The notes to consolidated financial statements
are an integral part of these consolidated statements.
The notes to consolidated
financial statements are an integral part of these consolidated statements.
The notes to consolidated financial statements
are an integral part of these consolidated statements.
The notes to consolidated financial statements
are an integral part of these consolidated statements.
Notes to Consolidated Financial Statements
Note 1. Description of Business and Significant
Accounting Policies
The business activities of the Company entail:
(i) the owning and leasing of electronic gaming machines (EGMs) placed in resorts, hotels and other venues in Cambodia and the
Philippines on a fixed lease or revenue sharing basis with venue owners; (ii) the design, manufacture and distribution of
gaming chips and plaques under our Dolphin brand and distribution of third-party gaming products to major casinos in Southeast
Asia and Australia; and (iii) the early-stage development of a social casino gaming platform designed for the Pan-Asian market.
The Company owned and operated a casino under
the Dreamworld name in the Pailin Province of Cambodia. In June 2014, the Company ceased operations of the casino in Pailin and,
on June 20, 2014, entered into an agreement to sell 100% of the issued share capital of Dreamworld Leisure (Pailin) Limited, a
wholly-owned Cambodian subsidiary of the Company established for the purpose of owning and operating the casino. All related historical
revenues and expenses for the casino in Pailin have been reclassified as discontinued operations. The accounting policies of these
discontinued operations are consistent with the Company’s policies for the accompanying consolidated financial statements.
Basis of Presentation
These consolidated financial statements are
prepared pursuant to generally accepted accounting principles in the United States.
The Company effected a 1-for-4 reverse stock
split of its common shares as of February 26, 2015. All historical share amounts and share price information presented in the
financial statements and notes have been proportionally adjusted to reflect the impact of this reverse stock split, including
but not limited to basic and diluted weighted-average shares issued and outstanding.
Principles of Consolidation
These consolidated financial statements include
the accounts of Entertainment Gaming Asia Inc. and all its subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation. Certain prior year amounts in the consolidated financial statements and notes thereto have been
reclassified to conform to the current year’s presentation.
Use of Estimates
The Company is required to make estimates,
judgments and assumptions that it believes are reasonable based on its historical experience, contract terms, observance of known
trends in the Company and the industry as a whole, and information available from other outside sources. These estimates
affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On
a regular basis, the Company evaluates its estimates, including those related to revenue recognition, product returns, long-lived
assets, inventory obsolescence, stock-based compensation, income taxes, bad debts, warranty obligations, long-term contracts,
contingencies and litigation. Actual results may differ from those estimates.
Discontinued Operations
A discontinued operation is a component of
an entity that either has been disposed of, or that is classified as held for sale, and (i) represents a separate major line of
business or geographical area of operations; and (ii) is a part of a single coordinated plan to dispose of a separate major line
of business or geographical area of operations; or (iii) is a subsidiary acquired exclusively with a view to resale.
Non-current assets held for discontinued operations
are carried at the lower of carrying amount or fair value less costs to sell. Any gain or loss from disposal of a business, together
with the results of these operations until the date of disposal, is reported separately as discontinued operations. The financial
information of discontinued operations is excluded from the respective captions in the Company’s consolidated statements of comprehensive
income/loss and related notes for all years presented.
Cash and Cash Equivalents
All highly-liquid instruments with original
maturities of three months or less are considered cash equivalents. The Company places its cash and temporary investments
with financial institutions. As of December 31, 2015, the Company had deposits with financial institutions in excess of Federal
Deposit Insurance Corporation (FDIC) insured limits by approximately $30.4 million.
Accounts Receivable and Allowance for
Doubtful Accounts
Accounts receivable are stated at face value
less any allowances for doubtful accounts. Allowances for doubtful accounts are maintained at levels determined by Company management
to adequately provide for uncollectible amounts. In determining the estimated uncollectable amounts, the Company evaluates a combination
of factors, including, but not limited to, activity in the related market, financial condition of customers, specific customer
collection experience and history of write-offs and collections. Interest income is imposed on overdue accounts receivable after
the Company evaluates a combination of factors, including but not limited to, customer collection experiences, customer relationships
and contract terms. Accounts receivable balances are written off after all collection efforts have been exhausted.
Inventories
Inventories are stated at the lower of cost,
determined using the first-in, first-out method, or market. Cost elements included in work-in-process and finished goods include
raw materials, direct labor and manufacturing overheads. Inventories included a lower of cost or market (LCM) write-down of approximately
NIL and $87,000 for the years ended December 31, 2015 and 2014, respectively.
Long-Lived Assets
The Company accounts for impairment of long-lived
assets in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 360,
Property,
Plant and Equipment
. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In such instances, the Company estimates the undiscounted future cash
flows that result from the use of the asset and its ultimate disposition. If the sum of the undiscounted cash flows is less than
the carrying value, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset, determined principally using discounted cash flows. For the year ended December 31, 2015, the Company
recorded an impairment loss of approximately $2.6 million primarily related to the write-down of building infrastructure and related
gaming assets for Dreamworld Club (Poipet) as well as the write-down of prepaid leases and other assets related to previously
planned gaming projects that are no longer intended to be pursued. For the year ended December 31, 2014, the Company recorded
an impairment loss of approximately $121,000 primarily related to the write-off of obsolete plant and machinery.
Prepaids, Deposits and Other Assets
Prepaids, deposits and other assets consist
primarily of prepaid lease, prepaid value-added taxes in foreign countries, prepayments to suppliers, rental and utilities and
other deposits.
Gaming Equipment
Gaming equipment consists primarily of EGMs
and systems. Gaming equipment is stated at cost. The Company depreciates new gaming equipment over a five-year useful life and
depreciates refurbished gaming equipment over a three-year useful life once placed in service. Depreciation of gaming equipment
of approximately $2.4 million and $2.9 million was included in cost of gaming operations in the consolidated statements of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Property and Equipment
Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the useful lives of the assets currently estimated to be three to
ten years, which in the case of leasehold improvements, is limited to the life of the lease and throughout the renewal period
as long as renewal is reasonably assured.
The Company capitalizes certain direct and
incremental costs related to the design and construction, project payroll costs and applicable portions of interest incurred for
potential projects in property and equipment.
Depreciation of property and equipment of
approximately $652,000 and $608,000 was included in the cost of gaming operations in the consolidated statements of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Depreciation of property and equipment of
approximately $1.1 million and $810,000 was included in cost of gaming products in the consolidated statements of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Goodwill and Intangible Assets, Including
Casino Contracts
Intangible assets consist of patents,
trademarks, technical know-how, a gaming operations agreement, casino contracts, capitalized software costs and
goodwill. Intangible assets other than goodwill are amortized on the straight-line basis over the period of time the asset is
expected to contribute directly capitalized software costs or indirectly to future cash flows, which ranges from four to ten
years. The straight-line amortization method is utilized because the Company believes there is no more reliably determinable
method of reflecting the pattern for which the economic benefits of the intangible assets are consumed or otherwise
used.
The Company capitalizes certain costs relating
to software developed to solely meet the Company’s internal requirements and for which there are no substantive plans to
market the software. These costs mainly include payroll and payroll-related costs for employees who are directly associated with
and who devote time to the internal-use software projects during the application development stage until the software is substantially
complete and ready for its intended use. Costs incurred prior to the criteria met for capitalization are expensed to research
and development expenses as incurred. Management has committed the resources of developing social gaming application, and it is
probable that the social gaming application will be completed and the software will be used as intended. Such capitalized costs
are amortized on a straight-line basis over the estimated useful life of the related assets.
Amortization expenses related to casino contracts
were approximately $2.4 million for the years ended December 31, 2015 and 2014. Amortization expenses related to other gaming
related intangibles were approximately $252,000 for the years ended December 31, 2015 and 2014. The amounts were accounted for
as cost of gaming operations in the consolidated statements of comprehensive income/loss. Amortization expenses related to technical
know-how were approximately $26,000 for the years ended December 31, 2015 and 2014. The amounts were accounted for as cost of
gaming products in the consolidated statements of comprehensive income/loss. Amortization expenses related to patents and trademarks
were approximately $24,000 for the years ended December 31, 2015 and 2014. The amounts were accounted for as depreciation and
amortization expenses in the consolidated statements of comprehensive income/loss.
The Company measures and tests finite-lived
intangibles for impairment when there are indicators of impairment in accordance with ASC 360-10-05,
Property, Plant and
Equipment
.
The Company measures and tests goodwill for
impairment, at least annually in accordance with ASC 350-10-05,
Intangibles — Goodwill and Other
.
Impairment testing for goodwill and other
intangibles requires judgment, including the identification of reporting units, allocation of related goodwill, assignment of
corporate shared assets and liabilities to reporting units, estimated future cash flows and determinations of fair values. While
the Company believes its estimates of future revenues and cash flows are reasonable, different assumptions could materially affect
the assessment of useful lives, recoverability and fair values. No impairment charges relating to intangible assets were recorded
for the years ended December 31, 2015 and 2014.
Additional Paid-In-Capital
For the year ended December 31, 2014, the
increase in additional paid-in-capital account mainly represented issuance of non-cash stock option compensation and the net cash
proceeds received from the Company’s subscription rights offering.
Litigation and Other Contingencies
In the performance of its ordinary course
of business operations, the Company is subject to risks of various legal matters, litigation and claims of various types. The
Company has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting
recognition or disclosure of these contingencies. See Note 17.
ASC 450,
Contingencies,
requires
that liabilities for contingencies be recorded when it is probable that a liability has been incurred and that the amount can
be reasonably estimated. Significant management judgment is required related to contingent liabilities and the outcome of litigation
because both are difficult to predict. For a contingency for which an unfavorable outcome is reasonably possible and which is
significant, the Company discloses the nature of the contingency and, when feasible, an estimate of the possible loss.
Revenue Recognition
The Company recognizes revenue when all of
the following have been satisfied:
|
·
|
Persuasive
evidence of an arrangement exists;
|
|
·
|
The
price to the customer is fixed and determinable;
|
|
·
|
Delivery
has occurred and any acceptance terms have been fulfilled;
|
|
·
|
No
significant contractual obligations remain; and
|
|
·
|
Collection
is reasonably assured.
|
Gaming Revenue and Promotional Allowances
The Company earns recurring gaming revenue from its gaming operations.
For slot operations, the Company earns recurring
gaming revenue by providing customers with EGMs and casino management systems which track game performance and provide statistics
on installed EGMs owned by the Company and leased to venue owners. Revenues are recognized on the contractual terms of the slot
agreements between the Company and the venue owners and are based on the Company’s share of net winnings and reimbursement
of expenses, net of customer incentives and commitment fees.
Revenues are recognized as earned unless collection
is not reasonably assured, in which case revenues are recognized when the payment for net winnings is received. All slot operations
revenues were recognized as earned during the years ended December 31, 2015 and 2014.
Commitment fees paid to the venue operators
relating to contract amendments which are not recoverable from daily net win are capitalized as assets and amortized as a reduction
of revenue over the term of the amended contracts. The Company had commitment fee balances related to contract amendments of approximately
$18,000 and $126,000 as of December 31, 2015 and 2014, respectively.
For the discontinued casino operations, the
Company’s revenues are measured by the aggregate net difference between gaming wins and losses, with liabilities recognized
for funds deposited by customers before gaming play occurs and for chips in their possession, if any. Cash discounts, other cash
incentives related to casino play and commissions rebated through junkets or tour guides, if any, to customers are recorded as
a reduction to casino revenue. Consequently, the Company’s casino revenues are reduced by discounts and commissions. Promotional
allowances represent goods and services, which would be accounted for as revenue if sold, that a casino gives to customers as
an inducement to gamble at that establishment. Such goods and services include food and beverages. The Company includes the retail
value of promotional allowances in gross revenues and deducts it from gross revenues to reach net revenues on the face of the
consolidated statements of comprehensive income/loss. The Company does not accrue jackpot liabilities for its EGM base and progressive
jackpots as regulations do not prohibit removal of gaming machines from the gaming floor without payment of the jackpots.
The Company also earned recurring gaming revenue
through leasing table game equipment and providing casino management services to gaming operators within its casino property.
Revenues from gaming table leasing arrangements were recognized as earned over the contractual terms of the arrangement between
the Company and the gaming promoters and are included in discontinued operations.
Gaming Products Sales
The Company recognizes revenue from the sale
of its gaming products and accessories to end users upon shipment against customer contracts or purchase orders. In accordance
with the criteria of ASC 605-45,
Reporting Revenue Gross as a Principal versus Net as an Agent,
the Company recognizes
gross revenue when it acts as a principal, has discretion to choose suppliers and establish selling price, bears credit risk and
provides the products or services required in the transaction. If the above criteria are not met, in which the supplier is the
primary obligor in the arrangement and bears the general inventory risk, the Company recognizes revenue net of related costs.
The Company also recognizes revenue for the maintenance services of gaming products on a straight line basis over the contract
term in accordance with ASC 605,
Revenue Recognition
.
The Company also recognizes revenue from the
sale of its gaming products and accessories to end users on bill-and-hold arrangements when all of the following have been satisfied:
|
·
|
The
risk of ownership must be passed to the buyer;
|
|
·
|
The
customer must have a fixed commitment to purchase the goods;
|
|
·
|
The
buyer, not the Company, must request that the transaction be on a bill-and-hold basis;
|
|
·
|
There
must be a fixed schedule for the delivery of goods;
|
|
·
|
The
Company must not have specific performance obligations such that the earning process
is not complete;
|
|
·
|
The
ordered goods must be segregated from the Company’s inventory and not subject to
being used to fill other orders; and
|
|
·
|
The
product must be complete and ready for shipment.
|
Stock-Based Compensation
Under the fair value recognition provisions
of ASC 718,
Compensation-Stock Compensation
, the Company recognizes stock-based compensation expenses for all service-based
awards to employees and non-employee directors with graded vesting schedules on the straight-line basis over the requisite service
period for the entire award. Estimates are revised if subsequent information indicates that forfeitures will differ from previous
estimates, and the cumulative effect on compensation cost of a change in the estimated forfeitures is recognized in the period
of the change. For non-employee awards, the Company remeasures compensation cost each period until the service condition is completed
and recognizes compensation cost on the straight-line basis over the requisite service period. Option valuation models require
the input of highly subjective assumptions, and changes in the assumptions used can materially affect the fair value estimates.
Judgment is required in estimating stock price volatility, forfeiture rates, expected dividends, and expected terms that options
remain outstanding. For restricted stock awards with performance conditions, the Company evaluates if performance conditions are
probable in each reporting period. The compensation expense of restricted awards is recognized ratably over the implicit service
period if achieving performance conditions is probable. Cumulative catch-up adjustments are required in the event of changes in
assessment of probability. See Note 12 for additional information relating to stock-based compensation assumptions. Stock-based
compensation expenses totaled approximately $83,000 and $160,000 for the years ended December 31, 2015 and 2014, respectively.
Employee Defined Contribution Plan
The Company operates a mandatory provident
fund scheme, the MPF Scheme, under the Mandatory Provident Fund Schemes Ordinance for its employees in Hong Kong. The assets of
the MPF Scheme are held separately from those of the Company in an independently administered fund. Contributions are made based
on a percentage of the employees’ basic salaries and are expensed as and when the contributions fall due. The Company has
no legal obligation for the benefits beyond the contributions. The total amounts of such employer contributions, which were expensed
as incurred, were approximately $172,000 and $162,000 for the years ended December 31, 2015 and 2014, respectively.
Research and Development
Research and development expenses are expensed
as incurred. Employee-related costs associated with research and development and certain costs associated with the development
of the social casino platform are included in research and development expenses. Research and development expenses were
approximately $421,000 and $387,000 for the years ended December 31, 2015 and 2014, respectively.
Leases
Leases are classified at the inception date
as either a capital lease or an operating lease. A lease is a capital lease if any of the following conditions exists:
|
·
|
Ownership
is transferred to the lessee by the end of the lease term;
|
|
·
|
There
is a bargain purchase option;
|
|
·
|
The
lease term is at least 75% of the property’s estimated remaining economic life;
or
|
|
·
|
The
present value of the minimum lease payments at the beginning of the lease term is 90%
or more of the fair value of the leased property to the lessor at the inception date.
|
A capital lease is accounted for as if there
was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted
for as operating leases wherein rental payments are expensed as incurred. The Company had no capital leases as of December 31,
2015 or 2014.
Income Taxes
The Company is subject to income taxes in
the United States (including federal and state) and several foreign jurisdictions in which it operates. Deferred income tax balances
reflect the effects of temporary differences between the carrying amounts of assets and liabilities and their tax basis and are
stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. ASC 740,
Income Taxes,
requires
that deferred tax assets be evaluated for future realization and reduced by a valuation allowance to the extent the Company believes
a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of its
deferred tax assets, including its recent cumulative earnings experience and expectations of future taxable income by taxing jurisdiction,
the carry-forward periods available to the Company for tax reporting purposes, and other relevant factors.
The Company accounts for uncertain tax positions
in accordance with ASC 740, which contains a two-step approach to recognizing and measuring uncertain tax positions. The first
step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is more than 50% likely to be realized upon ultimate
settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require
periodic adjustments and which may not accurately anticipate actual outcomes. The Company recognizes interest and penalties, if
any, related to unrecognized tax benefits in the provision for income taxes in the consolidated statements of comprehensive income/loss.
On December 31, 2010, the Company effected
a Quasi-Reorganization. As of that date, the Company’s deferred taxes were reported in conformity with applicable income
tax accounting standards described above, net of applicable valuation allowances. Deferred tax assets and liabilities were recognized
for differences between the assigned values and the tax basis of the recognized assets and liabilities with corresponding valuation
allowances as appropriate. In accordance with the Quasi-Reorganization requirements, pre-existing tax benefits realized subsequent
to the Quasi-Reorganization are recorded directly in equity.
Earnings/(Loss) per Share
Basic earnings/(loss) per share are computed
by dividing the reported net earnings/(loss) by the weighted average number of shares of common stock outstanding during the year.
Diluted earnings per share is computed by dividing the net income by the weighted average number of shares of common stock and
shares issuable from stock options and restricted shares during the period. The computation of diluted earnings per share excludes
the impact of stock options and restricted shares that are anti-dilutive due to the stock options’ exercise price exceeding
the Company’s stock price as of December 31, 2015. There were no differences in diluted loss per share from basic loss per
share for the year ended December 31, 2014 as the assumed exercise of common stock equivalents would have an anti-dilutive effect
due to losses.
Foreign Currency Translations and Transactions
The functional currency of the Company’s
international subsidiaries, except for its operations in Cambodia whose functional currency is also U.S. dollars, is generally
the local currency. For these subsidiaries, the Company translates the assets and liabilities at exchange rates in effect at the
balance sheet date and income and expense accounts at average exchange rates during the year. Resulting currency translation adjustments
are recorded directly to accumulated other comprehensive income within stockholders’ equity. Gains and losses resulting
from transactions in non-functional currencies are recorded in the consolidated statements of comprehensive income/loss.
Below is a summary of closing exchange rates
as of December 31, 2015 and 2014 and average exchange rates for the years ended December 31, 2015 and 2014, respectively.
(US$1 to foreign currency)
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Australian dollar
|
|
|
1.37
|
|
|
|
1.23
|
|
Hong Kong dollar
|
|
|
7.75
|
|
|
|
7.76
|
|
Philippine peso
|
|
|
47.17
|
|
|
|
44.84
|
|
Thai baht
|
|
|
36.07
|
|
|
|
32.97
|
|
|
|
Year Ended December 31,
|
|
(US$1 to foreign currency)
|
|
2015
|
|
|
2014
|
|
Australian dollar
|
|
|
1.33
|
|
|
|
1.11
|
|
Hong Kong dollar
|
|
|
7.75
|
|
|
|
7.75
|
|
Philippine peso
|
|
|
45.50
|
|
|
|
44.47
|
|
Thai baht
|
|
|
34.25
|
|
|
|
32.54
|
|
Fair Value Measurements
Fair value is defined under ASC 820,
Fair
Value Measurements and Disclosures
, as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable
inputs and minimize the use of unobservable inputs. The standard establishes a fair value hierarchy based on three levels of input,
of which the first two are considered observable and the last unobservable.
|
·
|
Level
1 — Quoted prices in active markets for identical assets or liabilities. These
are typically obtained from real-time quotes for transactions in active exchange markets
involving identical assets.
|
|
·
|
Level
2 — Input, other than quoted prices included within Level 1, which are observable
for the asset or liability, either directly or indirectly. These are typically obtained
from readily-available pricing sources for comparable instruments.
|
|
·
|
Level
3 — Unobservable input, where there is little or no market activity for the asset
or liability. This input reflects the reporting entity’s own assumptions of the
data that participants would use in pricing the asset or liability, based on the best
information available under the circumstances.
|
As of December 31, 2015, the fair values of
financial assets and liabilities approximate carrying values due to the short maturities of these items.
Defined Benefit Pension Plan
The Company provides pension benefits to all
regular full-time employees in the Philippines through a defined benefit plan. A defined benefit plan is a pension plan that defines
an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age,
years of service and salary.
The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation
is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are
denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the
related pension liability.
The accounting guidance related to employers’
accounting for defined benefit pension plan requires recognition in the balance sheet of the present value of the defined benefit
obligation at the reporting date, together with adjustments for unrecognized actuarial gains or losses and past service costs
or credits in other comprehensive income/loss.
The company recorded an increase of approximately
$3,000 to accumulated other comprehensive income with in stockholders’ equity for the year ended December 31, 2015 and a
decrease of approximately $12,000 to accumulated other comprehensive income with in stockholders’ equity for the year ended
December 31, 2014
Asset Retirement Obligations
Asset retirement obligations are legal obligations
associated with the retirement of long-lived assets resulting from the acquisition, construction, development and/or normal use
of the underlying assets. Recognition of a liability for an asset retirement obligation is required in the period in which it
is incurred at its estimated fair value. The associated asset retirement costs are capitalized as part of the carrying amount
of the underlying asset and depreciated over the estimated useful life of the asset. The liability is accreted through charges
to operating expenses. If the asset retirement obligation is settled for other than the carrying amount of the liability, the
Company recognizes a gain or loss on settlement.
The Company records all asset retirement obligations
for which it has legal obligations to remove all installation works and reinstate the manufacturing facilities to its original
state at its estimated fair value. For the years ended December 31, 2015 and 2014, the Company recognized approximately $7,000
and NIL, respectively, as asset retirement obligation operating costs related to accretion of the liabilities.
Recent Accounting Pronouncements
In February 2015, the FASB issued ASU 2015-02,
“Amendments to the Consolidation Analysis”. The amendments in ASU 2015-02 affect reporting entities that are required
to evaluate whether they should consolidate certain legal entities. ASU 2015-02 will be effective for fiscal years and interim
periods within those fiscal years beginning after December 15, 2015, with early adoption permitted. The Company does not expect
the impact of the adoption of ASU 2015-02 to be material to our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-04,
“Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets”,
which gives an entity whose year-end does not coincide with a month end the ability to measure defined benefit plan assets and
obligations using the month end closest to the entities year end. ASU 2015-04 will be effective for fiscal years and interim periods
within those fiscal years, beginning after December 15, 2015, with early adoption permitted. The Company does not expect the impact
of the adoption of ASU 2015-04 to be material to our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11,
"Simplifying the Measurement of Inventory", which requires inventory to be recorded at the lower of cost and net realizable
value. The provisions of this update will be effective for fiscal years and interim periods within those fiscal years, beginning
after December 15, 2016, and are not expected to have a material effect on our consolidated financial statements.
In August 2015, the FASB issued ASU 2015-14,
“Deferral of the Effective Date”, which defers the effective date of ASU 2014-09, “Revenue from Contracts with
Customers” to January 1, 2018. The Company is currently in the process of evaluating the impact of the prescribed change
on our consolidated financial statements.
In November 2015, the FASB issued ASU No.
2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which amends existing guidance
on the presentation of deferred income tax assets and liabilities. The amendments in the ASU require that all deferred tax liabilities
and assets be classified as noncurrent on the balance sheet. This ASU will be effective for the Company on January 1, 2017, with
earlier adoption permitted. We are currently evaluating its effect on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01,
“Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities”, which intends to improve the recognition and measurement of financial instruments. The ASU will be effective
for fiscal years and interim periods within those years beginning after December 15, 2017. We are currently assessing the potential
impact of this ASU on our consolidated financial statements.
In February 2016, the FASB issued ASU No.
2016-02, “Leases (Topic 842): Accounting for Leases”, which changes the accounting for leases, including a requirement
to record all leases on the balance sheet as assets and liabilities. This update is effective for fiscal years beginning after
December 15, 2018, with early adoption permitted. We are currently evaluating the impact of adopting the new leases standard on
our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08,
“Revenue from Contracts with Customers: Principal versus Agent Considerations”, which intends to improve the operability
and understandability of the implementation guidance on principal versus agent considerations. The effective date for this ASU
is the same as the effective date for ASU 2014-09, “Revenue from Contracts with Customers”. We are currently assessing
the potential impact of this ASU on our consolidated financial statements.
Note 2. Segments
The Company conducts business under two operating
segments: (i) gaming operations, which include leasing of its owned EGMs on a fixed or revenue-sharing basis; and (ii) gaming
products, which consist of the design, manufacture and distribution of gaming chips and plaques as well as the distribution of
third-party gaming product.
The Company previously owned and operated
a casino in the Pailin Province of Cambodia. In June 2014, the Company ceased operation of the casino and entered into an agreement
to sell 100% of the issued capital shares of the Company’s wholly-owned Cambodian subsidiary established for the purpose
of owning and operating the casino. All the related historical revenues and expenses for the casino in Pailin have been reclassified
as discontinued operations. The accounting policies of the discontinued operations are consistent with the Company’s policies
for the accompanying consolidated financial statements.
The following table presents the financial
information for each of the Company’s operating segments. Given the early stages of the social casino gaming operations,
the related costs and expenses are included under corporate and other costs and expenses.
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
18,127
|
|
|
$
|
16,364
|
|
Gaming products
|
|
|
13,382
|
|
|
|
5,998
|
|
Total revenues
|
|
$
|
31,509
|
|
|
$
|
22,362
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss):
|
|
|
|
|
|
|
|
|
Gaming operations operating income
|
|
$
|
6,114
|
|
|
$
|
6,621
|
|
Gaming products operating income/(loss)
|
|
|
1,554
|
|
|
|
(2,381
|
)
|
Corporate and other operating costs
and expenses
|
|
|
(6,438
|
)
|
|
|
(6,747
|
)
|
Total operating income/(loss)
|
|
$
|
1,230
|
|
|
$
|
(2,507
|
)
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
22,763
|
|
|
$
|
19,184
|
|
Gaming products
|
|
|
13,403
|
|
|
|
12,912
|
|
Corporate
|
|
|
9,119
|
|
|
|
12,558
|
|
Total identifiable assets
|
|
$
|
45,285
|
|
|
$
|
44,654
|
|
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
332
|
|
|
$
|
351
|
|
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
740
|
|
|
$
|
587
|
|
Gaming products
|
|
|
760
|
|
|
|
2,796
|
|
Corporate
|
|
|
153
|
|
|
|
88
|
|
Total capital expenditures
|
|
$
|
1,653
|
|
|
$
|
3,471
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
5,799
|
|
|
$
|
6,293
|
|
Gaming products
|
|
|
1,206
|
|
|
|
935
|
|
Corporate
|
|
|
95
|
|
|
|
61
|
|
Total depreciation and amortization
|
|
$
|
7,100
|
|
|
$
|
7,289
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets:
|
|
|
|
|
|
|
|
|
Gaming operations
|
|
$
|
2,563
|
|
|
$
|
15
|
|
Gaming products
|
|
|
—
|
|
|
|
106
|
|
Total impairment of assets
|
|
$
|
2,563
|
|
|
$
|
121
|
|
|
|
|
|
|
|
|
|
|
Interest expenses and finance fees:
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
3
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit):
|
|
|
|
|
|
|
|
|
Gaming operations (1)
|
|
$
|
236
|
|
|
$
|
—
|
|
Corporate
|
|
|
(19
|
)
|
|
|
(41
|
)
|
Total income tax expense/(benefit)
|
|
$
|
217
|
|
|
$
|
(41
|
)
|
(1)
|
The Company is required to pay a fixed gaming obligation tax
for its operations in Cambodia. The amounts paid were approximately $137,000 and $122,000 for the years ended December 31,
2015 and 2014, respectively, and were included in selling, general and administrative expenses.
|
Geographic segment revenues for the years ended December 31,
2015 and 2014 are as follows:
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Cambodia
|
|
$
|
15,486
|
|
|
$
|
13,530
|
|
Philippines
|
|
|
9,978
|
|
|
|
7,467
|
|
Macau
|
|
|
2,982
|
|
|
|
761
|
|
Australia
|
|
|
1,568
|
|
|
|
532
|
|
Russia
|
|
|
1,485
|
|
|
|
—
|
|
Others
|
|
|
10
|
|
|
|
72
|
|
Total
|
|
$
|
31,509
|
|
|
$
|
22,362
|
|
For the year ended December 31, 2015,
the largest customer in the gaming operations segment represented 75% of total gaming operations revenue and the largest customer
in the gaming products segment represented 37% of total gaming products revenue. For the year ended December 31, 2014, the largest
customer in the gaming operations segment represented 70% of total gaming operations revenue and the largest customer in the gaming
products segment represented 59% of total gaming products revenue.
Long-lived assets, goodwill and intangible
assets identified by geographic segments consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Cambodia
|
|
$
|
3,517
|
|
|
$
|
10,219
|
|
Hong Kong
|
|
|
5,278
|
|
|
|
6,449
|
|
Philippines
|
|
|
1,295
|
|
|
|
1,664
|
|
United States
|
|
|
65
|
|
|
|
115
|
|
Total
|
|
$
|
10,155
|
|
|
$
|
18,447
|
|
Inventories consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Raw materials
|
|
$
|
1,742
|
|
|
$
|
1,866
|
|
Work-in-process (1)
|
|
|
80
|
|
|
|
600
|
|
Finished goods (2)
|
|
|
443
|
|
|
|
—
|
|
Spare parts
|
|
|
113
|
|
|
|
151
|
|
Total
|
|
$
|
2,378
|
|
|
$
|
2,617
|
|
|
(1)
|
Work-in-process decreased from December
31, 2014 to December 31, 2015 due to fewer gaming chip and plaque orders in process as
of December 31, 2015.
|
|
(2)
|
Finished goods increased from December
31, 2014 to December 31, 2015 in preparation for gaming chip and plaque orders expected
to be delivered in the first quarter of 2016.
|
Note 4.
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets consisted of the
following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Prepayments to suppliers (1)
|
|
$
|
292
|
|
|
$
|
1,434
|
|
Prepaid leases
|
|
|
3
|
|
|
|
13
|
|
Total
|
|
$
|
295
|
|
|
$
|
1,447
|
|
|
(1)
|
Prepayments to suppliers decreased from December 31, 2014 to
December 31, 2015 due to higher deposit payments in the year ended December 31, 2014 related to the outsourcing of certain
gaming products orders delivered in early 2015.
|
Accounts and other receivables consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Trade receivables
|
|
$
|
724
|
|
|
$
|
830
|
|
Other receivables
|
|
|
78
|
|
|
|
316
|
|
|
|
|
802
|
|
|
|
1,146
|
|
Less: allowance for doubtful accounts
|
|
|
—
|
|
|
|
—
|
|
Net
|
|
$
|
802
|
|
|
$
|
1,146
|
|
Gaming equipment is stated at cost less
accumulated depreciation. The major categories of gaming equipment and accumulated depreciation consisted of the following:
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
December 31,
|
|
(amounts in thousands)
|
|
(years)
|
|
2015
|
|
|
2014
|
|
EGMs (1)
|
|
3-5
|
|
$
|
16,215
|
|
|
$
|
17,844
|
|
Systems
|
|
5
|
|
|
1,335
|
|
|
|
1,503
|
|
|
|
|
|
|
17,550
|
|
|
|
19,347
|
|
Less: accumulated depreciation
|
|
|
|
|
(14,565
|
)
|
|
|
(13,723
|
)
|
Net carrying value
|
|
|
|
$
|
2,985
|
|
|
$
|
5,624
|
|
|
(1)
|
EGMs decreased from December 31, 2014 to December 31, 2015 due
to the write-off of approximately $700,000 in gaming equipment related to the Dreamworld Club (Poipet) operations in the year
ended December 31, 2015.
|
Depreciation expense of gaming equipment
of approximately $2.4 million and $2.9 million was included in cost of gaming operations in the consolidated statements of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Note 7.
|
Property and Equipment
|
Property and equipment are stated at cost
less accumulated depreciation. The major categories of property and equipment and accumulated depreciation consisted of the following:
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
December 31,
|
|
(amounts in thousands)
|
|
(years)
|
|
2015
|
|
|
2014
|
|
Equipment, vehicles, furniture and fixtures
|
|
3-10
|
|
$
|
6,290
|
|
|
$
|
6,697
|
|
Land and building (1)
|
|
5
|
|
|
1,506
|
|
|
|
2,928
|
|
Leasehold improvements
|
|
1-6
|
|
|
1,400
|
|
|
|
1,421
|
|
Construction in progress
|
|
N/A
|
|
|
—
|
|
|
|
634
|
|
|
|
|
|
|
9,196
|
|
|
|
11,680
|
|
Less: accumulated depreciation
|
|
|
|
|
(3,277
|
)
|
|
|
(2,785
|
)
|
Net carrying value
|
|
|
|
$
|
5,919
|
|
|
$
|
8,895
|
|
|
(1)
|
Land and building decreased from December 31, 2014 to December
31, 2015 due to the write-off of approximately $600,000 in building infrastructure related to the Dreamworld Club (Poipet)
operations in the year ended December 31, 2015.
|
Depreciation expense of property and equipment
of approximately $652,000 and $608,000 was recorded in cost of gaming operations in the consolidated statements of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Depreciation expense of property and equipment
of approximately $1.1 million and $810,000 was included in cost of gaming products in the consolidated statement of comprehensive
income/loss for the years ended December 31, 2015 and 2014, respectively.
Note 8.
|
Goodwill and Intangible Assets, including Casino
Contracts
|
Goodwill and intangible assets, if any,
are stated at cost less accumulated amortization. The major categories of goodwill and intangible assets and accumulated amortization
consisted of the following:
|
|
Useful
|
|
|
|
|
|
|
|
|
Life
|
|
December 31,
|
|
(amounts in thousands)
|
|
(years)
|
|
2015
|
|
|
2014
|
|
Gaming operation agreement
|
|
4-5
|
|
$
|
1,166
|
|
|
$
|
1,175
|
|
Less: accumulated amortization
|
|
|
|
|
(1,070
|
)
|
|
|
(818
|
)
|
|
|
|
|
|
96
|
|
|
|
357
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
N/A
|
|
|
332
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
5-6
|
|
|
114
|
|
|
|
114
|
|
Less: accumulated amortization
|
|
|
|
|
(104
|
)
|
|
|
(83
|
)
|
|
|
|
|
|
10
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
5-9
|
|
|
26
|
|
|
|
26
|
|
Less: accumulated amortization
|
|
|
|
|
(15
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
11
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
Technical know-how
|
|
10
|
|
|
261
|
|
|
|
261
|
|
Less: accumulated amortization
|
|
|
|
|
(94
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
167
|
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino contracts
|
|
5-6
|
|
|
12,637
|
|
|
|
12,754
|
|
Less: accumulated amortization
|
|
|
|
|
(12,109
|
)
|
|
|
(9,772
|
)
|
|
|
|
|
|
528
|
|
|
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal–use software
|
|
|
|
|
107
|
|
|
|
—
|
|
Net carrying value
|
|
|
|
$
|
1,251
|
|
|
$
|
3,928
|
|
Amortization expenses for finite-lived
intangible assets were approximately $2.7 million for the years ended December 31, 2015 and 2014.
Goodwill movements during the year consisted
of the following:
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Balance as of January 1
|
|
$
|
351
|
|
|
$
|
353
|
|
Foreign currency translation adjustment
|
|
|
(19
|
)
|
|
|
(2
|
)
|
Balance as of December 31
|
|
$
|
332
|
|
|
$
|
351
|
|
Annual estimated amortization expense
for each of the five succeeding years and thereafter consist of the following:
(amounts in thousands)
|
|
|
|
|
2016
|
|
|
663
|
|
2017
|
|
|
29
|
|
2018
|
|
|
29
|
|
2019
|
|
|
28
|
|
2020
|
|
|
26
|
|
Thereafter
|
|
|
37
|
|
Total
|
|
$
|
812
|
|
Note 9.
|
Prepaids, Deposits and Other Assets
|
Prepaids, deposits and other assets consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Prepaid taxes (1)
|
|
$
|
—
|
|
|
$
|
323
|
|
Prepaid lease (2)
|
|
|
—
|
|
|
|
211
|
|
Prepayments to suppliers
|
|
|
34
|
|
|
|
454
|
|
Rental, utilities and other deposits
|
|
|
391
|
|
|
|
328
|
|
Total
|
|
$
|
425
|
|
|
$
|
1,316
|
|
|
(1)
|
Prepaid taxes as
of December 31, 2014 were fully utilized in the year ended December 31, 2015 to offset
the current income tax expense for the Philippines operations.
|
|
(2)
|
The prepaid lease
as of December 31, 2014 consisted of land lease prepayments for a gaming development
project located in Cambodia, which was written off as of December 31, 2015.
|
Note 10.
|
Accrued Expenses
|
Accrued expenses consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Payroll and related costs
|
|
$
|
626
|
|
|
$
|
723
|
|
Professional fees
|
|
|
339
|
|
|
|
350
|
|
Withholding tax expenses
|
|
|
549
|
|
|
|
583
|
|
Other tax expenses
|
|
|
44
|
|
|
|
44
|
|
Others
|
|
|
197
|
|
|
|
309
|
|
Total
|
|
$
|
1,755
|
|
|
$
|
2,009
|
|
Note 11.
|
Other Liabilities
|
Other liabilities consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Other tax liabilities
|
|
$
|
754
|
|
|
$
|
819
|
|
Others
|
|
|
126
|
|
|
|
26
|
|
Total
|
|
$
|
880
|
|
|
$
|
845
|
|
Note 12.
|
Stock-Based Compensation
|
The Company effected a 1-for-4 reverse
stock split of its common shares as of February 26, 2015. All historical share amounts and share price information presented below
have been proportionally adjusted to reflect the impact of this reverse split.
At the annual shareholders meeting held
on September 8, 2008, a new stock option plan, the 2008 Stock Incentive Plan, was voted on and became effective on January 1,
2009, which replaced two previous plans, the Amended and Restated 1999 Stock Option Plan and the Amended and Restated 1999 Directors’
Stock Option Plan, thereby terminating both of the previous plans on December 31, 2008.
The 2008 Plan allows for incentive awards
to eligible recipients consisting of:
|
·
|
Options
to purchase shares of common stock that qualify as incentive stock options within the
meaning of the Internal Revenue Code;
|
|
·
|
Non-statutory
stock options that do not qualify as incentive options;
|
|
·
|
Restricted
stock awards; and
|
|
·
|
Performance
stock awards which are subject to future achievement of performance criteria or free
of any performance or vesting.
|
The maximum number of shares reserved
for issuance under the 2008 Plan is 1,250,000 shares. The exercise price of options granted under the 2008 Plan shall not be less
than 100% of the fair market value of one share of common stock on the date of grant, unless the participant owns more than 10%
of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company,
in which case the exercise price shall then be 110% of the fair market value. The outstanding stock options generally vest over
three years and have ten-year contractual terms.
In the year ended December 31, 2015, there
were no grants of stock options or restricted stock awards and there were no exercises of outstanding stock options.
Prior to January 1, 2009, the Company
had two stock options plans, the Amended and Restated 1999 Stock Option Plan and the Amended and Restated 1999 Directors’
Stock Option Plan, through which 937,500 shares and 18,750 shares were authorized, respectively. Both of these previous plans
expired on December 31, 2008. However, options granted under these previous plans that were outstanding as of the date of termination
remain outstanding and subject to termination according to their terms.
As of December 31, 2015, stock options
for the purchase of 226,252 shares and 4,376 shares of common stock, respectively, were outstanding in relation to the Amended
and Restated 1999 Stock Option Plan and the Amended and Restated 1999 Director’s Stock Option Plan.
As of December 31, 2015, stock options
for the purchase of 536,848 shares of common stock were outstanding under the 2008 Plan.
As of December 31, 2015, stock options
for the purchase of 734,976 shares of common stock were exercisable with a weighted average exercise price of $7.95, a weighted
average fair value of $3.35 and an aggregate intrinsic value of approximately $34,000. The total fair value of shares vested during
the year ended December 31, 2015 was approximately $45,000. As of December 31, 2015, an aggregate of 32,500 options granted under
all plans was subject to vesting with a total compensation cost of approximately $10,000. The amount is expected to be recognized
over 0.74 years.
A summary of all current and expired plans
as of December 31, 2015 and changes during the years then ended is presented in the following tables.
Options
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Life
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding as of December 31, 2013
|
|
|
822,946
|
|
|
$
|
8.45
|
|
|
|
5.99
|
|
|
$
|
738
|
|
Granted
|
|
|
56,250
|
|
|
|
4.84
|
|
|
|
—
|
|
|
|
280
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
(94,164
|
)
|
|
|
9.80
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding as of December 31, 2014
|
|
|
785,032
|
|
|
|
8.02
|
|
|
|
5.42
|
|
|
|
46
|
|
Exercisable as of December 31, 2014
|
|
|
727,949
|
|
|
$
|
8.14
|
|
|
|
5.27
|
|
|
$
|
46
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted Average
Remaining
Contractual
Life
(in years)
|
|
|
Aggregate
Intrinsic
Value
(in thousands)
|
|
Outstanding as of December 31, 2014
|
|
|
785,032
|
|
|
$
|
8.02
|
|
|
|
5.42
|
|
|
$
|
46
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Forfeited or expired
|
|
|
(17,556
|
)
|
|
|
13.46
|
|
|
|
—
|
|
|
|
—
|
|
Outstanding as of December 31, 2015
|
|
|
767,476
|
|
|
|
7.90
|
|
|
|
4.28
|
|
|
|
34
|
|
Exercisable as of December 31, 2015
|
|
|
734,976
|
|
|
$
|
7.95
|
|
|
|
4.14
|
|
|
$
|
34
|
|
Restricted Stock
|
|
Number of
shares
|
|
|
Weighted
Average
Fair Value at
Grant Date
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Unvested balance as of December 31, 2013
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Granted
|
|
|
23,750
|
|
|
|
4.84
|
|
|
|
—
|
|
Vested(1)
|
|
|
(16,250
|
)
|
|
|
4.84
|
|
|
|
—
|
|
Unvested balance as of December 31, 2014
|
|
|
7,500
|
|
|
$
|
4.84
|
|
|
|
1.41
|
|
|
|
Number
of
shares
|
|
|
Weighted
Average
Fair Value at
Grant Date
|
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|
Unvested balance as of December 31, 2014
|
|
|
7,500
|
|
|
$
|
4.84
|
|
|
|
1.41
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
(3,750)
|
|
|
|
—
|
|
|
|
—
|
|
Unvested balance as of December 31, 2015
|
|
|
3,750
|
|
|
$
|
4.84
|
|
|
|
0.41
|
|
(1)
|
Vested shares included 12,500 shares of restricted common stock
issued in the year ended December 31, 2014 for which final vesting of 5,625 shares was approved by the Company’s compensation
committee in March 2015.
|
Recognition and Measurement
The fair value of each stock-based award
to employees and non-employee directors is estimated on the measurement date which generally is the grant date while awards to
non-employees are measured at the earlier of the performance commitment date or the service completion date using the Black-Scholes-Merton
option-pricing model. The grant date for stock-based awards with subjective performance condition does not occur until the earlier
of the vesting date or when the discretionary feature has lapsed. Option valuation models require the input of highly subjective
assumptions, and changes in assumptions used can materially affect the fair value estimates. The Company estimates the expected
life of the award by taking into consideration the vesting period, contractual term, historical exercise data, expected volatility,
blackout periods and other relevant factors. Volatility is estimated by evaluating the Company’s historical volatility data.
The risk-free interest rate on the measurement date is based on U.S. Treasury constant maturity rates for a period approximating
the expected life of the award. The Company historically has not paid dividends and it does not expect to pay dividends in the
foreseeable future and, therefore, the expected dividend rate is zero.
The following table summarizes the range
of assumptions utilized in the Black-Scholes-Merton option-pricing model for the valuation of stock options granted during the
years ended December 31, 2015 and 2014.
|
|
Year Ended December
31,
|
|
|
|
2015
|
|
|
2014
|
|
Range of values:
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
Expected volatility
|
|
|
71.85
|
%
|
|
|
80.91
|
%
|
|
|
73.03
|
%
|
|
|
79.31
|
%
|
Expected dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expected term (in years)
|
|
|
4.78
|
|
|
|
8.11
|
|
|
|
3.73
|
|
|
|
9.11
|
|
Risk free rate
|
|
|
1.13
|
%
|
|
|
2.02
|
%
|
|
|
1.16
|
%
|
|
|
2.52
|
%
|
For stock-based compensation accrued to
employees and non-employee directors, the Company recognizes stock-based compensation expenses for all service-based awards with
graded vesting schedules on the straight-line basis over the requisite service period for the entire award. Initial accruals of
compensation expense are based on the estimated number of shares for which requisite service is expected to be rendered. Estimates
are revised if subsequent information indicates that forfeitures will differ from previous estimates, and the cumulative effect
on compensation cost of a change in the estimated forfeitures is recognized in the period of the change.
For non-employee awards, the Company remeasures
compensation cost each period until the service condition is complete and recognizes compensation cost on the straight-line basis
over the requisite service period.
The Company estimates forfeitures and
recognizes compensation cost only for those awards expected to vest assuming all awards would vest and reverse recognized compensation
cost for forfeited awards when the awards are actually forfeited.
Note 13.
|
Impairment of Long-Lived Assets
|
The Company reviews long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
In such instance, the Company estimates the undiscounted future cash flows (excluding interest) resulting from the use of the
asset and its ultimate disposition. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value,
the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the assets.
For the year ended December 31, 2015,
the Company recorded an impairment charge of approximately $2.6 million primarily related to a write-down of the building infrastructure
and related gaming assets for its Dreamworld Club (Poipet) operations as well as the write-down of prepaid leases and other assets
related to previously planned gaming projects that are no longer intended to be pursued.
For the year ended December 31, 2014,
the Company recorded an impairment charge of approximately $121,000 primarily related to a write-down of obsolete plant and machinery
for the gaming products operations.
Note 14.
|
Related Party Transactions
|
Significant revenues, purchases and expenses
arising from transactions with related parties consisted of the following:
|
|
Year ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Related party transaction provided to:
|
|
|
|
|
|
|
|
|
Melco Crown (Macau) Limited
|
|
|
|
|
|
|
|
|
Sales of gaming products
|
|
$
|
358
|
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
MCE Leisure (Philippines) Corporation
|
|
|
|
|
|
|
|
|
Sales of gaming products
|
|
$
|
4,945
|
|
|
$
|
3,523
|
|
|
|
|
|
|
|
|
|
|
Melco Crown Entertainment Limited
|
|
|
|
|
|
|
|
|
Sales of gaming products
|
|
$
|
212
|
|
|
$
|
243
|
|
|
|
|
|
|
|
|
|
|
Oriental
Regent Limited
|
|
|
|
|
|
|
|
|
Sales of gaming products
|
|
$
|
1,485
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Studio
City International Holding Limited
|
|
|
|
|
|
|
|
|
Sales of gaming products
|
|
$
|
2,280
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Related
party transactions provided by:
|
|
|
|
|
|
|
|
|
Melco Services Limited
|
|
|
|
|
|
|
|
|
Technical services
|
|
$
|
2
|
|
|
$
|
2
|
|
Other (1)
|
|
$
|
224
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Aberdeen
Restaurant Enterprises Limited
|
|
$
|
5
|
|
|
$
|
—
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden Future (Management
Services) Limited
|
|
|
|
|
|
|
|
|
Management services
|
|
$
|
281
|
|
|
$
|
276
|
|
(1)
|
The amount for the year ended December 31, 2015
represents fees paid to Melco Services Limited for the management services agreement, which was effective as of January 1,
2015, discussed in greater detail in Note 22.
|
Melco Services Limited is a wholly-owned
subsidiary of Melco International Development Limited, which owns 64.8% of Entertainment Gaming Asia Inc.
Melco International Development Limited
owns 34.3% of Melco Crown Entertainment Limited, which owns 90% of Melco Crown (Macau) Limited, and 72.2% of MCE Leisure (Philippines)
Corporation and 60% of Studio City International Holding Limited, respectively.
Golden Future (Management Services) Limited is a wholly-owned
subsidiary of Melco Crown (Macau) Limited.
Melco International Development Limited
indirectly owns 86.8% of Aberdeen Restaurant Enterprises Limited and 5% of Oriental Regent Limited.
The components of the provision for income
taxes consisted of the following:
|
|
Years ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Federal — deferred
|
|
$
|
(59
|
)
|
|
$
|
(59
|
)
|
Foreign
|
|
|
|
|
|
|
|
|
Current
|
|
|
(376
|
)
|
|
|
(133
|
)
|
Deferred
|
|
|
218
|
|
|
|
233
|
|
Total tax (expense)/benefit
|
|
$
|
(217
|
)
|
|
$
|
41
|
|
The reconciliation of the statutory federal
income tax rate and the Company’s effective tax rates consisted of the following:
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Federal tax expense at statutory rates
|
|
$
|
(352
|
)
|
|
$
|
866
|
|
Difference in jurisdictional tax rates
|
|
|
555
|
|
|
|
(223
|
)
|
Expense not deductible for tax
|
|
|
(158
|
)
|
|
|
32
|
|
Income not subject to tax
|
|
|
1,135
|
|
|
|
876
|
|
Adjustment of provision to tax return
|
|
|
(659
|
)
|
|
|
(311
|
)
|
Change in valuation allowances
|
|
|
(695
|
)
|
|
|
(1,138
|
)
|
Change in unrecognized tax benefits
|
|
|
(94
|
)
|
|
|
(108
|
)
|
Other
|
|
|
51
|
|
|
|
47
|
|
Total tax (expense)/benefit
|
|
$
|
(217
|
)
|
|
$
|
41
|
|
Consolidated income/(loss) from continuing
operations before taxes for domestic and international operations consisted of the following:
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Domestic
|
|
$
|
(3,671
|
)
|
|
$
|
(3,249
|
)
|
International
|
|
|
4,708
|
|
|
|
702
|
|
Income/(loss) from continuing
operations before income tax
|
|
$
|
1,037
|
|
|
$
|
(2,547
|
)
|
International income from continuing operations
increased approximately $4.0 million to approximately $4.7 million for the year ended December 31, 2015 compared to approximately
$700,000 in the prior year mainly as a result of a write-off of an intercompany receivable from Dreamworld Casino (Pailin) for
the year ended December 31, 2014.
The primary tax affected components of
the Company’s deferred tax assets/(liabilities) consisted of the following:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Deferred tax assets – current
|
|
|
|
|
|
|
|
|
Prepaid commission agreement
|
|
$
|
1,277
|
|
|
$
|
1,277
|
|
Depreciation and impairment
|
|
|
2,214
|
|
|
|
2,753
|
|
Other
|
|
|
326
|
|
|
|
481
|
|
Less: Valuation allowances
|
|
|
(3,817
|
)
|
|
|
(4,511
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets – non current
|
|
|
|
|
|
|
|
|
Net operating losses
|
|
|
63,427
|
|
|
|
61,938
|
|
Stock options
|
|
|
920
|
|
|
|
888
|
|
Less: Valuation allowances
|
|
|
(64,073
|
)
|
|
|
(62,684
|
)
|
|
|
|
274
|
|
|
|
142
|
|
Deferred tax liabilities – non current
|
|
|
|
|
|
|
|
|
Acquisition of intangibles
|
|
|
(29
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
245
|
|
|
$
|
35
|
|
Domestic operating loss carryforwards were
approximately $182.3 million and $179.1 million for the years ended December 31, 2015 and 2014, respectively, which are subject
to limitations under Section 382 of the Internal Revenue Code. These domestic operating losses begin to expire in 2018. The
Company expects to utilize the $182.3 million domestic operating loss to offset against corporate income tax payable in the United
States, if the domestic operating loss remains unexpired at the time when the Company is subject to corporate income tax in the
United States. Operating loss carryforwards of foreign subsidiaries were approximately $6.5 million and $7.8 million, respectively,
for the years ended December, 31, 2015 and 2014. The Company’s net operating losses have been fully reserved. The foreign
operating losses for Hong Kong can be carried forward indefinitely.
As of December 31, 2015, there were
valuation allowances of approximately $61.3 million and $6.6 million relating to pre and post Quasi-Reorganization periods,
respectively. Valuation allowances included approximately $60.5 million for which subsequently recognized tax benefits will
be credited directly to additional paid-in capital. Valuation allowances were provided on the domestic and foreign operating
loss carry forwards and other deferred tax assets because management believes these assets did not meet the “more
likely than not” criteria for recognition under ASC 740.
Undistributed earnings of the Company’s
foreign subsidiary amounted to approximately $26.3 million as of December 31, 2015. Those earnings were considered to be permanently
reinvested; accordingly, no provision for withholding taxes has been provided thereon. Upon repatriation of those earnings, in
the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred
U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation; however, unrecognized
foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. Withholding taxes of approximately
$3.7 million would be payable upon remittance of all previously unremitted earnings as of December 31, 2015.
A reconciliation of the beginning and ending
amounts of unrecognized tax benefits consisted of the following:
(amounts in thousands)
|
Balance at January 1, 2014
|
|
$
|
4,021
|
|
Additions based on tax positions related to the current
year
|
|
|
43
|
|
Reductions for tax positions of
prior years
|
|
|
(3
|
)
|
Balance at December 31, 2014
|
|
$
|
4,061
|
|
Additions based on tax positions related to the current
year
|
|
|
58
|
|
Reductions for tax positions of
prior years
|
|
|
(31
|
)
|
Balance at December 31, 2015
|
|
$
|
4,088
|
|
The amount of uncertain tax benefits as of
December 31, 2015 that would affect the effective income tax rate if recognized is approximately $270,000. It is possible that
the amount of unrecognized tax benefits will change in the next twelve months, however, an estimate of the range of the possible
changes cannot be made at this time.
The Company recognizes interest and penalties,
if any, related to unrecognized tax benefits in the provision for income taxes in the consolidated statements of comprehensive
income/loss. During the year ended December 31, 2015, the Company recorded interest and penalties of approximately $67,000. As
of December 31, 2015, the Company had interest and penalties of approximately $440,000 accrued in the consolidated balance sheet.
The fixed obligation tax arrangement for EGT
Cambodia is subject to annual renewal and negotiation and was renewed for 2015.
The Company is subject to income tax examinations
by tax authorities in jurisdictions in which it operates. The Company’s 2010 to 2015 United Status income tax returns remain
open to examination by the Internal Revenue Service. The Company’s 2009 to 2013 Australian income tax returns remain open
to examination by the Australian Taxation Office. The Company’s 2015 Cambodian income tax returns remain open to examination
by the General Department of Taxation. The Company’s 2013 to 2015 Philippines income tax returns remain open to examination
by the Philippines Bureau of Internal Revenue. The Company’s 2009 to 2015 Hong Kong income tax returns remain open to examination
by the Hong Kong Inland Revenue Department.
Note 16.
|
Discontinued Operations
|
From May 2012 until June 2014, the Company
operated Dreamworld Casino (Pailin), a casino in the Pailin Province of Cambodia. Dreamworld Casino (Pailin) was constructed on
land leased from a local land owner and, in consideration, the land owner was entitled to receive monthly a rental fee in the
amount of $5,000 and 20% of the profit before depreciation (the total gross revenue of the casino less any payouts paid to customers,
operating expenses, and gaming and non-gaming taxes on the casino’s revenue). The initial lease term was 20 years, commencing
in September 2011 and was subject to renewal by the parties in writing.
Dreamworld Casino (Pailin) was unprofitable
and after unsuccessful efforts to improve performance, in June 2014, the Company ceased operation of the casino. On June 20, 2014,
the Company entered into an agreement to sell 100% of the issued capital shares of Dreamworld Leisure (Pailin) Limited, or DWP,
a wholly-owned Cambodian subsidiary of the Company established for the purposes of owning and operating Dreamworld Casino (Pailin),
to a local Cambodian individual. In connection with the sale of the issued capital shares of DWP, on June 20, 2014 the Company
and its partner in the operation entered into an agreement to terminate the previous agreements with the partner and all future
obligations thereunder including future lease payments owed by the Company.
The sale included all assets of DWP with the
exception of its EGMs, certain surveillance equipment and other assets excluded in the agreement and prohibited any use of the
Dreamworld brand name by the buyer. Total consideration to be paid to the Company by the buyer was to be $500,000, of which $100,000
was paid at the time of entering the agreement and the balance to be paid in sixteen $25,000 monthly installments commencing within
one month of the signed agreement. The parties closed the sale transaction in October 2014. Subsequently, the contract parties
agreed to amend the agreement to reduce the total consideration to be paid to $363,000, which has since been paid in full. The
Company recognized a gain of approximately $90,000 on disposal of the entity in the year ended December 31, 2014 having previously
provided for impairment as set out below.
The Company had recorded an impairment charge
of approximately $2.5 million for the year ended December 31, 2013 related to the Dreamworld Casino (Pailin) facility and gaming
assets. The impairment charge represented the entire capital expenditure incurred by the Company for the property as of December
31, 2013, with the exception of those assets that the Company believed could be redeployed to other existing properties.
The following table details selected financial
information for the discontinued operations in the consolidated statements of comprehensive income/loss.
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Loss from operations
|
|
$
|
—
|
|
|
$
|
(416
|
)
|
Gain on disposal
|
|
|
—
|
|
|
|
84
|
|
Foreign currency exchange gain
|
|
|
—
|
|
|
|
7
|
|
Loss from discontinued operations,
net of tax
|
|
$
|
—
|
|
|
$
|
(325
|
)
|
Note 17.
|
Commitments and Contingencies
|
Leases
The Company currently leases or sub-leases
office spaces and warehouse facilities in locations including Hong Kong, Cambodia, the Philippines, the United States and certain
office equipment under non-cancelable operating leases with remaining terms in excess of one year.
Future minimum lease payment commitments,
net of any sublease proceeds and including scheduled escalation provisions as of December 31, 2015 under the leases were as follows:
|
|
Operating
Leases
|
|
(amounts in thousands)
|
|
Total
Payments
|
|
|
Sublease
Proceeds
|
|
|
Net
Payments
|
|
2016
|
|
|
908
|
|
|
|
—
|
|
|
|
908
|
|
2017
|
|
|
771
|
|
|
|
—
|
|
|
|
771
|
|
2018
|
|
|
493
|
|
|
|
—
|
|
|
|
493
|
|
2019
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Rent expenses on all operating leases were
approximately $861,000 and $838,000 for the years ended December 31, 2015 and 2014, respectively.
Legal Matters
Gaming Partners International Corporation Litigation
On December 21, 2015, Gaming Partners International
Corporation, or the Plaintiff, commenced a legal action in the High Court of the Hong Kong Special Administrative Region against
Dolphin Products Limited, or Dolphin, our wholly-owned subsidiary.
On January 6, 2016, the Plaintiff filed its
Statement of Claim and set out its causes of action, which included inducing a breach of contract, breach of confidence, unlawful
interference with trade or business and conspiracy to injure by unlawful means. The Plaintiff claimed, amongst others, (1) an
injunction restraining Dolphin from using, accessing, disclosing and/or publishing all confidential information of the Plaintiff
for any purpose without the Plaintiff’s consent, (2) an order that Dolphin discloses to the Plaintiff’s solicitors
all information, documents and/or items belonging to the Plaintiff in Dolphin’s possession, custody or power and (3) damages
to be assessed, interest and costs. On February 17, 2016, Dolphin filed its Defense and has denied any breach or wrongdoing on
its part. Dolphin intends to vigorously defend its position.
The Plaintiff also applied for an interim
injunction, amongst others, (1) restraining Dolphin from using, accessing, disclosing and/or publishing all confidential information
of the Plaintiff pending the trial of the action, and (2) compelling Dolphin to disclose to the Plaintiff’s solicitors all
information, documents and/or items belonging to the Plaintiff in Dolphin’s possession, custody or power. On December 24,
2015, at the initial hearing of the application for the interim injunction, the judge refused to grant an interim injunction to
be effective immediately, granted time for the parties to file their evidence and adjourned the application until May 5, 2016.
As the action is at a preliminary stage, it
is not possible to accurately predict the likely outcome of the case. No accrual was made for any possible losses in connection
with this matter.
Gaming Partners International Corporation
commenced separate proceedings in the High Court against an employee of Dolphin and obtained a search order against him. On February
26, 2016, Dolphin applied to the High Court to exclude Dolphin’s property from the scope of the said search order. The judge
adjourned the application until May 4, 2016.
Note 18.
|
Earnings / (Loss) Per Share
|
Computation of the basic and diluted loss per share from continuing
operations consisted of the following:
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
(amounts in thousands, except per share
data)
|
|
Income
|
|
|
Number of
Shares
|
|
|
Per Share
Amount
|
|
|
Loss
|
|
|
Number of
Shares
|
|
|
Per Share
Amount
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
attributable to equity shareholders
|
|
$
|
820
|
|
|
|
14,457
|
|
|
$
|
0.06
|
|
|
$
|
(2,506
|
)
|
|
|
8,188
|
|
|
$
|
(0.31
|
)
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive stock options/restricted
shares (1)
|
|
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable
to equity shareholders plus assumed conversion
|
|
$
|
820
|
|
|
|
14,485
|
|
|
$
|
0.06
|
|
|
$
|
(2,506
|
)
|
|
|
8,188
|
|
|
$
|
(0.31
|
)
|
(1)
|
For the year end December 31, 2014, there were no
differences in diluted loss per share from basic loss per share as the assumed exercise of common stock equivalents would
have an anti-dilutive effect due to losses.
|
Outstanding stock options for 740,185 and
719,399 shares of common stock were excluded from the calculation of diluted loss per share for the years ended December
31, 2015 and 2014, respectively, as their effect would have been anti-dilutive.
The following tables summarize the components
of retirement benefits included in the operating expenses under retirement benefit in the consolidated statement of comprehensive
income/loss, and accrued retirement benefits, which is based on the latest actuarial valuation report dated December 31, 2014:
The components of retirement benefits for
the years ended December 31, 2015 and 2014 in the consolidated statements of comprehensive income/loss are as follows:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
7
|
|
Interest cost on benefits obligation
|
|
|
1
|
|
|
|
1
|
|
Recognized actuarial loss
|
|
|
(11
|
)
|
|
|
(12
|
)
|
Net periodic (benefit)/cost
|
|
$
|
(2
|
)
|
|
$
|
(4
|
)
|
Movement in the present value of the retirement
obligation for the years ended December 31, 2015 and 2014 are as follows:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
$
|
29
|
|
|
$
|
21
|
|
Service cost
|
|
|
8
|
|
|
|
7
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
Actuarial gain and others
|
|
|
(15
|
)
|
|
|
—
|
|
Balance, December 31
|
|
$
|
23
|
|
|
$
|
29
|
|
Note 20.
|
Asset Retirement Obligations
|
Reconciliations of the carrying amounts of
our asset retirement obligations are as follows:
|
|
December 31,
|
|
(amounts in thousands)
|
|
2015
|
|
|
2014
|
|
Balance, January 1
|
|
$
|
92
|
|
|
$
|
—
|
|
Additions
|
|
|
—
|
|
|
|
92
|
|
Accretion expense
|
|
|
7
|
|
|
|
—
|
|
Balance, December 31
|
|
$
|
99
|
|
|
$
|
92
|
|
Note 21.
|
Accumulated Other Comprehensive Income
|
The accumulated balances in respect of other
comprehensive income consisted of the following:
(amounts in thousands)
|
|
Defined Benefit
Pension
Plan
|
|
|
Foreign
Currency
Translation
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
Balances, January 1, 2014
|
|
$
|
99
|
|
|
$
|
643
|
|
|
$
|
742
|
|
Current period other comprehensive
income/(loss)
|
|
|
(12
|
)
|
|
|
23
|
|
|
|
11
|
|
Balances, December 31, 2014
|
|
|
87
|
|
|
|
666
|
|
|
|
753
|
|
Current period other comprehensive
income/(loss)
|
|
|
3
|
|
|
|
(47
|
)
|
|
|
(44
|
)
|
Balances, December 31, 2015
|
|
$
|
90
|
|
|
$
|
619
|
|
|
$
|
709
|
|
Note 22.
|
Subsequent Events
|
On February 29, 2016, the Company
entered into a machine lease agreement with NagaWorld Limited pursuant to which NagaWorld agreed to lease from the Company
670 EGM seats and related equipment commencing March 1, 2016. Under the terms of the machine lease agreement, NagaWorld will
lease all the Company’s 670 EGM seats and related equipment in their present locations on the NagaWorld casino floor
commencing March 1, 2016. The Company will be responsible to pay the withholding tax and provide onsite machine and system
maintenance but will not provide any other operational support staff. The Company expects to incur severance costs of
approximately $600,000 to terminate the existing operational support staff.
NagaWorld will pay the Company, on a monthly
basis, a fixed fee per machine seat per day. The lease payments will be graduated for the first six months of the agreement. From
March 1 through May 31, 2016, the lease payments per machine seat per day will be $22. From June 1 through August 31, 2016, the
lease payments will be $20 per machine seat per day. Beginning September 1, 2016 and thereafter until the contract termination,
the lease payments will be $18 per machine seat per day. The agreement in ongoing in nature and NagaWorld may terminate the agreement
upon not less than 30 days’ prior written notice.
On January 27,
2016, the Company entered into a management services agreement with Melco Services Limited, a wholly-owned subsidiary of Melco
International Development Limited. The agreement was approved by the conflicts committee and audit committee of the Company’s
board of directors and pertains to the provision of specific management and administrative services by Melco Services
Limited
to the Company. The agreement became effective on January 1, 2015 and will continue until termination by either party, for any
reason, upon 30 days’ prior written notice. Total consideration for the year ended December 31, 2015 was HK$1.6million (approximately
$206,000 based on the exchange rate of HK$1 to US$0.129). In future years, the Company will pay to Melco Services
Limited
a service fee for each year to be agreed upon by the parties before March 20 of the relevant year.