require the Company to make substantial expenditures or could otherwise negatively affect its gaming operations.
Foreign Activities - The Company’s operations are entirely outside of the United States of America. Operating internationally involves additional risks relating to such things as currency exchange rates, different legal and regulatory environments, political and economic risks relating to the stability or predictability of foreign governments, differences in the manner in which different cultures conduct business, difficulties in staffing and managing foreign operations, differences in financial reporting, operating difficulties, different types of criminal threats, and other factors. The occurrence of any of
these risks, if severe enough, could have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.
Cash - Cash consists of cash in banks and on hand. The Company maintains a substantial portion of its cash balances in financial institutions that are outside the United States of America or that may exceed the Federal Deposit Insurance Corporation (“FDIC”) coverage of $250 per account. The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash. In addition, the FDIC does not insure the Company’s foreign cash, which totaled $5,866 and $6,236 at December 31, 2013 and 2012, respectively. The Company has not incurred any losses in such accounts and believes it is not exposed to any significant credit risk on cash.
NOTE 8 - Stockholders’ Equity
For the years ended December 31, 2013 and 2012, the Company recognized stock-based compensation expense of $0 and $135, respectively, for the vesting of granted stock options and warrants. As part of their participation in the Company’s Deferred Compensation Plan, each member of the Company’s Board of Directors agreed to receive a portion of his annual retainer in shares of the Company’s Common Stock, aggregating $14 and $10 for the entire board, for the years ended December 31, 2013 and 2012, respectively.
On November 12, 2012, TWC’s board of directors approved a stock repurchase program, authorizing the repurchase of up to 500,000 shares of the Company’s Common Stock over a 12-month period. 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 program was renewed for another year, on the expiration of its first anniversary of November 12, 2013. Thus, pursuant to the stock repurchase program and through a registered broker-dealer, the Company conducted repurchases on the open market, arriving at an outstanding 8,810,135 shares and 8,836,735 shares at December 31, 2013 and 2012, respectively. The amount and timing of specific repurchases are subject to market conditions, applicable legal requirements and other factors. Repurchases may be conducted in the open market or in privately negotiated transactions.
The repurchase transactions since the inception of the program are listed in the table below:
ISSUER PURCHASES OF EQUITY SECURITIES
In accordance with the retirement method, the aggregate cost of $77 and $92 was recorded against additional paid-in-capital for the years ended December 31, 2013 and 2012, respectively.
The Company’s Articles of Incorporation authorize the issuance of four million shares of “blank check” preferred stock, with designations, rights and preferences to be determined from time to time by its Board of Directors. Accordingly, the Board of Directors is empowered, without further stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights. The Board of Directors has no current plans to issue any shares of preferred stock.
NOTE 9 - Other Assets and Other Long-Term Liabilities
Notes Receivable - In connection with the TWC’s management of the Grand Casino Lav, on January 10, 2007, the Company extended three Euro-denominated loans totaling 967, or $1,278 at the December 31, 2013 exchange rate, to the Grand Hotel Lav, d.o.o. (“GHL”), the owner of the Grand Casino Lav and Nightclub. In March 2013, GHL underwent bank receivership, with the bank acknowledging the outstanding debt. On April 30, 2013, a monthly repayment plan to settle the debt (i.e. TWC’s notes receivable) was granted by TWC to the bank. On December 31, 2013, the debt was paid in full and cancelled. The management contract with GHL was effectively terminated upon the signing of this agreement.
Advance Receivable - In August 2009, in pursuit of obtaining a gaming license in Hungary, TWC partnered with Vigotop Limited, a Cyprus-based company (“Vigotop”), to form a Hungarian company, KC Bidding Kft. (“KCB”), in which TWC became holder of a 25% equity interest. Subsequently, TWC extended a three-year, 1.0% interest per annum loan of approximately 930, or $1,280, to KCB to form a Hungarian license concession company, SDI Europe Kft. (“SDI”), for the purpose of eventually operating the Class I casino in Hungary. SDI is a wholly-owned subsidiary of KCB. Through SDI’s intermediary, IMT LLC (“IMT”), a Delaware limited liability company, American Chance Casinos (“ACC”), an operations subsidiary of TWC, received a three-year, 2.1505% interest per annum loan of approximately $1,200. On July 26, 2013, pursuant to mutual agreement between TWC and Vigotop to assign all rights and receivables to the other counterparty, SDI and IMT, the KCB receivable and IMT loan were effectively retired and cancelled.
Since January 12, 2011, the date KCB received written notice of the cancellation by the Ministry for the National Economy of Hungary (the “MOE”), there have been several lawsuits and countersuits initiated by the MOE and KCB, contesting the cancellation of the concession contract, which was signed on October 9, 2009, and alleged breaches of its terms. KCB’s suit against the government was ultimately dismissed by the court on procedural grounds, and the various court hearings related to the government’s action against KCB have either been inconclusive or postponed pending further discovery processes. The next court hearing is set for March 3, 2014, the outcome of which cannot be reported in time to be included in this filing.
Restricted Deposits - Restricted deposits amounted to CZK 22,000, relating to Czech license bond requirements, for years 2013 and 2012, respectively. Using respective year-end exchange rates, these deposits have been translated to $1,105 and $1,160 at December 31, 2013 and 2012, respectively.
NOTE 10 - Income Taxes
In the Czech Republic, prior to January 1, 2012, gaming income was not subject to corporate income tax. In lieu of income taxes, gaming income was subject to other taxes in the Czech Republic, including gaming and charity taxes, which were primarily based on percentages of gaming revenues. Foreign net operating loss carry-forwards (disclosed below) were derived from non-gaming activities and could only be applied against non-gaming activities. Effective January 1, 2012, the Czech government instituted an effective corporate income tax of 19.0%, on income. As a result of the new tax laws and due to the potential and material income tax liability, the Company incurred an estimated income tax liability of $1,056, net of a $7 credit related to a past year income tax adjustment, and $2,069 (which had included $505 in deferred income tax resulting from foreign book tax differences on fixed assets) for the years ended December 31, 2013 and 2012, respectively. Corporate income tax is payable by the end of June of the subsequent year. In compliance with new tax regulations, the Company began making quarterly, estimated corporate income tax payments beginning for the quarter ended September 30, 2013.
At December 31, 2013, the Company had U.S. and foreign net operating loss carry forwards (“NOL’s”) of approximately $38,096 and $0, respectively, available to offset certain future income taxes payable. However, based on limited analysis, a sizable warrant exercise in February 2001 or earlier events may have triggered significant limitations of preexisting U.S. NOL’s, pursuant to
Internal Revenue Code Section 382, to the extent that substantially all of the Company’s existing U.S. NOL’s prior to February 2001, aggregating approximately $14,676, may be significantly limited. The U.S. NOL’s generated subsequent to February 2001, aggregating approximately $23,420, resulted in an estimated $10,539 deferred tax asset at December 31, 2013. A full valuation allowance has been established for these deferred tax assets since its realization is considered unlikely. U.S. NOL’s cannot be used to offset Czech net income nor can Czech NOL’s be used to offset U.S. net income.
The foreign income taxes, included in the consolidated statements of operations, for the years ended December 31, 2013 and 2012 are summarized below:
The income tax liabilities, included in the consolidated balance sheets, for the years ended December 31, 2013 and 2012 are summarized below:
The Company’s effective income tax rate differs from the statutory U.S. federal income tax rate as follows:
The significant components of the income tax expense are as follows:
The U.S. NOL’s expire between 2015 and 2019. During the year ended December 31, 2013, there was an immaterial amount of foreign NOL’s which expired. The following table presents the U.S. and foreign components of pretax income before income taxes for the years ended December 31, 2013 and 2012:
NOTE 11 - Stock Options and Warrants
Stock Options Plan
The activity in the Company’s stock option plan was as follows for the dates indicated:
On January 4, 2008, pursuant to the Company’s 2004 Equity Incentive Plan and as part of his compensation package, TWC granted its Managing Director of Operations, who is a resident of the Czech Republic and is not a named executive officer of the Company, options to purchase 10,000 shares of the Company’s Common Stock. The seven-year options have all vested as of December 31, 2013. The exercise price for these options is $4.10 per share, the market closing price at the date of grant.
On May 26, 2009, TWC also granted options to purchase 410,000 shares of the Company’s Common Stock to 10 KMEs. The seven-year options vest in four equal parts, with the first part on the date of grant and each subsequent part on the anniversary of the grant date. The exercise price for these options, vested and unvested, is $3.50 per share, the market closing price at the date of grant. These options have fully vested as of December 31, 2013.
In each instance, the option exercise price per share was equal to or above the market value of the underlying stock on the date of grant. Options generally expire between five and ten years after the date of grant or earlier upon termination of employment, as defined in the plan or agreements.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the below assumptions related to risk-free interest rates, expected dividend yield, expected lives and expected stock price volatility. No new grants were issued in 2013 or 2012.
Additional information about the Company’s outstanding stock options at December 31, 2013 is as follows:
Warrants
The activity in the Company’s warrants is as follows:
(*) On November 30, 2009, TWC granted 75,000 five-year warrants to purchase TWC Common Stock at the then market price of $3.00 per share, in connection with the Company’s engagement of a capital markets advisor. The warrants vest over two-year period, with the first of three equal parts vested immediately upon the grant date, and the remaining parts upon the next succeeding anniversary dates of the grant. As of December 31, 2013, all warrants have been vested. (See also “Note 8 - Stockholders’ Equity” above).
NOTE 12 - Compensation Plans
2004 Equity Incentive Plan
In May 2004, TWC’s Board of Directors (the “Board”) unanimously adopted the 2004 Equity Incentive Plan (“2004 Equity Plan”), which was subsequently approved by the shareholders of the Company at its Annual Meeting held in June 2004.
The 2004 Equity Plan provides that certain awards made under the plan may be eligible for designation as “qualified performance-based compensation” which may be exempt from the $1,000 deduction limit imposed on publicly-held corporations by Section 162(m) of the Internal Revenue Code. The type of awards which may be granted, under the 2004 Equity Plan, by the Compensation Committee of the Board, in its discretion from time to time, include stock options, stock appreciation rights, restricted stock and restricted stock units, other stock-based awards and performance awards.
In June 2005, the shareholders of the Company, at its Annual Meeting, approved amendments providing the Committee with the discretion to grant to any participant annually up to 250,000 shares of Common Stock and to determine whether to include a one-year vesting requirement for any future grants awarded under the 2004 Equity Plan to any of the Company’s employees.
Further, the shareholders of the Company at its Annual Meetings, held in April 2006, May 2007 and May 2009, approved amendments to the 2004 Equity Plan to increase the authorized shares that may be
issued under its provisions to a total of 927,270 shares, of which 187,270 remained available for issuance as of December 31, 2013. Additionally, the amendments provide that option awards will be available for grants to the executive officers and non-employee directors as well as other key employees, except that non-employee directors are eligible to receive only awards of non-qualified stock options.
The 2004 Equity Plan also contains the following provisions: (i) no stock option repricings (without the approval of the Company’s shareholders); (ii) limitations on shares other than for stock options; (iii) no discounts on stock options: (iv) minimum one year vesting periods for all awards (including stock options); (v) minimum three year vesting periods for restricted stock and other stock-based awards; (vi) no “evergreen” provisions; and (vii) in no event shall there be granted during the term of the 2004 Equity Plan, restricted stock or restricted stock units, which are not subject to the achievement of a performance target or targets, covering more than an aggregate of 75,000 shares.
In November 2008, per the recommendation of the Compensation Committee of the Board, the 2004 Equity Plan was amended and restated in order to conform to Section 409A of the Internal Revenue Code.
Deferred Compensation Plan
On May 17, 2006, the Compensation Committee of the Board unanimously approved and adopted TWC’s Deferred Compensation Plan (the “Deferred Plan”), which provides certain key employees 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.
The Company adopted the Deferred Plan with the intention that it shall at all times be characterized as a “top hat” plan of deferred compensation maintained for a select group of management, as described under ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Deferred Plan shall at all times satisfy Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). 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. A participant’s election form must specify whether the payments will be made by lump sum or by installments, and the number of annual installments (with a minimum of two and a maximum of five installments).
In November 2008, per the recommendation of the Compensation Committee of the Board, the Deferred Plan was amended and restated in order to conform to Section 409A of the Internal Revenue Code.
Pursuant to the requirements of the Deferred Plan, 40% of the 2013 and 2012 Profit Sharing Plan awards, aggregating approximately $204 and $187, respectively, were deferred into the Deferred Plan, to be paid out as stock.
2013 Profit Sharing Plan
The 2013 Profit Sharing Plan was approved by the Compensation Committee of the Board on January 20, 2013.
The 2013 Profit Sharing Plan permits designated KMEs to share in the profits of the Company. The profit sharing pool was calculated based on a graduated scale of the attainment of consolidated year-end net income before taxes versus the annual budget and the maximum sum to be distributed from that pool will be determined annually as a percentage of the aggregate of the annual salaries of the KMEs. Each KME is required, pursuant to the 2013 Profit Sharing Plan, to defer 40% of his or her annual profit sharing award, if attained, into the Deferred Plan. For the year ended December 31, 2013, a pool of $510 was reserved, pursuant to achievement of the target budget.
NOTE 13 - Subsequent Event
On January 16, 2014, the Company retired its only remaining loan of $138, representing the balance of a three-year, municipal loan that was granted by the town of Ceska Kubice, in connection with the Company’s purchase of the Ceska casino building, underlying land, an adjacent outbuilding and related plot in November 2011. The loan was due to mature on November 23, 2014.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A. Controls and Procedures.
Included in this Annual Report on Form 10-K are certifications of our chief executive officer/chief financial officer (“CEO/CFO”), which are required in accordance with Rule 13a-14 of the Exchange Act. This section includes information concerning the controls and controls evaluation referred to in the certifications.
Evaluation of Disclosure Controls and Procedures.
We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, which is designed to provide reasonable assurance that information, which is required to be disclosed in our reports filed pursuant to the Exchange Act, is accumulated and communicated to management in a timely manner. At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO/CFO, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our CEO/CFO concluded that, as of the date of such evaluation, our disclosure controls and procedures were effective in timely alerting him to information related to the Company that is required to be included in our reports filed under the Exchange Act.
Changes in Internal Control over Financial Reporting.
As part of our normal operations, we update our internal controls as necessary to accommodate any modifications to our business processes or accounting procedures. During the fourth quarter of 2013, there were no significant changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officer, Mr. Ramadan, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The scope of management’s assessment of the effectiveness of internal control over financial reporting includes all of our Company’s consolidated subsidiaries.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, our management considered the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control-Integrated Framework.” Based on this assessment, management believes that, as of December 31, 2013, our internal control over financial reporting was effective.
This annual report does not include an attestation report by our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to permanent exemption to the rules of the Securities and Exchange Commission that permit smaller reporting companies to provide only a management assessment in this annual report.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Our Board of Directors is responsible for overseeing the management of our business. We keep our directors informed of our business at meetings and through reports and analyses presented to the Board of Directors and committees of the Board. Regular communications between the directors and management also occur apart from meetings of the Board of Directors and committees of the Board. Specifically, from time to time the Board schedules calls with senior management to discuss the Company’s business operations and strategies. The following table provides information as of February 28, 2014 with respect to each of our directors and Mr. Rami S. Ramadan, our CEO who is our principal executive officer and principal financial officer (the “named executive officer”):
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
(4) Mr. Bennett was appointed to fill a vacancy on the Board of Directors on February 6, 2013.
(5) Mr. Brodsky was appointed to fill a vacancy on the Board of Directors on September 6, 2013.
Rami S. Ramadan has served as CEO and CFO since July 12, 1999 and President since August 2000. His most recent prior position was Executive Vice President of Finance for the Ian Schrager Hotels from November 1997 to July 1999. Prior to that, Mr. Ramadan held senior financial positions with Hyatt Hotels from January 1994 to November 1997, Euro Disney from October 1990 to December 1993 and Le Meridien Hotels from September 1975 to September 1990. We believe by virtue of his position as CEO and CFO, Mr. Ramadan can readily share with the Board of Directors any and all matters pertaining to the operation of the Company.
Julio E. Heurtematte, Jr. Mr. Heurtematte is a private investor. Since 1989 he has also been a consultant, specializing in international projects, trade and investments. From 1963 to 1989, Mr. Heurtematte served with the Inter-American Development Bank in several capacities, the last as Deputy Manager for Project Analysis. We believe Mr. Heurtematte’s expertise in financial investments and understanding of compensation matters will enable him to make important contributions to our Board of Directors.
Malcolm M. B. Sterrett. Mr. Sterrett is a private investor. From 1989 to 1993, he was a partner at the law firm of Pepper Hamilton & Scheetz, in Washington, D.C. From 1988 to 1989, he served as General Counsel to the
U.S. Department of Health and Human Services and from 1982 to 1988 he was a Commissioner on the U.S. Interstate Commerce Commission. Before that, he was Vice President and General Counsel to the United States Railway Association and served as Staff Director and Counsel to the U.S. Senate Committee on Commerce, Science and Transportation. From 1998 to 2006, Mr. Sterrett had served as a member of the board of directors as well as on certain board committees of Telos Corporation (OTC: TLSKP.PK) in Ashburn, Virginia. We believe Mr. Sterrett’s legal background and valuable experience sitting on other boards will benefit our Board in dealing with diverse corporate matters.
Geoffrey B. Baker. Mr. Baker is a private investor and since 1983 has been a partner in a private investment firm and a member of various corporate and civic boards. A graduate of Stanford University and Georgetown University Law Center, Mr. Baker previously served as Legislative Director to U.S. Senator Lowell P. Weicker, Jr., and as Professional Staff Member on the U.S. Senate Committee on Commerce, Science and Transportation. We believe Mr. Baker’s financial expertise and valuable experience sitting previously on other boards will enable him to make important contributions to our Board of Directors.
Timothy G. Ewing. Mr. Ewing, a Chartered Financial Analyst, is the managing partner of Ewing & Partners and the manager of Value Partners, Ltd., a private investment partnership formed in 1989, and of the Endurance Partnerships, private investment partnerships formed in 2001. Mr. Ewing has been a member of the board of directors of Cherokee, Inc. (NASDAQ: CHKE) in Sherman Oaks, California since 1997. In addition, he is a past chairman of the board and serves on the Chairman’s Council of the Perot Museum of Nature & Science in Dallas, Texas. He serves on the board of trustees of the Baylor Healthcare System Foundation and the advisory board of the University of Texas at Dallas’ Holocaust Studies Program. We believe Mr. Ewing’s financial expertise as managing partner of a private investment firm, as well as sitting on other boards, will enable him to make important contributions to our Board of Directors.
Patrick J. Bennett, Sr. Mr. Bennett is the President and Founder of CEO Strategies Group, a private consulting group formed in February 2011. From 2001 to 2011, Mr. Bennett served as Executive Vice President, then as President and CEO of Covad Communications Group, Inc. Between 1998 and 2000, he served as Executive Vice President and Chief Operating Officer of Rogers AT&T Wireless. Since 2012, he served as a director at Livewire Mobile, Inc. (OTC: LVWR) in Littleton, Massachusetts. We believe Mr. Bennett’s financial and operating expertise, as well as his experience sitting on other boards will enable him to make valuable contributions to our Board of Directors.
Michael B. Brodsky Mr. Brodsky is a partner at Spring Valley Partners, a business consultancy, and is also the Chairman of the Board for each Selectica, Inc., a leader in configuration and contract management software, and for Genesis Land Development Corporation, a residential real estate developer, since October 2010 and June 2012, respectively. Previously, Mr. Brodsky served as the Co-CEO and Co-founder of Federated Sports and Gaming, Inc. which was acquired by Pinnacle Entertainment; the President, CEO and Executive Chairman of Youbet.com, Inc. which was acquired by Churchill Downs Incorporated. Since February 2013, he is also a Board Director of Altigen Communications. We believe Mr. Brodsky’s financial and operating expertise, as well as his experience sitting on other boards will enable him to make valuable contributions to our Board of Directors.
Information about our Board and its Committees
Our Board of Directors, which is chaired by Mr. Sterrett in a non-executive role, manages the business and affairs of the Company. Mr. Sterrett presides over Board meetings and presides at all meetings of our independent directors. Our Board believes that such arrangement works well for us, because all but one of our directors (our Chief Executive Officer) is independent, and our non-executive chairman can cause the independent directors to meet at any time. Therefore, the non-executive chairman can, at any time, bring to the attention of a majority of the directors any matters he thinks should be addressed by the Board and the independent directors can, if they wish, cause the entire Board to meet in order to address matters. In addition, our non-executive chairman does not have any corporate functions that might impair, or appear to impair, his independence.
The Board holds biweekly telephone conference calls and meets in person on an as-needed basis. The Board has established several committees, described below, which also meet on an as-required basis during the year. The Board met via conference calls fourteen times throughout the year, in person three times, and conducted business by written consent three times during the Company’s fiscal year ended December 31, 2013. No director attended fewer than 75% of the total number of meetings of the Board or meetings of committees of the Board during the year
ended December 31, 2013. While the Company has no policy relating to director attendance at the Company’s annual meeting of shareholders, directors are encouraged to attend. All of the Company’s directors at that time attended the 2013 Annual Meeting of Shareholders that was held on June 18, 2013. None of our directors have been involved in any legal proceedings that are material to an evaluation of the ability or integrity of any director.
As a normal course of its review of our operations, our Board as a whole continually engages in the practice of identifying areas of risk that particularly affect our Company and assigning senior members of our management to report to the Board on those areas of risk at the regularly scheduled Board meetings. Risk areas are identified by management reports, Board inquiries, Board committee reviews, auditor interviews, news reports and other means by which the potential for risk is brought to the attention of the Board. The areas of risk identified by the Board change from time to time based on business conditions, potential transactions considered by the Board, and on the notice or advice of our outside advisors. Currently, the risk areas reported on to our Board relate to potential transactions, financing matters and competition.
Furthermore, our Board of Directors has determined that to be considered independent, an outside director may not have a direct or indirect material relationship with the Company. A material relationship is one which impairs or inhibits, or has the potential to impair or inhibit, a director’s exercise of critical and disinterested judgment on behalf of the Company and its stockholders. In determining whether a material relationship exists, our Board considers a number of factors, which may include, for example, the purchase or sales of goods and/or services between the Company and an entity with which a director is affiliated (as an executive officer, partner or substantial stockholder), the source of compensation of the director, including any consulting, advisory or other compensatory fee paid by the Company to the director, and whether the director is affiliated with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the Company. The Audit Committee reviews the Board’s approach to determining director independence periodically and recommends changes as appropriate for consideration and approval by the full Board. There are no family relationships between any director and the other directors or between any director and the executive officers of the Company. Notwithstanding the number of shares beneficially owned by Mr. Ewing, our Board has found him to be independent under the applicable rules and guidelines.
Consistent with these considerations, our Board has reviewed all relationships between the Company and the members of the Board. Except for Mr. Ramadan, who serves as the Company’s President, CEO and CFO, and as a member of the Company’s Board of Directors, the remaining six members of the Company’s Board of Directors consist of independent directors who meet the requirements of rules for independence promulgated by the SEC and by The NASDAQ Stock Market.
The Board of Directors has established the following committees:
Audit Committee
Our Audit Committee operates pursuant to the Audit Committee charter, which is available on our website at www.transwc.com or in print to any stockholder who requests a copy, free of charge, from Jill A. Yarussi, Corporate Secretary, Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017. The Audit Committee reviews and approves internal accounting controls, internal audit operations and activities, the Company’s annual report and audited financial statements, the selection and supervision of the Company’s independent auditors, compliance with legal and regulatory requirements, the activities and recommendations of the Company’s independent auditors, material changes in the Company’s accounting procedures, pre-approving all audit and non-audit services provided by our independent auditors, the Company’s policies regarding conflicts of interest and such other matters as may be delegated by the Board. In addition, one of the responsibilities of the Audit Committee of our Board is to discuss and review policies with respect to risk assessment and risk management, including guidelines and policies governing our risk assessment and risk management processes.
The Audit Committee is composed of Mr. Baker, the Committee’s Chairman, Messrs. Heurtematte and Sterrett, all non-employee, “independent” directors, with Mr. Heurtematte serving as the “audit committee financial expert.” The committee met twice in person and conferred by telephone conference calls four times in 2013.
Compensation Committee
Our Compensation Committee reviews the performance of, and sets the compensation for, executive officers of the Company and sets the terms of grants of awards under the 2004 Equity Plan and any other equity-based
compensation plans adopted by the Company. The Compensation Committee operates pursuant to the Compensation Committee charter, which is available on our website at www.transwc.com or in print to any stockholder who requests a copy, free of charge, from Jill A. Yarussi, Corporate Secretary, Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017. The Compensation Committee did not retain or obtain the advice of any compensation consultant during 2013.
The Compensation Committee, which is composed of Mr. Heurtematte, the Committee’s Chairman, Messrs. Bennett and Ewing, met twice in person, and conferred by telephone twice 2013.
Nominating Committee
Our Nominating Committee operates pursuant to the Nominating Committee charter, which is available on our website at www.transwc.com or in print to any stockholder who requests a copy, free of charge. The Nominating Committee has the responsibilities set forth in its Charter, including recommending Board nominees, determining the qualifications for such nominees and assisting the Board of Directors in interpreting and applying the Company’s Corporate Governance Guidelines. The criteria used by the Nominating Committee to determine whether a person would be recommended to the Board of Directors as a potential nominee is set forth in the Nominating Committee’s charter. The Nominating Committee has not considered racial or ethnic diversity in evaluating possible directors. It does not believe race or ethnic background is relevant to a person’s qualifications to serve on the Board. While it recognizes the benefits of diversity of training and experience, it does not believe that race or ethnic background significantly affects a person’s ability to contribute to our Board.
The Nominating Committee is composed of Mr. Ewing, its Chairman, Messrs. Baker and Bennett and met twice and conferred by telephone three times during 2013. There were no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors during 2013.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of our Common Stock to file reports of ownership and changes in ownership with the SEC and the Financial Industry Regulatory Authority, Inc. (formerly, the National Association of Securities Dealers, Inc.) (“FINRA”) by certain dates. Officers, directors and 10% stockholders are required by regulation to furnish the Company with copies of all Section 16(a) forms they file.
Prior to June 2003, Value Partners held a controlling 57.5% of our issued and outstanding Common Stock. Further, as part of its participation in the 2003 recapitalization, Value Partners received an additional 3,270,104 shares. After the issuance of 2,809,188 and 1,000,000 shares of Common Stock as part of two separate private placements that occurred in December 2005 and August 2007, respectively, Value Partners’ beneficial ownership was reduced from 70.9% to 37.6% of our issued and outstanding Common Stock. As of February 28, 2014, Value Partners held 37.8% of our issued and outstanding Common Stock. Mr. Ewing, one of our directors, can be considered to be a controlling person of Value Partners, and by virtue of his ownership of an additional 20,228 shares of deferred compensation stock, Mr. Ewing beneficially owned at such date, in the aggregate, 37.9% of our issued and outstanding stock.
Wynnefield Small Cap Value Offshore Fund, Ltd, Wynnefield Partners Small Cap Value LP and Wynnefield Partners Small Cap Value LP1 (collectively known as “Wynnefield Capital”) participated in the Company’s two private equity placements. As of February 28, 2014, Wynnefield Capital held 26.7% of our issued and outstanding Common Stock. (See also “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”).
As of February 28, 2014, Mr. Lloyd I. Miller, III, through his control of the funds, Trust A-4 - Lloyd Miller, Lloyd I. Miller IRA, Milfam II, L.P. and LIMFAM LLC (collectively the “Miller Funds”), held 24.2% of our issued and outstanding Common Stock.
We know of no other person or entity who owns 10% or more of the Company’s Common Stock.
Based solely on review of the copies of such forms either filed by us on behalf of our directors and named executive officer, or furnished to us, we believe that all applicable Section 16(a) filing requirements were satisfied by our directors and named executive officer during 2013.
Code of Ethics
Our Board of Directors adopted a Code of Ethics which covers all company executives of TWC and our subsidiaries. The Code of Ethics requires that senior management avoid conflicts of interest; maintain the confidentiality of information relating to the Company; engage in transactions in the Common Stock only in compliance with applicable laws and regulations and the requirements set forth in the Code of Ethics (and the Company’s Insider Trading Policy); and comply with other requirements which are intended to ensure that such officers conduct business in an honest and ethical manner and otherwise act with integrity and in the best interest of TWC. In March 2010, all of our key management employees and officers reaffirmed, in writing, their commitment to our Code of Ethics. No waivers from, or amendments to, our Code of Ethics were approved or granted by our Board of Directors in 2013. It is our Company’s intention to review and have our key management employees reaffirm our Code of Ethics in year 2014.
A copy of our Company’s Code of Ethics is available on our corporate website, www.transwc.com under the Corporate Governance tab in the Investor Relations section. It can also be furnished to any person upon written request. Requests should be sent to: Jill A. Yarussi, Corporate Secretary, Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017.
Item 11.
Item 11. Executive Compensation.
Compensation Discussion and Analysis
Overview of Compensation Philosophy and Program. Our compensation philosophy is to provide compensation to our executive officers that is competitive in the marketplace in order to attract and retain qualified and experienced officers. The compensation of our named executive officer, including the various components of such compensation, is determined by our Compensation Committee. The Committee consists solely of non-employee directors who meet all applicable requirements to be independent of management. In addition, the Committee may use, from time to time, independent outside consulting firms that provide information regarding the compensation paid by our peer group, as described below.
When setting the compensation of our named executive officer, the Committee generally targets compensation which is comparable with our peer group with respect to each of the components of compensation. The compensation we provide to our named executive officer primarily consists of the following:
· annual base salary,
· annual cash bonus,
· stock options,
· profit sharing plans,
· to a lesser extent, restricted stock awards, and
· other forms of compensation as approved by the Committee.
Independent Compensation Committee. The Compensation Committee, composed entirely of independent directors, administers our executive compensation program. The members of the Committee, Messrs. Patrick J. Bennett, Sr., Timothy G. Ewing and Julio E. Heurtematte, Jr., meet all of the independence requirements under applicable laws and regulations, including the listing requirements of the NASDAQ stock market. None of the members is a current or former officer or employee of our Company or any of our subsidiaries or has any separate business relationship with the Company (other than as a shareholder). The role of the Committee is to: (i) oversee our compensation and benefit plans and policies; (ii) administer our stock benefit plans (including reviewing and approving equity grants to executive officers); and (iii) review and approve annually all compensation decisions relating to the named executive officer, Mr. Rami S. Ramadan, who serves as President, Chief Executive Officer and Chief Financial Officer of the Company, as set forth in the Summary Compensation Table.
Role of the Named Executive Officer and Management. The named executive officer provides recommendations to our Committee on matters of compensation philosophy, plan design and the general guidelines
for other executive officers’ and employee compensation. These recommendations are then considered by the Committee and the Committee then makes recommendations to the full Board of Directors. The chief executive officer generally attends Committee meetings but does not vote and is not present for executive sessions or for any discussion of his own compensation.
Tax Deductibility of Pay. Section 162(m) of the Code, places a limit of $1.0 million on the amount of compensation that the Company may deduct in any one year with respect to our chief executive officer and certain other highly compensated officers. There is an exception to the $1.0 million limitation for performance-based compensation meeting certain requirements. Stock options are performance-based compensation meeting those requirements and, as such, are fully deductible. Service-based only restricted stock awards are not considered performance-based compensation under Section 162(m) of the Code.
To date, Section 162(m) has not affected the ability of the Company to deduct the expense of the executive compensation paid. To maintain flexibility in compensating executive officers in a manner designed to promote varying corporate goals, our Committee has not adopted a policy requiring all compensation to be deductible.
Salaries. With the exception of the chief executive officer, the salaries of our key management employees are reviewed on an annual basis, as well as at the time of a promotion or other change in responsibilities. Increases in salary are based on an evaluation of the individual’s performance and current level of pay. Merit increases normally take effect in January of each year.
Pursuant to the evergreen renewal terms of his July 1, 2005 employment agreement, Mr. Ramadan’s employment was automatically renewed on October 1, 2013 for a one-year term ending December 31, 2014. The base annual salary for Mr. Ramadan for 2014 is $450,000. Base salary is considered in conjunction with the short-term annual bonus component of our executive compensation program.
Bonuses. In addition to the 2013 Profit Sharing Plan (see “Note 12 - Compensation Plans” of the Notes to the Consolidated Financial Statements, above), a discretionary cash bonus for the named executive officer is determined by the Compensation Committee, on an annual basis, when applicable. The amount of the bonus is based on the Company’s overall performance as well as an evaluation of the individual’s performance. In 2012 and 2013, the Compensation Committee granted individual performance awards of $200,000 and $250,000, respectively, to the named executive officer.
Stock Options. In determining the size of stock option grants to executive officers, our Committee considers the Company’s financial performance against the strategic plan as attributed to executive officers. In this regard, our Committee granted stock options to Mr. Ramadan, the chief executive officer, on July 1, 2005, as part of his employment contract renewal. Mr. Ramadan was granted seven-year options, which vested over a four-year vesting period, to purchase an aggregate total of 175,000 shares of the Company’s Common Stock at the exercise prices ranging from $2.80 at July 1, 2005, incrementally increasing every six months, to a maximum of $4.11 on January 1, 2012. All of these options expired on July 1, 2012.
On February 4, 2007, Mr. Ramadan was granted seven-year options to purchase 50,000 shares of Common Stock, of which options to purchase 12,500 shares vested immediately, and the balance vested in three equal parts, over a three-year vesting period, on the anniversary of the date of grant. The exercise price of these options was set at $3.75 per share, the closing market price of the shares on the date of grant. These said options to purchase 50,000 shares have all been fully vested as of December 31, 2013. As of February 28, 2014, these options have all expired.
Further, on October 23, 2007, pursuant to the Company’s 2004 Equity Incentive Plan, as amended (the “2004 Equity Plan”), Mr. Ramadan was granted seven-year options to purchase 125,000 shares of Common Stock, with options to purchase 25,000 shares to be vested immediately, and the balance vested in four equal parts, over a four-year vesting period, on the anniversary of the date of grant. The exercise price of all these options was set at $4.85 per share, the closing stock price on October 23, 2007, and escalated to $5.05 on its first anniversary. On May 26, 2009, the Company’s Board of Directors froze the exercise price at $5.05 for the entire grant. As of December 31, 2013, these said options have all been fully vested and are exercisable.
On May 26, 2009, pursuant to the Company’s 2004 Equity Plan, as amended, our Compensation Committee approved the grant of seven-year options to purchase an aggregate of 410,000 shares of Common Stock to ten of the Company’s key management employees, excluding the chief executive officer, with a quarter of the total grant
vesting immediately, and the balance to be vested in three equal parts over a three-year vesting period on the anniversary of the date of grant. The exercise price of all these options, vested and unvested, was set at the grant date’s market closing price of $3.00 per share. The grants were in recognition of their efforts to continually and consistently improve the performance of the Company. (See also “Note 11 - Stock Options and Warrants” of the Notes to the Consolidated Financial Statements).
Any unvested options granted under Mr. Ramadan’s employment agreement will, automatically and without any further action on the part of Mr. Ramadan, the Company, or any members of the Compensation Committee, terminate upon the effective date of the termination or expiration of his employment agreement, except that all unvested options granted thereunder will, automatically and without any further action on the part of any person, vest to Mr. Ramadan upon the closing date of a change of control (as defined by the employment agreement) of the Company. All such vested options must be surrendered or otherwise converted into cash or securities of the acquirer or exercised as required or permitted by the terms and conditions of the change of control documents. Any extension of the terms of his employment agreement beyond December 31, 2007 will not result in the extension of any option grant vesting or exercise periods set forth above.
Restricted Stock Awards. Under our 2004 Equity Plan, our Committee is authorized to grant share awards, which are a right to receive a distribution of shares of Common Stock. Shares of Common Stock granted pursuant to a share award are in the form of restricted stock which vests upon such terms and conditions as established by the Committee. Our Committee determines which officers and key employees will be granted share awards, the number of shares subject to each share award, whether the share award is contingent upon achievement of certain performance goals and the performance goals, if any, required to be met in connection with a share award. Non-employee directors are not eligible to receive share awards. Under the amended 2004 Equity Plan, our Committee has the discretion to grant an award or awards to any one individual participant during any one calendar year up to 250,000 shares of Common Stock and to determine whether to include a one-year vesting requirement for any future grants awarded under the 2004 Equity Plan to any of our employees. However, in no event shall there be granted during the term of the 2004 Equity Plan, restricted stock or restricted stock units, which are not subject to be achievement of a performance target or targets covering more than an aggregate of 75,000 shares.
Pursuant to his renewed employment agreement and the 2004 Equity Plan, in July 2005, Mr. Ramadan was granted 75,000 shares of restricted Common Stock that vest cumulatively, beginning with the quarter ended September 30, 2005, as follows:
All unvested restricted stock granted hereunder will, automatically and without any further action on the part of Mr. Ramadan or any members of the Compensation Committee, terminate upon the effective date of the termination or expiration of his employment agreement, except that all unvested restricted stock granted thereunder will, automatically and without any further action on the part of any person, vest to Mr. Ramadan upon the closing date of a change of control (as defined in the employment agreement) of the Company. All such vested restricted stock must be converted into cash or securities of the acquirer as required or permitted by the terms and conditions of the change of control documents. Any extension of the terms of his employment agreement beyond December 31, 2007 will not result in the extension of any stock grant vesting or exercise periods set forth above. As of December 31, 2013, there were no shares of restricted stock vested.
Stock Ownership Guidelines. We have not established any formal policies or guidelines addressing expected levels of stock ownership by the named executive officer or for other executive officers. However, this matter remains under consideration.
Additional Components of Executive Compensation. As part of the renewal of the named executive officer’s employment agreement in July 2005, the named executive officer and the Company amended the change in control provisions therein. The purpose of these provisions is to retain, for the benefit of the Company, the talents of this highly skilled officer whose services are integral to the development and implementation of the Company’s business. This agreement, as discussed below, provides for severance benefits in the event of the termination of the executive’s employment under certain circumstances, or in the event of the occurrence of certain events. The included severance payments are intended to align the named executive officer’s and the stockholders’ interests by enabling the named executive officer to consider corporate transactions that are in the best interests of the stockholders and other constituents of our Company without undue concern over whether the transactions may jeopardize the named executive officer’s own employment or impose a financial hardship on him. The grounds under which severance payments are triggered in the employment and change in control provisions of Mr. Ramadan’s employment agreement are similar to, or the same as, those included in many employment agreements for senior executive officers of comparable gaming companies.
Deferred Compensation Plan. On May 17, 2006, the Compensation Committee of the Board unanimously approved and adopted TWC’s Deferred Compensation Plan, which provides certain key employees and non-employee directors the opportunity to elect 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.
We adopted the Deferred Plan with the intention that it shall at all times be characterized as a “top hat” plan of deferred compensation maintained for a select group of management, as described under ERISA Sections 201(2), 301(a)(3) and 401(a)(1) and the Deferred Plan shall at all times satisfy Section 409A of the Code. The unfunded Deferred Plan obligations are payable only in the form of Common Stock 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 of employment; (iii) disability; (iv) change in control of the Company; or (v) death. A participant’s election form must specify whether the payments will be made by lump sum or by installments, and the number of annual installments (with a minimum of two and a maximum of five installments) as may be directed by the participant in his or her election form.
Say-On-Pay/Say-On-Pay Frequency. Our shareholders voted, at our 2013 Annual Meeting of Stockholders held on June 18, 2013 at our Ceska casino, to approve, on a non-binding advisory basis: (i) the compensation paid to Mr. Rami S. Ramadan, the Company’s President and Chief Executive Officer (the named executive officer); and (ii) the compensation that may be paid to him in the event of a change of control of the Company, both as disclosed in the Company’s Form 10-K for the year ended December 31, 2012. At that meeting, the shareholders also voted, on a non-binding advisory basis, to have the Company hold Say-on-Pay votes annually in the future.
Effects of Compensation Programs on Risk
The Company believes that its compensation policies and practices for its employees are such that they are not likely to create risk that would have a material adverse effect on Trans World Corporation. As described in this Annual Report, the named executive officer of the Company has typically been paid two forms of incentive compensation - an annual bonus and, from time to time, stock options and/or restricted stock. The bonus is considered a “short-term incentive” and is measured against, among other things, earnings per share, return on equity, cash flow from operations and performance against designated financial targets. These measures are transparent, subject to review, and verified by audit. The Company’s “long-term incentives,” typically stock options or restricted stock, are based upon the employee’s past performance in the short term and his ability to affect results directed by the Board, but the value of the incentives is based solely on future stock performance. These factors again, are transparent, subject to review and, with respect to the market value of the stock, not in the control of the officer. In fact, as of the date of this Annual Report, none of the options granted to the named executive officer to date are “in the money.” In short, the Board of Directors believes that these compensation practices provide little room for manipulation of financial results and a relatively low level of risk. To the extent that incentive compensation is utilized for other employees at the Company, consistent practices are followed. This disclosure was reviewed and approved first by chief executive officer/chief financial officer, and then by the Compensation Committee and the Board of Directors.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee has served as an officer or employee or related person of the Company at any time. None of the Company’s executive officers serve as a member of the compensation committee of any other entity that has an executive officer serving as a member of our Company’s Board of Directors. None of our Company’s executive officers serve as a member of the board of directors of any other entity that has an executive officer serving as a member of our compensation committee. None of our executive officers has served as a member of the compensation committee of another entity that has an executive officer serving as one of our directors.
Summary Compensation Table
The following table sets forth a summary of certain information concerning the compensation awarded or paid by our Company or our subsidiaries for services rendered in all capacities during the fiscal years ended December 31, 2013 and 2012 to the Company’s executives, who, with the exception of Mr. Ramadan, are not “named executive officers” of the Company:
(1) Represents awards based on personal performance evaluation and, in the case of Mr. Ramadan, also at the discretion of the Company’s Compensation Committee.
(2) Reflects the amount expensed in accordance with accounting and reporting requirements with respect to the granting of stock options. For a discussion of the assumptions used to establish the valuation of the stock options, reference is made to Note 2 of the Notes to the Consolidated Financial Statements. Additional information is also included in the table entitled “Grants of Plan-Based Awards for the Year Ended December 31, 2013.”
(3) Earned employee award pursuant to the Company’s effective Profit Sharing Plan, 40% of which is deferred into the Deferred Compensation Plan and will be paid out in Common Stock.
(4) There were no above-market or preferential earnings on nonqualified deferred compensation for the named executive officer.
(5) Consists of the cost of a leased automobile for business use to Mr. Ramadan and Mr. Mähder, and for Mr. Benkley, a car allowance; and for Mr. Ramadan, an employer-matching contribution toward his 401(k) plan. Mr. Mähder’s other compensation includes a Company-provided apartment in our Hotel Savannah.
(6) Mr. Mähder was hired on January 2, 2008; his annual salary and bonus, if any, is paid in the local currency of the Czech Republic.
Equity Compensation Plans
The following table sets forth certain information for all equity compensation plans and individual compensation arrangements (whether with employees or non-employees, such as directors) in effect as of December 31, 2013.
(1) Represents all the outstanding options issued under the 2004 Equity Plan and previous equity compensation plans.
(2) Does not include accruals made under the Company’s Deferred Compensation Plan for directors and qualified employees who may only receive such amounts in shares of the Company’s Common Stock upon elected deferment terms.
The following table sets forth information concerning grants of awards pursuant to plans made to the executives during the year ended December 31, 2013:
Grants of Plan-Based Awards for the Year Ended December 31, 2013
(1) Pursuant to the named executive officer and the other listed executives’ participation in the 2013 Profit Sharing Plan.
(2) No target amounts were established for any of the executives with regards to fiscal year 2013.
A summary description of our Company’s equity compensation plans are found at “Notes 11 and 12 “Stock Options and Warrants” and “Compensation Plan,” respectively, of the Notes to the Consolidated Financial Statements.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information concerning outstanding equity awards held by the named executives as of December 31, 2013:
(1) On October 23, 2007, pursuant to the Company’s 2004 Equity Plan, as amended, Mr. Ramadan was granted seven-year options to purchase 125,000 shares of Common Stock, with options to purchase 25,000 shares vesting immediately, and the balance that vested in equal parts, over a four-year vesting period, on the anniversary of the date of grant. The exercise price of all these vested options was set at $4.85 per share, the market closing stock price on October 23, 2007, and escalated to $5.05 on its first anniversary. On May 26, 2009, the Company’s Board of Directors froze the exercise price at $5.05 for the entire grant.
(2) The restricted shares vest according to an earnings formula as stipulated in Mr. Ramadan’s employment agreement. (See “Compensation Discussion and Analysis - Restricted Stock Awards,” above).
(3) On February 4, 2007, Mr. Ramadan was granted seven-year options to purchase 50,000 shares of Common Stock, with options to purchase 12,500 shares vesting immediately, and the balance that vested in equal parts, over a three-year vesting period, on the anniversary of the date of grant. The exercise price of these options was set at $3.75 per share.
(4) Options to purchase an aggregate of 4,500 shares of Common Stock granted under the previous employment agreement have already vested, of which 3,000 options have expired. (See “Compensation Discussion and Analysis - Stock Options,” above).
(5) On December 10, 2004, Mr. Benkley was granted 300 ten-year options, at an exercise price of $3.00 per share, the market closing price at the date of grant. These said options vested immediately. On May 26, 2009, Mr. Benkley was granted seven-year options to purchase 60,000 shares of Common Stock, with options to purchase 15,000 shares vesting immediately, and the balance that vested in equal parts, over a three-year vesting period, on the anniversary of the date of grant. The exercise price of these options was set at $3.50 per share, the market closing price at the date of grant. As of December 31, 2013, these options have fully vested.
(6) On January 4, 2008, Mr. Mähder was granted seven-year options to purchase 10,000 shares of Common Stock, with options to purchase 2,500 shares vesting immediately, and the balance that vested in equal parts, over a three-year vesting period, on the anniversary of the date of grant. The exercise price of these options was set at $4.10 per share, the market closing price at the date of grant. On May 26, 2009, Mr. Mähder was granted seven-year options to purchase 45,000 shares of Common Stock, with options to purchase 11,250 shares vesting immediately, and the balance that vested in equal parts, over a three-year vesting period, on the anniversary of the date of grant. The exercise price of these options was set at $3.50 per share, the market closing price at the date of grant. As of December 31, 2013, these options have fully vested.
Option Exercises and Stock Vested
No stock options were exercised and no shares of restricted stock vested for the named executive officer or for the other executives in 2013.
Nonqualified Deferred Compensation
Neither the named executive officer nor the other executives earned any nonqualified deferred compensation in 2013.
Employment and Change of Control Agreements
We extended the employment agreement with Mr. Ramadan in 2013, pursuant to which the Company agreed to employ Mr. Ramadan as President, Chief Executive Officer and Chief Financial Officer for another year ending on December 31, 2014. For additional information, see “Compensation Discussion and Analysis - Severance Agreement,” below.
Our Company, as part of an employment agreement renewal, amended the change of control agreement with Mr. Ramadan. See “Compensation Discussion and Analysis - Additional Components of Executive Compensation,” above.
Severance Agreement
On October 1, 2013, pursuant to evergreen renewal terms of Mr. Ramadan’s employment agreement, our Company automatically extended Mr. Ramadan’s employment agreement, originally dated July 1, 2005, to which we agreed to employ him as President, Chief Executive Officer and Chief Financial Officer for a renewable term of one year, currently ending on December 31, 2014, with a current base annual salary of $450,000. Mr. Ramadan will continue to be eligible to participate in the 2004 Equity Plan and any present or future employee benefit plans, including the 2014 Profit Sharing Plan and the Deferred Compensation Plan. He will also be reimbursed for reasonable travel and out-of-pocket expenses necessarily incurred in the performance of his duties.
In the event his employment agreement is terminated without cause, or if he terminates his employment agreement after a change in control for good reason, as defined in the agreement, Mr. Ramadan will receive one year’s salary. The agreement is also subject to numerous termination provisions in the event of death, disability, discharge for cause, and material breach thereof. In addition, if our Company terminates the agreement without cause, materially breaches the employment agreement and does not cure such breach, or if Mr. Ramadan terminates the employment agreement after a change in control for good reason, we will continue to provide Mr. Ramadan with his medical insurance benefits then in effect until the date of the earlier of the commencement of his full time employment with another employer, or the first anniversary date of the termination date of the employment agreement. Further, the employment agreement provides that unless either the Company or Mr. Ramadan notifies the other of its/his intent not to extend the term on or prior to each September 30th thereafter, then the term will be automatically extended for a period of one year to the next December 31st. Accordingly, the term of Mr. Ramadan’s employment agreement was, as of October 1, 2013, automatically extended to December 31, 2014.
Potential Payments upon Termination of Employment or a Change in Control
The following table describes the potential payments to Mr. Ramadan, the named executive officer, upon an assumed termination of employment or a change in control as of December 31, 2013:
(a) Represents a total of 20 days of accrued and unused vacation time due to Mr. Ramadan as of December 31, 2013.
(b) Represents a total of six unused sick days.
(c) These severance payments and benefits are payable if Mr. Ramadan’s employment is terminated either (i) by the Company for any reason other than cause, disability or death, or (ii) by Mr. Ramadan after a change in control of the Company and if the Company takes certain adverse actions (a “good reason” termination) or if the Company materially breaches the employment agreement and does not cure such breach within 30 days after the date of termination.
(d) Represents Mr. Ramadan’s annual base salary, to be paid in twelve (12) equal payments, commencing on Mr. Ramadan’s pay date closest to the date of termination.
(e) Represents the estimated present value cost of providing continued medical and dental coverage to Mr. Ramadan for an assumed period ending at the earlier of: (i) the date he is entitled to receive substantially similar benefits from a subsequent employer, or (ii) 12 months from the employment termination date. The estimated costs assume the current insurance premiums and other costs for 12 months from December 31, 2013.
(f) All vested stock options and restricted stock awards are exercisable as set forth in Mr. Ramadan’s employment agreement or the plans under which they were granted, except upon a change in control, in which case, they must be surrendered, or otherwise converted into cash or securities of the acquirer, or exercised as required, or permitted by the terms and conditions of the change in control documents. All of Mr. Ramadan’s vested stock options were “under water,” based on the December 31, 2013 reported closing price of the Company’s Common Stock of $2.46 per share and no shares of the restricted stock had vested at such date.
(g) All unvested restricted stock will terminate upon the termination or expiration of the employment agreement except upon a change of control in which case they will vest on the closing date of change of control. The unvested restricted stock would be worth approximately $184,500, based on the December 31, 2013 reported closing price of the Company’s Common Stock of $2.46 per share.
Directors’ Compensation
In 2013, our non-employee directors’ compensation has included a cash retainer fee of $7,500 per quarter, per member, which was increased to $10,000 per quarter, effective beginning the third quarter of 2013. In addition, the non-executive Chairman of our Board receives an additional $1,250 per quarter, while each chairman of our three Committees receives an additional $625 per quarter. To recognize the burden and importance of the Audit Committee, each member of this Committee is compensated an additional $1,250 per quarter. All members of the
Board are reimbursed for out-of-pocket expenses in connection with attending Board meetings in person. Full-time employee directors of our Company do not receive any fees for board or committee meetings.
The following table sets forth information concerning compensation paid or accrued by our Company to each member of the Board of Directors during the year ended December 31, 2013. As an employee-director, Mr. Ramadan received no compensation for his board and committee memberships. His compensation is fully reported in the Summary Compensation Table above.
(1) Includes payment of directors’ retainer fees for service on the Board of the Company. Also includes the payment of fees for service as Chairman of the Board, as chairman of a Board committee and for service on the Audit Committee.
(2) Pursuant to the Company’s adoption of the Deferred Compensation Plan in June 2006, each director elected to defer a portion of his quarterly retainer.
(3) Mr. Bennett was appointed to the Board of Directors on February 6, 2013.
(4) Mr. Brodsky was appointed to the Board of Directors on September 6, 2013.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our Common Stock as of February 28, 2014 (the “Calculation Date”), unless otherwise noted, (a) by each shareholder who is known by the Company to own beneficially more than 5.0% of the outstanding Common Stock, (b) by each director, (c) by each “named executive officer” in the Summary Compensation Table above and by all named executive officers and directors as a group. Unless otherwise noted, each of the shareholders listed in the table or included within a group listed in the table possesses sole voting and investment power with respect to the shares indicated, subject to community property laws where applicable. The business address for each director and officer of our Company is 545 Fifth Avenue, Suite 940, New York, New York 10017.
* Less than 1% of the issued and outstanding shares of the Company’s Common Stock.
(1) The percentage of outstanding shares is based on 8,810,035 shares outstanding as of February 28, 2014 and, for certain individuals and entities, on reports filed with the SEC or on information provided directly to our Company by such individuals or entities. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from February 28, 2014 upon the exercise of options. Each beneficial owner’s percentage ownership is determined by assuming that options that are held by such person (but not those held by any other person) are exercisable within 60 days from February 28, 2014 have been exercised. Included are shares of Common Stock issuable upon the exercise of options to purchase the Company’s Common Stock.
(2) Value Partners, Ltd. is a Texas limited partnership, managed by Ewing & Partners, whose business address is 5646 Milton Street, Suite 880, Dallas, Texas 75206. Mr. Timothy G. Ewing, a director of TWC, is the controlling person of Value Partners, Ltd.
(3) Wynnefield Partners Small Cap Value LP and Wynnefield Partners Small Cap Value LP I are managed by Wynnefield Capital Management, LLC, while Wynnefield Small Cap Value Offshore Fund, Ltd is managed by Wynnefield Capital, Inc. Wynnefield Capital Management, LLC (“WCM”) and Wynnefield Capital, Inc. (“WCI”) are private investment firms, whose same address is 450 Seventh Avenue, Suite 509, New York, New York 10123. Nelson Obus and Joshua Landes share voting and investment control over the portfolio securities of WCM and WCI. Mr. Obus and Mr. Landes each beneficially owns 2,349,577 shares of Common Stock. Of the beneficial ownership total, 1,335,353 of these said shares were acquired as a result of their participation in TWC’s two private placements. Currently, Wynnefield Small Cap Value Offshore Fund, Ltd. beneficially owns 462,968 shares of Common Stock; Wynnefield Partners Small Cap Value LP I beneficially owns 1,129,146 shares of Common Stock; and Wynnefield Capital Management, LLC beneficially owns 757,463 shares of Common Stock.
(4) Trust A-4 - Lloyd I. Miller, Milfam II L.P., LIMFAM LLC, and Lloyd I. Miller - IRA, collectively referred to as the “Miller Funds,” whose address is 222 Lakeview Avenue, Suite 160-365, West Palm Beach, Florida 33401, is controlled and managed by Mr. Lloyd I. Miller III, who currently beneficially owns, through these holdings, 2,129,229 shares of the Company’s Common Stock. The Trust A-4 - Lloyd I. Miller fund beneficially owns 1,319,895 shares of Common Stock; the Milfam II, L.P. fund beneficially owns 641,667 shares of Common Stock; the LIMFAM LLC fund beneficially owns 166,667 shares of Common Stock; and the Lloyd I. Miller - IRA fund beneficially owns 1,000 shares of Common Stock.
(5) Consists of 13,500 shares of Common Stock, 126,500 shares subject to incentive stock options granted to Mr. Ramadan, of which all have vested, 64,653 shares issuable under the Deferred Compensation Plan, plus 75,000 shares of restricted stock, none of which have vested. (See “Item 11. Executive Compensation,” above.)
(6) Includes 24,029 shares of Common Stock and 25 shares of Common Stock subject to non-qualified ten-year options granted under the 1999 Director Plan at the end of each calendar quarter ended September 30, 2000 through June 30, 2006, all of which were fully vested on the dates of grant. Effective the quarter ended September 30, 2006, as part of Mr. Heurtematte’s participation in the Company’s Deferred Compensation Plan, quarterly option grants were terminated for members of the Board of Directors in lieu of a nominal increase in the annual retainer, of which a minimum of 25% is allocated to the Deferred Compensation Plan. Mr. Heurtematte also has 6,595 shares issuable under the Deferred Compensation Plan, for which he annually contributed a portion of his retainer fees.
(7) Includes 24,029 shares of Common Stock and 25 shares of Common Stock subject to non-qualified ten-year options granted under the 1999 Director Plan at the end of each calendar quarter ended September 30, 2000 through June 30, 2006, all of which were fully vested on the dates of grant. Effective the quarter ended September 30, 2006, as part of Mr. Sterrett’s participation in the Company’s Deferred Compensation Plan, quarterly option grants were terminated for members of the Board of Directors in lieu of a nominal increase in the annual retainer, of which a minimum of 25% is allocated to the Deferred Compensation Plan. Mr. Sterrett also has 6,595 shares issuable under the Deferred Compensation Plan, for which he contributed quarterly a portion of his retainer fees.
(8) Includes 24,029 shares of Common Stock and 25 shares of Common Stock subject to non-qualified ten-year options granted under the 1999 Director Plan at the end of each calendar quarter ended September 30, 2000 through June 30, 2006, all of which were fully vested on the dates of grant. Effective the quarter ended September 30, 2006, as part of Mr. Baker’s participation in the Company’s Deferred Compensation Plan, quarterly option grants were terminated for members of the Board of Directors in lieu of a nominal increase in the annual retainer, of which a minimum of 25% is allocated to the Deferred Compensation Plan. Mr. Baker also has 6,595 shares issuable under the Deferred Compensation Plan, for which he contributed quarterly a portion of his retainer fees.
(9) Mr. Timothy G. Ewing is the managing partner of Ewing & Partners, which manages Value Partners, Ltd. His beneficial ownership includes 3,326,679 shares of Common Stock, held by Value Partners, Ltd. (See also Note (2) above). Effective the quarter ended September 30, 2006, as part of Mr. Ewing’s participation in the Company’s Deferred Compensation Plan, quarterly option grants were terminated for members of the Board of Directors in lieu of a nominal increase in the annual retainer, of which a minimum of 25% is allocated to the Deferred Compensation Plan. In addition to his beneficial ownership of Value Partners, Mr. Ewing also has 20,228 shares issuable under the Deferred Compensation Plan, for which he contributed quarterly a portion of his retainer fees.
(10) Mr. Patrick J. Bennett, Sr., who was appointed on February 6, 2013 to fill a vacancy on our Board of Directors, holds 5,000 shares of Common Stock. Mr. Bennett also has 1,177 shares issuable under the Deferred Compensation Plan, for which he contributed quarterly a portion of his retainer fees.
(11) Mr. Michael B. Brodsky, who was appointed on September 6, 2013 to fill a vacancy on our Board of Directors, has 519 shares issuable under the Deferred Compensation Plan, for which he contributed quarterly a portion of his retainer.
(12) See Notes (5), (6), (7), (8), (9), (10) and (11), above.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
With respect to the determination of director independence, please see Part III, Item 10. “Directors, Executive Officers and Corporate Governance - Information about our Board and its Committees.”
The Company did not engage in any transactions during 2013, and has no plans to engage in any transactions during 2014, in excess of $120,000 in which any director, executive officer or shareholder owning 5% or more of the Common Stock (a “5% shareholder”) of the Company or any immediate family member of any director, executive officer or 5% shareholder of the Company had or has a direct or indirect material interest.
Item 14.
Item 14. Principal Accountant Fees and Services.
Rothstein Kass, our principal independent accountants, provided audit and non-audit services to the Company in 2013 and 2012, which are described below. We have been advised by Rothstein Kass that neither that firm nor any of its associates has any relationship with our Company or its subsidiaries other than the usual relationship that exists between independent accountants and clients.
All audit, audit-related and tax services were pre-approved by our Audit Committee, which concluded that the provision of such services by Rothstein Kass was compatible with the maintenance of that firm’s independence in the conduct of its auditing functions. Our Audit Committee’s Charter provides for pre-approval of specifically described audit, audit-related and tax services by the Committee on an annual basis. Individual engagements that are anticipated to exceed pre-established thresholds will be considered on a case by case basis.
The following table shows the fees that were billed to the Company by Rothstein Kass for professional services rendered for the fiscal years ended December 31, 2013 and December 31, 2012.
Audit Fees. This category includes fees for the audit of the Company’s annual financial statements, review of financial statements included in the Company’s quarterly reports on Form 10-Q and services that are normally provided by Rothstein Kass in connection with statutory and regulatory filings or engagements.
Audit-Related Fees. This category includes fees for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not included above under “Audit Fees.”
Tax Fees. This category includes fees for tax compliance and tax return preparation.
All Other Fees. This category includes all other fees not included in the above three categories.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
(a) Exhibits
Reference is made to the Exhibit Index hereinafter contained.
A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who was a shareholder of our Company as of February 28, 2014, upon written request from any such person. Requests should be sent to: Jill A. Yarussi, Corporate Secretary, Trans World Corporation, 545 Fifth Avenue, Suite 940, New York, New York 10017.
TRANS WORLD CORPORATION
EXHIBITS INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013
Item No
Item
Method of Filing
3.1(a)
Articles of Incorporation
Incorporated by reference to Exhibit 3.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A).
3.1(b)
Certificate of Amendment to Articles of Incorporation
Incorporated by reference to Exhibit 3.1 contained in the Form 10-KSB for the fiscal year ended December 31, 2000 (File No. 0-25244).
3.1 (c)
Certificate of Amendment to Articles of Incorporation
Incorporated by reference to Exhibit 3.1 contained in the Form 10-KSB for the fiscal year ended December 31, 2004 (File No. 0-25244).
3.2
Bylaws
Incorporated by reference to Exhibit 3.2 contained in the registration statement on Form SB-2 (File No. 33-85446-A).
4.1
Specimen Common Stock Certificate
Incorporated by reference to Exhibit 4.1 contained in the registration statement on Form SB-2 (File No. 33-85446-A).
4.2
Indenture dated March 31, 1998, as supplemented on October 29, 1998. October 15, 1999 and September 10, 2001, among the registrant, TWC International U.S. Corporation, TWC Finance Corp. and U.S. Trust Company of Texas, N.A.
Incorporated by reference to Exhibit 4(1) contained in the Form 8-K filed on April 14, 1998 (File No.0-25244).
4.3
Indenture dated March 31, 1998, as supplemented on October 29, 1998, October 15, 1999 and September 10, 2001, between TWC International U.S. Corporation and U.S. Trust Company of Texas, N.A.
Incorporated by reference to Exhibit 4(III) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).
4.4
Series A Warrant to Purchase Common Stock dated March 31, 1998
Incorporated by reference to Exhibit 4(VI) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).
4.5
Series B Warrant to Purchase Common Stock dated March 31, 1998
Incorporated by reference to Exhibit 4(VII) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244)..
4.6
Series C Warrant to Purchase Common Stock dated March 31, 1998
Incorporated by reference to Exhibit 4(II) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).
4.7
Series G Warrant to Purchase Common Stock dated March 31, 1999
Incorporated by reference to Exhibit 10.49 contained in the Form 10-KSB filed on May 30, 2000 (File No. 0-25244).
4.8
Agreement to Amend Warrants dated March 31, 1998 among the Company and the named Holders
Incorporated by reference to Exhibit 4(VIII) contained in the Form 8-K filed on April 14, 1998 (File No. 0-25244).
10.1
1993 Incentive Stock Option Plan
Incorporated by reference to Exhibit 10.13 contained in the registration statement on Form SB-2 (File No. 33-85446-A).
10.2
Loan Agreement dated June 11, 1997 between the Company and Value Partners
Incorporated by reference to Exhibit 10.36 contained in the Form 8-K filed on June 17, 1997 (File No. 0-25244).
10.3
Loan Agreement dated October 27, 1997, between Value Partners, and the Company
Incorporated by reference to Exhibit 10.39 contained in the Form 10-QSB for the quarter ended September 30, 1997, filed on November 12, 1997 (File No. 0-25244).
10.4
Employment Agreement between the Company and Rami S. Ramadan dated July 12, 1999
Incorporated by reference to Exhibit 10.1 contained in the Form 8-K filed on July 13, 1999 (File No. 0-25244).
10.5
Amendment to Employment Agreement between the Company and Rami S. Ramadan dated July 1, 2002
Incorporated by reference to Exhibit 10.5 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.6
1998 Incentive Stock Option Plan
Incorporated by reference to Exhibit 10.46 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).
10.7
1999 Non-Employee Director Stock Option Plan
Incorporated by reference to Exhibit 10.47 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).
10.8
Form 12% Secured Senior Note due March 2005
Incorporated by reference to Exhibit 10.48 contained in the Form 10-KSB filed on May 26, 2000 (File No. 0-25244).
10.9
English Restatement of the Spanish Agreement of Sale of Casino de Zaragoza
Incorporated by reference to Exhibit 99.2 contained in the Form 8-K filed on January 9, 2002 (File No. 0-22544).
10.10
Form of Fourth Supplemental Trust Indenture by and among Trans World Corporation, TWG International U.S. Corp., TWG Finance Corp. and the Bank of New York Trust Company of Florida, N.A. (as Trustee)
Incorporated by reference to Exhibit 10.10 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.11
Waiver and Forbearance of Covenant Violations (Interest) - Primary Indenture
Incorporated by reference to Exhibit 10.11 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.12
Waiver and Forbearance of Covenant Violations (Interest) - Finance Indenture
Incorporated by reference to Exhibit 10.12 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.13
Indemnification Agreement by and between Value Partners, Ltd., Trans World Corporation and TWG International U.S. Corporation dated February 12, 2003
Incorporated by reference to Exhibit 10.13 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.14
Agreement and Plan of Recapitalization dated June 25, 2003 between the Company and the named Holders
Incorporated by reference to Exhibit 4.9 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.15
Form of 8% Rate Promissory Note due 2006
Incorporated by reference to Exhibit 4.10 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.16
Form of Variable Rate Promissory Note due 2010
Incorporated by reference to Exhibit 4.11 contained in the Registration Statement on Form S-4 (File No. 333-101028).
10.17
2004 Equity Incentive Plan, as amended
Incorporated by reference to Appendix E contained in the Proxy Statement for the 2004 Annual Meeting and from the discussion contained at page 12-14 of the proxy statement for the 2005 Annual Meeting, at page 14-15 of the proxy statement for the 2006 Annual Meeting, and at page 14-15 of the proxy statement for the 2007 Annual Meeting (File No. 0-25244).
10.18
Renewal and Amendment of Employment Agreement between the Company and Rami S. Ramadan, Effective as of July 1, 2005
Incorporated by reference to Exhibit 10.18 contained in the Form 10-KSB filed on March 17, 2006 (File No. 0-25244).
14.0
Code of Ethics
Incorporated by reference to Exhibit 14.0 contained in the 2008 Proxy Statement filed on May 14, 2008 (File No. 0-25244).
21.0
Subsidiaries
Filed herewith.
31.0
Section 302 Certification of Chief Executive Officer and Chief Financial Officer
Filed herewith.
32.0
Section 906 Certification of Chief Executive Officer and Chief Financial Officer
Filed herewith.
101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at December 31, 2013 and 2012, (ii) the Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2013 and 2012, (iii) the Consolidated
Statements of Stockholders’ Equity for the years ended December 31, 2013 and 2012, (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012 and (v) the notes to the Consolidated Financial Statements, tagged as blocks of text.**
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant on March 4, 2014 in the capacities indicated.
Signature and Title
/s/ Rami S. Ramadan
Director, President, Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Accounting Officer)
/s/ Geoffrey B. Baker
Director
/s/ Patrick J. Bennett, Sr.
Director
/s/ Michael B. Brodsky
Director
/s/ Timothy G. Ewing
Director
/s/ Julio E. Heurtematte, Jr.
Director
/s/ Malcolm M.B. Sterrett
Director and Chairman of the Board