ITEM 1. FINANCIAL
STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share amounts and
par value)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
10,505
|
|
|
$
|
17,788
|
|
Marketable securities
|
|
|
-
|
|
|
|
3,503
|
|
Accounts receivable, net
|
|
|
12,859
|
|
|
|
10,677
|
|
Inventories
|
|
|
15,781
|
|
|
|
10,199
|
|
Prepaid expenses
|
|
|
724
|
|
|
|
947
|
|
Deferred income tax assets
|
|
|
1,798
|
|
|
|
1,640
|
|
Other current assets
|
|
|
2,160
|
|
|
|
1,576
|
|
Total current assets
|
|
|
43,827
|
|
|
|
46,330
|
|
Property and equipment, net
|
|
|
23,283
|
|
|
|
14,102
|
|
Goodwill
|
|
|
10,292
|
|
|
|
10,292
|
|
Intangible assets, net
|
|
|
2,300
|
|
|
|
2,505
|
|
Deferred income tax assets
|
|
|
602
|
|
|
|
710
|
|
Inventories, non-current
|
|
|
609
|
|
|
|
670
|
|
Other assets, non-current
|
|
|
2,663
|
|
|
|
2,635
|
|
Total assets
|
|
$
|
83,576
|
|
|
$
|
77,244
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
4,582
|
|
|
$
|
4,498
|
|
Accrued liabilities
|
|
|
5,538
|
|
|
|
6,456
|
|
Customer deposits and deferred revenue
|
|
|
3,815
|
|
|
|
2,080
|
|
Current portion of long-term debt
|
|
|
1,359
|
|
|
|
1,343
|
|
Income taxes payable
|
|
|
1,501
|
|
|
|
824
|
|
Total current liabilities
|
|
|
16,795
|
|
|
|
15,201
|
|
Long-term debt
|
|
|
6,991
|
|
|
|
8,002
|
|
Deferred income tax liabilities
|
|
|
119
|
|
|
|
170
|
|
Other liabilities, non-current
|
|
|
1,076
|
|
|
|
83
|
|
Total liabilities
|
|
|
24,981
|
|
|
|
23,456
|
|
Commitments and contingencies - see Note 9
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, authorized 10,000,000 shares, $0.01 par value, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, authorized 30,000,000 shares, $0.01 par value, 8,219,577 shares issued and 7,928,594 shares outstanding
|
|
|
82
|
|
|
|
82
|
|
Additional paid-in capital
|
|
|
20,016
|
|
|
|
20,033
|
|
Treasury stock at cost: 290,983 shares
|
|
|
(2,263
|
)
|
|
|
(2,263
|
)
|
Retained earnings
|
|
|
42,258
|
|
|
|
37,812
|
|
Accumulated other comprehensive loss
|
|
|
(1,498
|
)
|
|
|
(1,876
|
)
|
Total stockholders' equity
|
|
|
58,595
|
|
|
|
53,788
|
|
Total liabilities and stockholders' equity
|
|
$
|
83,576
|
|
|
$
|
77,244
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited)
(in thousands, except per-share amounts)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
22,559
|
|
|
$
|
19,844
|
|
|
$
|
58,996
|
|
|
$
|
54,749
|
|
Cost of revenues
|
|
|
15,036
|
|
|
|
13,391
|
|
|
|
40,187
|
|
|
|
37,338
|
|
Gross profit
|
|
|
7,523
|
|
|
|
6,453
|
|
|
|
18,809
|
|
|
|
17,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
|
1,613
|
|
|
|
1,616
|
|
|
|
4,711
|
|
|
|
4,800
|
|
General and administrative
|
|
|
2,129
|
|
|
|
2,565
|
|
|
|
6,821
|
|
|
|
7,448
|
|
Research and development
|
|
|
297
|
|
|
|
250
|
|
|
|
955
|
|
|
|
900
|
|
Operating income
|
|
|
3,484
|
|
|
|
2,022
|
|
|
|
6,322
|
|
|
|
4,263
|
|
Other income (expense), net
|
|
|
43
|
|
|
|
127
|
|
|
|
(32
|
)
|
|
|
59
|
|
Income before income taxes
|
|
|
3,527
|
|
|
|
2,149
|
|
|
|
6,290
|
|
|
|
4,322
|
|
Income tax provision
|
|
|
1,080
|
|
|
|
474
|
|
|
|
1,844
|
|
|
|
832
|
|
Net income
|
|
$
|
2,447
|
|
|
$
|
1,675
|
|
|
$
|
4,446
|
|
|
$
|
3,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.31
|
|
|
$
|
0.21
|
|
|
$
|
0.56
|
|
|
$
|
0.44
|
|
Diluted
|
|
$
|
0.30
|
|
|
$
|
0.21
|
|
|
$
|
0.55
|
|
|
$
|
0.43
|
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,929
|
|
|
|
7,929
|
|
|
|
7,929
|
|
|
|
7,924
|
|
Diluted
|
|
|
8,057
|
|
|
|
8,049
|
|
|
|
8,039
|
|
|
|
8,038
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(unaudited)
(in thousands)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
2,447
|
|
|
$
|
1,675
|
|
|
$
|
4,446
|
|
|
$
|
3,490
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
126
|
|
|
|
177
|
|
|
|
378
|
|
|
|
(1,143
|
)
|
Other comprehensive income (loss)
|
|
|
126
|
|
|
|
177
|
|
|
|
378
|
|
|
|
(1,143
|
)
|
Total comprehensive income
|
|
$
|
2,573
|
|
|
$
|
1,852
|
|
|
$
|
4,824
|
|
|
$
|
2,347
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
(Loss) Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2015
|
|
|
7,916,094
|
|
|
$
|
82
|
|
|
$
|
19,886
|
|
|
$
|
(2,263
|
)
|
|
$
|
30,881
|
|
|
$
|
(321
|
)
|
|
$
|
48,265
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,490
|
|
|
|
-
|
|
|
|
3,490
|
|
Common stock options exercised
|
|
|
12,500
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
66
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
66
|
|
Tax impact of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,143
|
)
|
|
|
(1,143
|
)
|
Balance, September 30, 2015
|
|
|
7,928,594
|
|
|
$
|
82
|
|
|
$
|
20,042
|
|
|
$
|
(2,263
|
)
|
|
$
|
34,371
|
|
|
$
|
(1,464
|
)
|
|
$
|
50,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2016
|
|
|
7,928,594
|
|
|
$
|
82
|
|
|
$
|
20,033
|
|
|
$
|
(2,263
|
)
|
|
$
|
37,812
|
|
|
$
|
(1,876
|
)
|
|
$
|
53,788
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,446
|
|
|
|
-
|
|
|
|
4,446
|
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
Tax impact of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(87
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
378
|
|
|
|
378
|
|
Balance, September 30, 2016
|
|
|
7,928,594
|
|
|
$
|
82
|
|
|
$
|
20,016
|
|
|
$
|
(2,263
|
)
|
|
$
|
42,258
|
|
|
$
|
(1,498
|
)
|
|
$
|
58,595
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
(in thousands)
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,446
|
|
|
$
|
3,490
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
1,987
|
|
|
|
1,950
|
|
Amortization of intangible assets
|
|
|
205
|
|
|
|
218
|
|
Provision for bad debt
|
|
|
86
|
|
|
|
744
|
|
Deferred income taxes
|
|
|
(102
|
)
|
|
|
(574
|
)
|
Stock compensation expense
|
|
|
70
|
|
|
|
66
|
|
Tax impact of stock options
|
|
|
(87
|
)
|
|
|
3
|
|
Gain on sale or disposal of property and equipment
|
|
|
-
|
|
|
|
(12
|
)
|
Gain on sale of marketable securities
|
|
|
(1
|
)
|
|
|
(5
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,265
|
)
|
|
|
(1,108
|
)
|
Inventories
|
|
|
(5,421
|
)
|
|
|
(1,743
|
)
|
Prepaid expenses and other current assets
|
|
|
(331
|
)
|
|
|
(624
|
)
|
Non-current other assets
|
|
|
16
|
|
|
|
138
|
|
Accounts payable
|
|
|
36
|
|
|
|
1,022
|
|
Accrued liabilities
|
|
|
(2,113
|
)
|
|
|
373
|
|
Customer deposits and deferred revenue
|
|
|
1,731
|
|
|
|
4,258
|
|
Income taxes payable
|
|
|
678
|
|
|
|
515
|
|
Net cash (used in) provided by operating activities
|
|
|
(1,065
|
)
|
|
|
8,711
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
-
|
|
|
|
(7,136
|
)
|
Proceeds from sale of marketable securities
|
|
|
3,584
|
|
|
|
5,132
|
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
42
|
|
Capital expenditures
|
|
|
(8,921
|
)
|
|
|
(2,299
|
)
|
Net cash used in investing activities
|
|
|
(5,337
|
)
|
|
|
(4,261
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Cash paid for demand line of credit
|
|
|
-
|
|
|
|
(10,000
|
)
|
Proceeds from debt obligation
|
|
|
-
|
|
|
|
10,000
|
|
Principal payments on long-term debt
|
|
|
(995
|
)
|
|
|
(325
|
)
|
Proceeds from exercise of stock options
|
|
|
-
|
|
|
|
87
|
|
Net cash used in financing activities
|
|
|
(995
|
)
|
|
|
(238
|
)
|
Effect of exchange rate changes on cash
|
|
|
114
|
|
|
|
(352
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(7,283
|
)
|
|
|
3,860
|
|
Cash and cash equivalents, beginning of period
|
|
|
17,788
|
|
|
|
8,969
|
|
Cash and cash equivalents, end of period
|
|
$
|
10,505
|
|
|
$
|
12,829
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
183
|
|
|
$
|
188
|
|
Cash paid for income taxes, net of refunds
|
|
$
|
1,218
|
|
|
$
|
560
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Property and equipment acquired through accrued and
non-current other liabilities
|
|
$
|
2,178
|
|
|
$
|
46
|
|
See notes to unaudited condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(unaudited)
Note 1. Nature of Business and Significant Accounting
Policies
Organization and Nature of Business
Gaming Partners International Corporation
(GPIC or the Company) is headquartered in North Las Vegas, Nevada. Our business activities include the manufacture and sale of
casino currencies, playing cards, table layouts, gaming furniture, table accessories, dice, roulette wheels, and radio frequency
identification (RFID) readers and software, all of which are used with casino table games such as blackjack, poker, baccarat, craps,
and roulette.
The Company has three operating subsidiaries:
Gaming Partners International USA, Inc. (GPI USA) (including GPI Mexicana S.A. de C.V. (GPI Mexicana), our maquiladora manufacturing
operation in Mexico, and GPI USA Blue Springs, our manufacturing facility in Missouri); Gaming Partners International SAS (GPI
SAS); and Gaming Partners International Asia Limited (GPI Asia). Our subsidiaries have the following distribution and
product focus:
|
•
|
GPI USA sells in the United States, Canada, the Caribbean, and Latin America. GPI USA sells our full product line, with most
of the products manufactured in either San Luis Rio Colorado, Mexico, or Blue Springs, Missouri. The remainder of our products
is either manufactured in France or purchased from United States vendors. We warehouse inventory in San Luis, Arizona; Blue Springs,
Missouri; and North Las Vegas, Nevada. We have sales offices in North Las Vegas, Nevada; Atlantic City, New Jersey; Gulfport, Mississippi;
and Blue Springs, Missouri.
|
|
•
|
GPI SAS sells primarily in Europe and Africa out of its office in Beaune, France. GPI SAS predominantly sells casino currencies,
including both American-style, known as chips, and European-style, known as plaques and jetons. Most of the products sold by GPI
SAS are manufactured in France, with the remainder manufactured in Mexico.
|
|
•
|
GPI Asia, located in Macau S.A.R., China, distributes our full product line in the Asia-Pacific region. GPI Asia also sells
table layouts that it manufactures in Macau S.A.R.
|
Significant Accounting Policies
Basis of Consolidation and Presentation.
The accompanying
unaudited condensed consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI SAS, GPI
USA, and GPI Asia. All material intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed
consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP) for interim financial information and in the form prescribed by the Securities
and Exchange Commission (SEC), and do not include all of the information and notes required by U.S. GAAP for complete financial
statements. These statements should be read in conjunction with our annual audited consolidated financial statements and related
notes included in our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with
the SEC on March 24, 2016.
These unaudited condensed consolidated financial
statements, in the opinion of management, reflect only normal and recurring adjustments necessary for a fair presentation of results
and cash flows for the interim periods presented. The results of operations for an interim period are not necessarily indicative
of the results for any other interim period or a full fiscal year.
Recently Issued Accounting Standards
In May 2016, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) 2016-12,
Revenue from Contracts with Customers (Topic 606)
, amending
the new revenue recognition standard that it issued in 2014. The amendments do not change the core principles of the standard,
but clarify the guidance on assessing collectability, presenting sales taxes, measuring noncash consideration, and certain transition
matters. The ASU becomes effective concurrently with ASU 2014-09. The Company has not adopted this guidance for 2016 and is currently
evaluating the impact of adoption.
In March 2016, the FASB issued ASU 2016-09,
Compensation – Stock Compensation (Topic 718)
, to simplify several aspects of the accounting for share-based payment
award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c)
classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. The Company has not adopted this guidance for 2016 and is currently
evaluating the impact of adoption.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842),
to increase transparency and comparability among organizations by reporting lease assets and lease liabilities,
both finance (capital) and operating leases, on the balance sheet and disclosing key information about leasing arrangements. For
public companies, the updated guidance is effective for the financial statements issued for fiscal years beginning after December
15, 2018 (including interim periods within those fiscal years). Early adoption is permitted. The Company has not adopted this guidance
for 2016 and is currently evaluating the impact of adoption.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
. The guidance eliminates the current requirement
for organizations to present deferred tax assets and liabilities as current and noncurrent in a classified balance sheet. Instead,
organizations will be required to classify all deferred tax assets and liabilities as noncurrent. ASU 2015-17 shall be effective
for public business entities for financial statements issued for annual periods beginning after December 15, 2016, and interim
periods within those annual periods. The Company has not adopted this guidance for 2016.
In July 2015, the FASB issued ASU 2015-11,
Inventory (Topic 330): Simplifying the Measurement of Inventory
. The guidance applies to any entity measuring inventory
using first-in, first-out or average cost. The main provision of this guidance requires an entity to measure inventory within the
scope of this ASU at the lower of cost and net realizable value. This guidance is effective for fiscal years beginning after December
15, 2016, and interim periods within fiscal years beginning after December 15, 2017. A reporting entity should apply the amendments
prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company has
not adopted this guidance for 2016 and is currently evaluating the impact of adoption.
In May 2014, the FASB issued ASU 2014-09,
Revenues from Contracts with Customers (Topic 606)
. This guidance applies to any entity that either enters into contracts
with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts
are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. This guidance supersedes existing revenue recognition guidance, including
most industry-specific guidance, as well as certain related guidance on accounting for contract costs. ASU 2016-08 comments on
the effective date and transition of ASU 2014-09, stating public entities should apply the amendments in ASU 2014-09 for annual
reporting periods beginning after December 15, 2017, including interim reporting periods therein. Early application is permitted
though in no case could the new guidance be applied before the original effective date. The Company has not adopted this guidance
for 2016 and is currently evaluating the impact of adoption.
Note 2. Dolphin asset acquisition
On May 11, 2016, the Company entered into
and closed an Asset Purchase Agreement to purchase certain assets used in the design and manufacture of casino currency from Dolphin
Products Limited (Dolphin), a wholly owned subsidiary of Entertainment Gaming Asia Inc. (EGT). The purchased assets were substantially
equipment and inventory.
The acquisition was treated as an asset
acquisition. The total cost of the acquisition was $7.3 million, with $4.0 million paid at closing, $0.5 million paid in August
2016, $0.6 million paid by September 30, 2016 and $1.1 million to be paid on each of the first two anniversaries of the closing.
The acquisition cost has been allocated as follows (in thousands):
|
|
Assets
acquired
|
|
Property and equipment
|
|
$
|
5,625
|
|
Inventory
|
|
|
1,688
|
|
|
|
|
|
|
Total acquired
|
|
$
|
7,313
|
|
In connection with the acquisition, the
Company and EGT settled and released each other from all claims related to the civil actions initiated by the Company against Dolphin
in the High Court of the Hong Kong Special Administrative Region in December 2015, as described further in Part II, Item 1, “Legal
Proceedings” of this Quarterly Report on Form 10-Q.
Note 3. Cash, Cash Equivalents, and Marketable Securities
We hold our cash, cash equivalents, and
marketable securities in various financial institutions in the countries shown below. Substantially all accounts have balances
in excess of government-insured limits. The following table summarizes our holdings (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Cash and
Cash
Equivalents
|
|
|
Marketable
Securities
|
|
|
Total
|
|
|
Cash and
Cash
Equivalents
|
|
|
Marketable
Securities
|
|
|
Total
|
|
Macau S.A.R., China
|
|
$
|
4,996
|
|
|
$
|
-
|
|
|
$
|
4,996
|
|
|
$
|
4,040
|
|
|
$
|
-
|
|
|
$
|
4,040
|
|
United States (including Mexico)
|
|
|
3,797
|
|
|
|
-
|
|
|
|
3,797
|
|
|
|
12,861
|
|
|
|
-
|
|
|
|
12,861
|
|
France
|
|
|
1,712
|
|
|
|
-
|
|
|
|
1,712
|
|
|
|
887
|
|
|
|
3,503
|
|
|
|
4,390
|
|
Total
|
|
$
|
10,505
|
|
|
$
|
-
|
|
|
$
|
10,505
|
|
|
$
|
17,788
|
|
|
$
|
3,503
|
|
|
$
|
21,291
|
|
Available-for-sale marketable securities
as of 31 December, 2015 consist of investments in securities such as certificates of deposit offered by French banks and bond mutual
funds (in thousands):
|
|
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair
Value
|
|
Certificates of deposit
|
|
$
|
2,727
|
|
|
$
|
-
|
|
|
$
|
2,727
|
|
Bond mutual funds
|
|
|
776
|
|
|
|
-
|
|
|
|
776
|
|
Total marketable securities
|
|
$
|
3,503
|
|
|
$
|
-
|
|
|
$
|
3,503
|
|
We present our marketable securities at
their estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. We have determined that all of our marketable
securities are Level 1 financial instruments, with asset values recorded at quoted prices in active markets for identical assets.
Note 4. Accounts Receivable and Allowance for Doubtful
Accounts
At September 30, 2016, two casino customers
accounted for 16% and 14% of our accounts receivable balance. At December 31, 2015, one casino customer accounted for 33% of
our accounts receivable balance.
Note 5. Inventories
Inventories consist of the following (in
thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Raw materials
|
|
$
|
10,443
|
|
|
$
|
7,653
|
|
Work in progress
|
|
|
2,493
|
|
|
|
668
|
|
Finished goods
|
|
|
3,454
|
|
|
|
2,548
|
|
Total inventories
|
|
$
|
16,390
|
|
|
$
|
10,869
|
|
We classified a portion of our inventories
as non-current because we do not expect this portion to be used within one year. The classification of our inventories on
our unaudited condensed consolidated balance sheets is as follows (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Current
|
|
$
|
15,781
|
|
|
$
|
10,199
|
|
Non-current
|
|
|
609
|
|
|
|
670
|
|
Total inventories
|
|
$
|
16,390
|
|
|
$
|
10,869
|
|
Note 6. Property and Equipment
Property and equipment consists of the following
(in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Land
|
|
$
|
652
|
|
|
$
|
520
|
|
Buildings and improvements
|
|
|
7,770
|
|
|
|
6,839
|
|
Equipment and furniture
|
|
|
33,013
|
|
|
|
26,912
|
|
Vehicles
|
|
|
399
|
|
|
|
403
|
|
Construction in progress
|
|
|
4,742
|
|
|
|
1,403
|
|
|
|
|
46,576
|
|
|
|
36,077
|
|
Less accumulated depreciation
|
|
|
(23,293
|
)
|
|
|
(21,975
|
)
|
Property and equipment, net
|
|
$
|
23,283
|
|
|
$
|
14,102
|
|
Depreciation expense for the three months ended September 30,
2016 and 2015 was $658,000 and $633,000, respectively. Depreciation expense for the nine months ended September 30, 2016 and 2015
was $1,987,000 and $1,950,000, respectively.
Note 7. Goodwill and Intangible Assets
We had goodwill valued
at $10,292,000 as of September 30, 2016 and December 31, 2015.
Intangible assets consist
of the following (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accum.
Amort.
|
|
|
Net
Carrying
Amount
|
|
|
Gross
Carrying
Amount
|
|
|
Accum.
Amort.
|
|
|
Net
Carrying
Amount
|
|
Trademarks
|
|
$
|
1,772
|
|
|
$
|
(548
|
)
|
|
$
|
1,224
|
|
|
$
|
1,772
|
|
|
$
|
(454
|
)
|
|
$
|
1,318
|
|
Customer list
|
|
|
1,323
|
|
|
|
(324
|
)
|
|
|
999
|
|
|
|
1,323
|
|
|
|
(245
|
)
|
|
|
1,078
|
|
Patents
|
|
|
542
|
|
|
|
(525
|
)
|
|
|
17
|
|
|
|
542
|
|
|
|
(520
|
)
|
|
|
22
|
|
Other intangible assets
|
|
|
372
|
|
|
|
(312
|
)
|
|
|
60
|
|
|
|
372
|
|
|
|
(285
|
)
|
|
|
87
|
|
Total intangible assets
|
|
$
|
4,009
|
|
|
$
|
(1,709
|
)
|
|
$
|
2,300
|
|
|
$
|
4,009
|
|
|
$
|
(1,504
|
)
|
|
$
|
2,505
|
|
Amortization expense for intangible assets for the three months
ended September 30, 2016 and 2015 was $68,000 and $69,000, respectively. Amortization expense for intangible assets for the nine
months ended September 30, 2016 and 2015 was $205,000 and $218,000, respectively.
Note 8. Debt
On June 26, 2015, the Company entered into
a Credit Agreement with Nevada State Bank to borrow a combined $15.0 million, consisting of a $10.0 million seven-year Term Loan
and a $5.0 million five-year Revolving Loan. The Company borrowed the full amount under the Term Loan and has not drawn on funds
under the Revolving Loan. The Term Loan will mature on June 26, 2022, and the Revolving Loan will mature on June 26, 2020.
Interest on funds borrowed
under the Term Loan and the Revolving Loan are charged at a rate per annum equal to LIBOR plus 2.25%. The Term Loan has a straight-line
seven year amortization schedule.
At September 30, 2016,
estimated repayment obligations for the principal balance of long-term debt are as follows (in thousands):
Year Ending
|
|
Long-term Debt
|
|
2016 (remaining 3 months)
|
|
$
|
336
|
|
2017
|
|
|
1,368
|
|
2018
|
|
|
1,407
|
|
2019
|
|
|
1,446
|
|
2020
|
|
|
1,487
|
|
Thereafter
|
|
|
2,306
|
|
Total
|
|
$
|
8,350
|
|
Note 9. Commitments and Contingencies
Operating Lease Commitments
The Company has various operating leases
related primarily to equipment and manufacturing and office space.
On January 1, 2016, the Company commenced
payments on a lease for its new corporate headquarters with payments of approximately $16,000 per month.
At September 30, 2016, minimum lease payment
obligations are as follows (in thousands):
|
|
Minimum
|
|
|
|
Lease
|
|
Year Ending
|
|
Payments
|
|
2016 (remaining 3 months)
|
|
$
|
263
|
|
2017
|
|
|
949
|
|
2018
|
|
|
763
|
|
2019
|
|
|
310
|
|
2020
|
|
|
267
|
|
Thereafter
|
|
|
427
|
|
Total
|
|
$
|
2,979
|
|
Legal Proceedings and Contingencies
From time to time we are engaged in disputes
and claims that arose in the normal course of business. We believe the ultimate outcome of these proceedings will not have a material
adverse impact on our consolidated financial position or results of operations, but the outcome of these actions is inherently
difficult to predict. There can be no assurance that we will prevail in any such litigation. Liabilities for material claims against
us are accrued when a loss is considered probable and can be reasonably estimated. Legal costs associated with claims are expensed
as incurred. See also the discussion at Part II, Item 1, “Legal Proceedings” of this Quarterly Report on Form 10-Q.
Note 10. Geographic and Product Line Information
We manufacture and sell casino table game
equipment in one operating segment - casino table game products. Although the Company derives its revenues from a number of different
product lines, the Company neither allocates resources based on the operating results from the individual product lines, nor manages
each individual product line as a separate business unit. Our chief operating decision maker is our Chief Executive Officer (CEO).
The CEO manages our operations on a consolidated basis to make decisions about overall corporate resource allocation and to assess
overall corporate profitability. Our CEO is also the chief operating manager for each of our entities in the United States, France,
and Macau S.A.R.; that is, the individual locations do not have “segment” or “product line” managers who
report to our CEO.
The following tables present our net sales
by geographic area (dollars in thousands):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
13,650
|
|
|
|
60.6
|
%
|
|
$
|
13,360
|
|
|
|
67.4
|
%
|
Asia-Pacific
|
|
|
8,695
|
|
|
|
38.5
|
%
|
|
|
4,968
|
|
|
|
25.0
|
%
|
Europe and Africa
|
|
|
214
|
|
|
|
0.9
|
%
|
|
|
1,516
|
|
|
|
7.6
|
%
|
Total
|
|
$
|
22,559
|
|
|
|
100.0
|
%
|
|
$
|
19,844
|
|
|
|
100.0
|
%
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
42,144
|
|
|
|
71.5
|
%
|
|
$
|
38,947
|
|
|
|
71.1
|
%
|
Asia-Pacific
|
|
|
14,052
|
|
|
|
23.8
|
%
|
|
|
13,173
|
|
|
|
24.1
|
%
|
Europe and Africa
|
|
|
2,800
|
|
|
|
4.7
|
%
|
|
|
2,629
|
|
|
|
4.8
|
%
|
Total
|
|
$
|
58,996
|
|
|
|
100.0
|
%
|
|
$
|
54,749
|
|
|
|
100.0
|
%
|
The following tables present our net sales
by product line (dollars in thousands):
|
|
Three Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino currency without RFID
|
|
$
|
2,999
|
|
|
|
13.3
|
%
|
|
$
|
6,476
|
|
|
|
32.6
|
%
|
Casino currency with RFID
|
|
|
5,797
|
|
|
|
25.7
|
%
|
|
|
850
|
|
|
|
4.3
|
%
|
Total casino currency
|
|
|
8,796
|
|
|
|
39.0
|
%
|
|
|
7,326
|
|
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Playing cards
|
|
|
6,876
|
|
|
|
30.4
|
%
|
|
|
6,628
|
|
|
|
33.4
|
%
|
Table accessories and other products
|
|
|
1,961
|
|
|
|
8.7
|
%
|
|
|
1,804
|
|
|
|
9.1
|
%
|
Table layouts
|
|
|
1,231
|
|
|
|
5.4
|
%
|
|
|
1,630
|
|
|
|
8.2
|
%
|
Gaming furniture
|
|
|
1,053
|
|
|
|
4.7
|
%
|
|
|
390
|
|
|
|
2.0
|
%
|
RFID solutions
|
|
|
1,052
|
|
|
|
4.7
|
%
|
|
|
485
|
|
|
|
2.4
|
%
|
Dice
|
|
|
672
|
|
|
|
3.0
|
%
|
|
|
706
|
|
|
|
3.6
|
%
|
Shipping
|
|
|
918
|
|
|
|
4.1
|
%
|
|
|
875
|
|
|
|
4.4
|
%
|
Total
|
|
$
|
22,559
|
|
|
|
100.0
|
%
|
|
$
|
19,844
|
|
|
|
100.0
|
%
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino currency without RFID
|
|
$
|
11,478
|
|
|
|
19.5
|
%
|
|
$
|
13,102
|
|
|
|
23.9
|
%
|
Casino currency with RFID
|
|
|
9,322
|
|
|
|
15.8
|
%
|
|
|
5,507
|
|
|
|
10.1
|
%
|
Total casino currency
|
|
|
20,800
|
|
|
|
35.3
|
%
|
|
|
18,609
|
|
|
|
34.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Playing cards
|
|
|
19,922
|
|
|
|
33.8
|
%
|
|
|
18,255
|
|
|
|
33.4
|
%
|
Table accessories and other products
|
|
|
5,114
|
|
|
|
8.6
|
%
|
|
|
5,372
|
|
|
|
9.8
|
%
|
Table layouts
|
|
|
3,947
|
|
|
|
6.7
|
%
|
|
|
4,754
|
|
|
|
8.7
|
%
|
RFID solutions
|
|
|
2,576
|
|
|
|
4.4
|
%
|
|
|
1,939
|
|
|
|
3.5
|
%
|
Dice
|
|
|
2,101
|
|
|
|
3.6
|
%
|
|
|
2,043
|
|
|
|
3.7
|
%
|
Gaming furniture
|
|
|
2,090
|
|
|
|
3.5
|
%
|
|
|
1,353
|
|
|
|
2.5
|
%
|
Shipping
|
|
|
2,446
|
|
|
|
4.1
|
%
|
|
|
2,424
|
|
|
|
4.4
|
%
|
Total
|
|
$
|
58,996
|
|
|
|
100.0
|
%
|
|
$
|
54,749
|
|
|
|
100.0
|
%
|
For the nine month periods ended September
30, 2016, and September 30, 2015, no customer accounted for more than 10% of the Company’s revenues.
The following table presents our property
and equipment by geographic area (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
United States
|
|
$
|
10,780
|
|
|
$
|
7,000
|
|
Mexico
|
|
|
7,033
|
|
|
|
3,249
|
|
France
|
|
|
5,143
|
|
|
|
3,544
|
|
Asia
|
|
|
327
|
|
|
|
309
|
|
Total
|
|
$
|
23,283
|
|
|
$
|
14,102
|
|
The following table presents our intangible
assets by geographic area (in thousands):
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,830
|
|
|
$
|
2,006
|
|
Asia
|
|
|
470
|
|
|
|
497
|
|
France
|
|
|
-
|
|
|
|
2
|
|
Total
|
|
$
|
2,300
|
|
|
$
|
2,505
|
|
Note 11. Earnings per Share
Shares used to compute basic and diluted
earnings per share from operations are as follows (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Weighted-average number of common shares outstanding - basic
|
|
|
7,929
|
|
|
|
7,929
|
|
|
|
7,929
|
|
|
|
7,924
|
|
Potential dilution from equity options granted
|
|
|
128
|
|
|
|
120
|
|
|
|
110
|
|
|
|
114
|
|
Weighted-average number of common shares outstanding - diluted
|
|
|
8,057
|
|
|
|
8,049
|
|
|
|
8,039
|
|
|
|
8,038
|
|
We have certain outstanding stock options
to purchase common stock which have exercise prices greater than the average market price. These anti-dilutive options have been
excluded from the computation of diluted net income per share (in thousands):
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Outstanding anti-dilutive options
|
|
|
16
|
|
|
|
36
|
|
|
|
39
|
|
|
|
47
|
|
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to
assist in the understanding of our consolidated results of operations and our present financial condition and should be read in
conjunction with our unaudited condensed consolidated financial statements and related notes and the other financial information
included in this Quarterly Report on Form 10-Q. The unaudited condensed consolidated financial statements and the accompanying
notes contain additional detailed information that should be referred to when reviewing this material. Statements in this discussion
may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ
significantly from those expressed. See Item 1A. “Risk Factors,” of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, filed with the SEC on March 24, 2016.
For a more extensive overview and information
on our products, as well as general information, see Item 1, “Business” of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2015, filed with the SEC on March 24, 2016.
Overview of Our Business
We custom manufacture and supply casino
currency, with multiple security and design options, playing cards, table layouts, gaming furniture, table accessories, dice, and
roulette wheels. We also provide multiple RFID technologies including low- and high-frequency RFID casino currency, RFID solutions
for casino currency (consisting of low- and high-frequency RFID casino currency readers, antennas, casino currency authentication
software, casino currency inventory software applications, and software maintenance services). Our products and services are used
with casino table games such as blackjack, poker, baccarat, craps, and roulette. GPIC sells its casino table game equipment under
the brand names of Paulson
®
, Bourgogne et Grasset
®
(BG
®
), Gemaco
®
,
Blue Chip
®
(BC
®
), Dolphin
®
and Bud Jones
®
.
GPIC is headquartered in North Las
Vegas, Nevada, with offices in Blue Springs, Missouri; Atlantic City, New Jersey; Gulfport, Mississippi; San Luis Rio
Colorado, Mexico; Beaune, France; and Macau S.A.R., China. We primarily sell our products to licensed casinos worldwide. We
operate in one segment and have three operating subsidiaries: GPI USA (including GPI Mexicana, our maquiladora manufacturing
operation in Mexico, and our manufacturing operation in Blue Springs, Missouri), GPI SAS, and GPI Asia. Our subsidiaries have
the following distribution and product focus:
|
•
|
GPI USA sells in the United States, Canada, the Caribbean,
and Latin America. GPI USA sells our full product line, with most of the products manufactured in either San Luis Rio Colorado,
Mexico, or Blue Springs, Missouri. The remainder of our products are either manufactured in France or purchased from United States
vendors. We warehouse inventory in San Luis, Arizona; Blue Springs, Missouri; and North Las Vegas, Nevada. We have sales offices
in North Las Vegas, Nevada; Atlantic City, New Jersey; Gulfport, Mississippi; and Blue Springs, Missouri.
|
|
•
|
GPI SAS sells primarily in Europe and Africa out of its office in Beaune, France. GPI SAS predominantly sells casino currencies,
including both American-style, known as chips, and European-style, known as plaques and jetons. Most of the products sold by GPI
SAS are manufactured in France, with the remainder manufactured in Mexico.
|
|
•
|
GPI Asia, located in Macau S.A.R., China, distributes our full product line in the Asia-Pacific region. GPI Asia also sells
table layouts that it manufactures in Macau S.A.R.
|
Historically, we have experienced significant
fluctuations in quarterly results primarily due to large, discrete currency orders as a result of casino openings, casino expansions,
or large replacement orders. However, we continue to experience steady growth in our consumable products which now represent a
significant percentage of our overall revenues. Our backlog, which reflects signed orders scheduled to be delivered in the following
twelve months, was as follows at September 30, 2016 and September 30, 2015 (in millions):
|
|
GPI Asia
|
|
|
GPI USA
|
|
|
GPI SAS
|
|
|
Total
|
|
September 30, 2016
|
|
$
|
10.1 million
|
|
|
$
|
8.4 million
|
|
|
$
|
0.6 million
|
|
|
$
|
19.1 million
|
|
September 30, 2015
|
|
$
|
9.1 million
|
|
|
$
|
7.7 million
|
|
|
$
|
0.4 million
|
|
|
$
|
17.2 million
|
|
Outlook
The acquisition of
Dolphin’s assets strengthened our position in the growing Asian market. We anticipate shipping our first orders under the
Dolphin brand in the fourth quarter of 2016. While there are a number of casinos scheduled to open in 2016 and 2017 in Macau, continuing
uncertainty arising from regulators’ decisions on the timing of openings and the number of tables allotted to each new casino
will impact both the amount of revenue we recognize and the timing of revenue recognition.
In the Americas, we have continued to experience
steady growth in our playing cards product line. This has the promise of continuing to provide the Company with a more consistent
and predictable revenue stream. To support this growth and to allow for additional growth in the future, we anticipate finalizing
the expansion of our Blue Springs manufacturing facility in the fourth quarter of 2016.
Financial and Operational Highlights
For the third quarter of 2016, our revenues
were $22.6 million, an increase of $2.8 million, or 13.7%, compared to revenues of $19.8 million for the same period of 2015. For
the third quarter of 2016, our net income was $2.4 million, an increase of $0.7 million compared to net income of $1.7 million
for the same period in 2015.
For the first nine months of 2016, our revenues
were $59.0 million, an increase of $4.3 million, or 7.8%, compared to revenues of $54.7 million for the same period of 2015. For
the first nine months of 2016, our net income was $4.4 million, compared to net income of $3.5 million for the same period of 2015.
The increase in our net income for the three
months and the nine months ended September 30, 2016, compared to the same periods in 2015, is primarily due to an increase in casino
currency sales and a decrease in our general and administrative expenses.
Other Matters
See the discussion under “Contractual
Obligations and Commercial Commitments” in Part I, Item 2, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” of this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING ESTIMATES
Our condensed consolidated financial statements
included in this Quarterly Report on Form 10-Q, while unaudited, have been prepared in accordance with U.S. GAAP. Financial statement
preparation requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and disclosure of contingent assets and liabilities. The accompanying unaudited condensed consolidated financial
statements are prepared using the same critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2015, filed with the SEC on March 24, 2016. Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
RESULTS OF OPERATIONS
The following tables summarize
selected items from our unaudited condensed consolidated statements of operations (dollars in thousands) and as a percentage
of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenues
|
|
$
|
22,559
|
|
|
|
100.0
|
%
|
|
$
|
19,844
|
|
|
|
100.0
|
%
|
|
$
|
2,715
|
|
|
|
13.7
|
%
|
Cost of revenues
|
|
|
15,036
|
|
|
|
66.7
|
%
|
|
|
13,391
|
|
|
|
67.5
|
%
|
|
|
1,645
|
|
|
|
12.3
|
%
|
Gross profit
|
|
|
7,523
|
|
|
|
33.3
|
%
|
|
|
6,453
|
|
|
|
32.5
|
%
|
|
|
1,070
|
|
|
|
16.6
|
%
|
Selling, administrative, and research and development
|
|
|
4,039
|
|
|
|
17.9
|
%
|
|
|
4,431
|
|
|
|
22.3
|
%
|
|
|
(392
|
)
|
|
|
(8.8
|
)%
|
Operating income
|
|
|
3,484
|
|
|
|
15.4
|
%
|
|
|
2,022
|
|
|
|
10.2
|
%
|
|
|
1,462
|
|
|
|
72.3
|
%
|
Other income (expense), net
|
|
|
43
|
|
|
|
0.2
|
%
|
|
|
127
|
|
|
|
0.6
|
%
|
|
|
(84
|
)
|
|
|
(66.1
|
)%
|
Income before income taxes
|
|
|
3,527
|
|
|
|
15.6
|
%
|
|
|
2,149
|
|
|
|
10.8
|
%
|
|
|
1,378
|
|
|
|
64.1
|
%
|
Income tax provision
|
|
|
1,080
|
|
|
|
4.8
|
%
|
|
|
474
|
|
|
|
2.4
|
%
|
|
|
606
|
|
|
|
(127.8
|
)%
|
Net income
|
|
$
|
2,447
|
|
|
|
10.8
|
%
|
|
$
|
1,675
|
|
|
|
8.4
|
%
|
|
$
|
772
|
|
|
|
46.1
|
%
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenues
|
|
$
|
58,996
|
|
|
|
100.0
|
%
|
|
$
|
54,749
|
|
|
|
100.0
|
%
|
|
$
|
4,247
|
|
|
|
7.8
|
%
|
Cost of revenues
|
|
|
40,187
|
|
|
|
68.1
|
%
|
|
|
37,338
|
|
|
|
68.2
|
%
|
|
|
2,849
|
|
|
|
7.6
|
%
|
Gross profit
|
|
|
18,809
|
|
|
|
31.9
|
%
|
|
|
17,411
|
|
|
|
31.8
|
%
|
|
|
1,398
|
|
|
|
8.0
|
%
|
Selling, administrative, and research and development
|
|
|
12,487
|
|
|
|
21.2
|
%
|
|
|
13,148
|
|
|
|
24.0
|
%
|
|
|
(661
|
)
|
|
|
(5.0
|
)%
|
Operating income
|
|
|
6,322
|
|
|
|
10.7
|
%
|
|
|
4,263
|
|
|
|
7.8
|
%
|
|
|
2,059
|
|
|
|
48.3
|
%
|
Other (expense) income, net
|
|
|
(32
|
)
|
|
|
(0.1
|
)%
|
|
|
59
|
|
|
|
0.1
|
%
|
|
|
(91
|
)
|
|
|
(154.2
|
)%
|
Income before income taxes
|
|
|
6,290
|
|
|
|
10.6
|
%
|
|
|
4,322
|
|
|
|
7.9
|
%
|
|
|
1,968
|
|
|
|
45.5
|
%
|
Income tax provision
|
|
|
1,844
|
|
|
|
3.1
|
%
|
|
|
832
|
|
|
|
1.5
|
%
|
|
|
1,012
|
|
|
|
121.6
|
%
|
Net income
|
|
$
|
4,446
|
|
|
|
7.5
|
%
|
|
$
|
3,490
|
|
|
|
6.4
|
%
|
|
$
|
956
|
|
|
|
27.4
|
%
|
The following tables present certain data
by geographic area (dollars in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
13,650
|
|
|
|
60.6
|
%
|
|
$
|
13,360
|
|
|
|
67.4
|
%
|
|
$
|
290
|
|
|
|
2.2
|
%
|
Asia-Pacific
|
|
|
8,695
|
|
|
|
38.5
|
%
|
|
|
4,968
|
|
|
|
25.0
|
%
|
|
|
3,727
|
|
|
|
75.0
|
%
|
Europe and Africa
|
|
|
214
|
|
|
|
0.9
|
%
|
|
|
1,516
|
|
|
|
7.6
|
%
|
|
|
(1,302
|
)
|
|
|
(85.9
|
)%
|
Total
|
|
$
|
22,559
|
|
|
|
100.0
|
%
|
|
$
|
19,844
|
|
|
|
100.0
|
%
|
|
$
|
2,715
|
|
|
|
13.7
|
%
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
42,144
|
|
|
|
71.5
|
%
|
|
$
|
38,947
|
|
|
|
71.1
|
%
|
|
$
|
3,197
|
|
|
|
8.2
|
%
|
Asia-Pacific
|
|
|
14,052
|
|
|
|
23.8
|
%
|
|
|
13,173
|
|
|
|
24.1
|
%
|
|
|
879
|
|
|
|
6.7
|
%
|
Europe and Africa
|
|
|
2,800
|
|
|
|
4.7
|
%
|
|
|
2,629
|
|
|
|
4.8
|
%
|
|
|
171
|
|
|
|
6.5
|
%
|
Total
|
|
$
|
58,996
|
|
|
|
100.0
|
%
|
|
$
|
54,749
|
|
|
|
100.0
|
%
|
|
$
|
4,247
|
|
|
|
7.8
|
%
|
The following tables present our revenues
by product line (dollars in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino currency without RFID
|
|
$
|
2,999
|
|
|
|
13.3
|
%
|
|
$
|
6,476
|
|
|
|
32.6
|
%
|
|
$
|
(3,477
|
)
|
|
|
(53.7
|
)%
|
Casino currency with RFID
|
|
|
5,797
|
|
|
|
25.7
|
%
|
|
|
850
|
|
|
|
4.3
|
%
|
|
|
4,947
|
|
|
|
582.0
|
%
|
Total casino currency
|
|
|
8,796
|
|
|
|
39.0
|
%
|
|
|
7,326
|
|
|
|
36.9
|
%
|
|
|
1,470
|
|
|
|
20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Playing cards
|
|
|
6,876
|
|
|
|
30.4
|
%
|
|
|
6,628
|
|
|
|
33.4
|
%
|
|
|
248
|
|
|
|
3.7
|
%
|
Table accessories and other products
|
|
|
1,961
|
|
|
|
8.7
|
%
|
|
|
1,804
|
|
|
|
9.1
|
%
|
|
|
157
|
|
|
|
8.7
|
%
|
Table layouts
|
|
|
1,231
|
|
|
|
5.4
|
%
|
|
|
1,630
|
|
|
|
8.2
|
%
|
|
|
(399
|
)
|
|
|
(24.5
|
)%
|
Gaming furniture
|
|
|
1,053
|
|
|
|
4.7
|
%
|
|
|
390
|
|
|
|
2.0
|
%
|
|
|
663
|
|
|
|
170.0
|
%
|
RFID solutions
|
|
|
1,052
|
|
|
|
4.7
|
%
|
|
|
485
|
|
|
|
2.4
|
%
|
|
|
567
|
|
|
|
116.9
|
%
|
Dice
|
|
|
672
|
|
|
|
3.0
|
%
|
|
|
706
|
|
|
|
3.6
|
%
|
|
|
(34
|
)
|
|
|
(4.8
|
)%
|
Shipping
|
|
|
918
|
|
|
|
4.1
|
%
|
|
|
875
|
|
|
|
4.4
|
%
|
|
|
43
|
|
|
|
4.9
|
%
|
Total
|
|
$
|
22,559
|
|
|
|
100.0
|
%
|
|
$
|
19,844
|
|
|
|
100.0
|
%
|
|
$
|
2,715
|
|
|
|
13.7
|
%
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casino currency without RFID
|
|
$
|
11,478
|
|
|
|
19.5
|
%
|
|
$
|
13,102
|
|
|
|
23.9
|
%
|
|
$
|
(1,624
|
)
|
|
|
(12.4
|
)5
|
Casino currency with RFID
|
|
|
9,322
|
|
|
|
15.8
|
%
|
|
|
5,507
|
|
|
|
10.1
|
%
|
|
|
3,815
|
|
|
|
69.3
|
%
|
Total casino currency
|
|
|
20,800
|
|
|
|
35.3
|
%
|
|
|
18,609
|
|
|
|
34.0
|
%
|
|
|
2,191
|
|
|
|
11.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Playing cards
|
|
|
19,922
|
|
|
|
33.8
|
%
|
|
|
18,255
|
|
|
|
33.4
|
%
|
|
|
1,667
|
|
|
|
9.1
|
%
|
Table accessories and other products
|
|
|
5,114
|
|
|
|
8.6
|
%
|
|
|
5,372
|
|
|
|
9.8
|
%
|
|
|
(258
|
)
|
|
|
(4.8
|
)%
|
Table layouts
|
|
|
3,947
|
|
|
|
6.7
|
%
|
|
|
4,754
|
|
|
|
8.7
|
%
|
|
|
(807
|
)
|
|
|
(17.0
|
)%
|
RFID solutions
|
|
|
2,576
|
|
|
|
4.4
|
%
|
|
|
1,939
|
|
|
|
3.5
|
%
|
|
|
637
|
|
|
|
32.9
|
%
|
Dice
|
|
|
2,101
|
|
|
|
3.6
|
%
|
|
|
2,043
|
|
|
|
3.7
|
%
|
|
|
58
|
|
|
|
2.8
|
%
|
Gaming furniture
|
|
|
2,090
|
|
|
|
3.5
|
%
|
|
|
1,353
|
|
|
|
2.5
|
%
|
|
|
737
|
|
|
|
54.5
|
%
|
Shipping
|
|
|
2,446
|
|
|
|
4.1
|
%
|
|
|
2,424
|
|
|
|
4.4
|
%
|
|
|
22
|
|
|
|
0.9
|
%
|
Total
|
|
$
|
58,996
|
|
|
|
100.0
|
%
|
|
$
|
54,749
|
|
|
|
100.0
|
%
|
|
$
|
4,247
|
|
|
|
7.8
|
%
|
Comparison of Operations for the Three Months and Nine Months
Ended September 30, 2016 and 2015
Revenues
.
For the three
months ended September 30, 2016, our revenues were $22.6 million, an increase of $2.8 million, or 13.7%, compared to revenues of
$19.8 million for the same period of 2015. The increase was primarily due to an increase in the casino currency, the gaming furniture
and the RFID solutions product lines.
For the nine months ended September 30,
2016, our revenues were $59.0 million, an increase of $4.3 million, or 7.8%, compared to revenues of $54.7 million for the same
period of 2015. The increase in revenues was primarily attributable to an increase in the casino currency and the playing cards
product lines.
Cost of Revenues.
For the
three months ended September 30, 2016, cost of revenues was $15.0 million, an increase of $1.6 million, or 12.3%, compared to cost
of revenues of $13.4 million for the same period in 2015. As a percentage of revenues, our cost of revenues decreased to 66.7%
in 2016 compared to 67.5% in 2015. The increased cost of revenues was driven by the same factors described under Revenues above
and Gross Profit below.
For the nine months ended September 30,
2016, cost of revenues was $40.2 million, an increase of $2.9 million, or 7.6%, compared to cost of revenues of $37.3 million for
the same period in 2015. As a percentage of revenues, our cost of revenues decreased to 68.1% in 2016 compared to 68.2% in 2015.
The increased cost of revenues was driven by the same factors described under Revenues above and Gross Profit below.
Gross Profit.
For the three
months ended September 30, 2016, gross profit was $7.5 million, an increase of $1.0 million, or 16.6%, compared to gross profit
of $6.5 million for the same period in 2015. As a percentage of revenues, our gross profit increased to 33.3% from 32.5%.
For the nine months ended September 30,
2016, gross profit was $18.8 million, an increase of $1.4 million, or 8.0%, compared to gross profit of $17.4 million for the same
period in 2015. As a percentage of revenues, our gross profit increased to 31.9% from 31.8%.
The amount of gross profit increase and
the improvement in gross margins for the three months and the nine months ended September 30, 2016, compared to the same periods
in 2015, is primarily due to the increase in casino currency sales.
Selling, Administrative,
and Research and Development Expenses
. The following tables present the selling, administrative, and research and development
expenses (dollars in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Marketing and sales
|
|
$
|
1,613
|
|
|
|
7.2
|
%
|
|
$
|
1,616
|
|
|
|
8.1
|
%
|
|
$
|
(3
|
)
|
|
|
(0.2
|
)%
|
General and administrative
|
|
|
2,129
|
|
|
|
9.4
|
%
|
|
|
2,565
|
|
|
|
12.9
|
%
|
|
|
(436
|
)
|
|
|
(17.0
|
)%
|
Research and development
|
|
|
297
|
|
|
|
1.3
|
%
|
|
|
250
|
|
|
|
1.3
|
%
|
|
|
47
|
|
|
|
18.8
|
%
|
Total selling, administrative, and research and development
|
|
$
|
4,039
|
|
|
|
17.9
|
%
|
|
$
|
4,431
|
|
|
|
22.3
|
%
|
|
$
|
(392
|
)
|
|
|
(8.8
|
)%
|
For the three months ended
September 30, 2016, selling, administrative, and research and development expenses were $4.0 million, a decrease of $0.4 million,
or 8.8%, compared to selling, administrative, and research and development expenses of $4.4 million during the same period in 2015.
Selling, administrative, and research and development expenses decreased as a percentage of revenue to 17.9% in the third quarter
of 2016 from 22.3% in the same period in 2015.
Marketing and sales expenses
and research and development expenses remained relatively unchanged in the three months ended September 30, 2016, compared to the
same period in 2015.
General and administrative
expenses decreased by $0.4 million during the three months ended September 30, 2016, compared to the same period in 2015, primarily
due to decreases of $0.2 million in our bad debt accrual and $0.1 million in legal fee expense.
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Marketing and sales
|
|
$
|
4,711
|
|
|
|
8.0
|
%
|
|
$
|
4,800
|
|
|
|
8.8
|
%
|
|
$
|
(89
|
)
|
|
|
(1.9
|
)%
|
General and administrative
|
|
|
6,821
|
|
|
|
11.6
|
%
|
|
|
7,448
|
|
|
|
13.6
|
%
|
|
|
(627
|
)
|
|
|
(8.4
|
)%
|
Research and development
|
|
|
955
|
|
|
|
1.6
|
%
|
|
|
900
|
|
|
|
1.6
|
%
|
|
|
55
|
|
|
|
6.1
|
%
|
Total selling, administrative, and research and development
|
|
$
|
12,487
|
|
|
|
21.2
|
%
|
|
$
|
13,148
|
|
|
|
24.0
|
%
|
|
$
|
(661
|
)
|
|
|
(5.0
|
)%
|
For the nine months ended
September 30, 2016, selling, administrative, and research and development expenses were $12.5 million, a decrease of $0.6 million,
or 5.0% compared to selling, administrative, and research and development expenses of $13.1 million during the same period in 2015.
Selling, administrative, and research and development expenses decreased as a percentage of revenue to 21.2% in the first nine
months of 2016 from 24.0% in the same period in 2015.
Marketing and sales expenses
decreased by $0.1 million during the first nine months of 2016, compared to the same period in 2015, primarily due to a decrease
in compensation and related costs.
General and administrative
expenses decreased by $0.6 million during the first nine months of 2016, compared to the same period in 2015. This was primarily
due to decreases of $0.7 million in bad debt expense and $0.4 million in compensation and related costs, offset by increases of
$0.2 million in information technology license expense, $0.1 million in legal fees and $0.1 million in rent costs.
Research and development
expenses remained relatively unchanged during the first nine months of 2016 compared to the same period in 2015.
Other Income
(Expense), net
. The following tables present the items netted in other income (expense), net (dollars in thousands) and
as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Interest income
|
|
$
|
15
|
|
|
|
0.1
|
%
|
|
$
|
3
|
|
|
|
0.0
|
%
|
|
$
|
12
|
|
|
|
400.0
|
%
|
Interest expense
|
|
|
(60
|
)
|
|
|
(0.3
|
)%
|
|
|
(64
|
)
|
|
|
(0.3
|
)%
|
|
|
4
|
|
|
|
(6.3
|
)%
|
Gain on foreign currency transactions
|
|
|
88
|
|
|
|
0.4
|
%
|
|
|
185
|
|
|
|
0.9
|
%
|
|
|
(97
|
)
|
|
|
(52.4
|
)%
|
Other income
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
3
|
|
|
|
0.0
|
%
|
|
|
(3
|
)
|
|
|
(100.0
|
)%
|
Total other income, net
|
|
$
|
43
|
|
|
|
0.2
|
%
|
|
$
|
127
|
|
|
|
0.6
|
%
|
|
$
|
(84
|
)
|
|
|
(66.1
|
)%
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Interest income
|
|
$
|
23
|
|
|
|
0.0
|
%
|
|
$
|
16
|
|
|
|
0.0
|
%
|
|
$
|
7
|
|
|
|
43.8
|
%
|
Interest expense
|
|
|
(183
|
)
|
|
|
(0.3
|
)%
|
|
|
(188
|
)
|
|
|
(0.3
|
)%
|
|
|
5
|
|
|
|
(2.7
|
)%
|
Gain on foreign currency transactions
|
|
|
127
|
|
|
|
0.2
|
%
|
|
|
151
|
|
|
|
0.3
|
%
|
|
|
(24
|
)
|
|
|
(15.9
|
)%
|
Other income
|
|
|
1
|
|
|
|
0.0
|
%
|
|
|
80
|
|
|
|
0.1
|
%
|
|
|
(79
|
)
|
|
|
(98.8
|
)%
|
Total other (expense) income, net
|
|
$
|
(32
|
)
|
|
|
(0.1
|
)%
|
|
$
|
59
|
|
|
|
0.1
|
%
|
|
$
|
(91
|
)
|
|
|
(154.2
|
)%
|
GPI SAS uses the euro
as its functional currency. At September 30, 2016 and December 31, 2015, the U.S. dollar to euro exchange rates were $1.12 and
$1.09, respectively, which represents a 2.8% weaker dollar compared to the euro. The average exchange rates for the nine months
ended September 30, 2016 and 2015 were stable at $1.12.
GPI Mexicana uses the
U.S. dollar as its functional currency. At September 30, 2016 and December 31, 2015, the Mexican peso to U.S. dollar exchange rates
were 19.50 pesos and 17.21 pesos, respectively, which represents a 13.3% stronger dollar compared to the Mexican peso. The peso
to U.S. dollar average exchange rates for the nine months ended September 30, 2016 and 2015 were 18.31 pesos and 15.57 pesos, respectively,
which represents a 17.6% stronger dollar compared to the Mexican peso.
GPI Asia uses the U.S. dollar as its functional
currency. At September 30, 2016 and December 31, 2015, the Macau pataca to U.S. dollar exchange rates were 8.16 patacas and 8.19
patacas, respectively, which represents a 0.4% weaker dollar compared to the Macau pataca. The Macau pataca to U.S. dollar average
exchange rates for the nine months ended September 30, 2016 and 2015 were 8.17 patacas and 8.15 patacas, respectively, which represents
a 0.3% stronger dollar compared to the Macau pataca.
Income Taxes.
Our effective
income tax rate for the three months ended September 30, 2016 and 2015 was 30.6% and 22.1%, respectively. Our effective tax rate
for the three months ended September 30, 2016 was favorably affected by the foreign rate differential on income from our Macau
S.A.R. subsidiary, GPI Asia, and the benefit from a research credit from our French subsidiary, GPI SAS, partially offset by our
Subpart F income adjustment. Our effective tax rate for the three months ended September 30, 2015 was favorably affected by the
foreign rate differential on income from GPI Asia, and the benefit from a research credit from our French subsidiary, GPI SAS,
partially offset by the 2015 tax impact of a deemed dividend from GPI Asia and our Subpart F income adjustment.
Our effective income tax rate for the nine
months ended September 30, 2016 and 2015 was 29.3% and 19.3%, respectively. Our effective tax rate for the nine months ended September
30, 2016 was favorably affected by the foreign rate differential on income from GPI Asia, and the benefit from a research credit
from GPI SAS, partially offset by our Subpart F income adjustment. Our effective tax rate for the nine months ended September 30,
2015 was favorably affected by the release of the valuation allowance related to foreign tax credits, the foreign rate differential
on income from GPI Asia, and the benefit from a research credit from GPI SAS, partially offset by the 2015 tax impact of a deemed
dividend from GPI Asia and our Subpart F income adjustment. Without the discrete release in the valuation allowance related to
foreign tax credits, our effective tax rate for the nine months ended September 30, 2015 would have been 23.1%.
We account for uncertain tax positions in
accordance with applicable accounting guidance. At December 31, 2015, we reported unrecognized tax benefits related to the French
Tax Administration’s examination of GPI SAS for tax years 2013 and 2012. As of September 30, 2016, there was no change to
the unrecognized tax benefits reported at December 31, 2015.
Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
.
Historically, our primary source of liquidity and capital has been cash from operations. On June 26, 2015, the Company entered
into a Credit Agreement with Nevada State Bank for a combined $15.0 million credit facility, consisting of a $10.0 million seven-year
Term Loan and a $5.0 million five-year Revolving Loan. The Company borrowed the full amount under the Term Loan which will mature
on June 26, 2022, and has not drawn any funds under the Revolving Loan. Additional information can be found at Note 8 to the unaudited
condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Other potential sources of capital include,
but are not limited to, additional bank credit facilities and the sale of stock. We believe we have the resources to satisfy our
needs for working capital, capital expenditures, purchases of common stock under our stock repurchase program, litigation, dividends
or acquisitions for our operations for a minimum of the next twelve months.
At September 30, 2016, the Company had $10.5 million
in cash and cash equivalents. Of this amount, $5.0 million is held by GPI Asia, $2.9 million is held by GPI USA, $1.7 million is
held by GPI SAS and $0.9 million is held by GPI Mexicana. Of those amounts held in France by GPI SAS and in Mexico by GPI Mexicana,
we would be subject to taxation in the United States if we were to repatriate those amounts, though foreign tax credits may be
available to offset such taxes. All of the amounts currently held in Asia by GPI Asia could be repatriated tax free due to the
deemed dividend from GPI Asia. Except for the amount of the deemed dividend, the Company continues to assert that earnings from
GPI Asia will be permanently reinvested. We may repatriate amounts from GPI SAS and, accordingly, our unaudited condensed consolidated
financial statements reflect the tax impacts that would result from repatriation.
Working Capital
.
The following table summarizes our cash and cash equivalents, marketable securities, and working capital (dollars in thousands),
and our current ratio:
|
|
September 30,
|
|
|
December 31,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
10,505
|
|
|
$
|
17,788
|
|
|
$
|
(7,283
|
)
|
|
|
(40.9
|
)%
|
Marketable securities
|
|
$
|
-
|
|
|
$
|
3,503
|
|
|
|
(3,503
|
)
|
|
|
(100.0
|
)%
|
Working capital
|
|
$
|
27,032
|
|
|
$
|
31,129
|
|
|
$
|
(4,097
|
)
|
|
|
(13.2
|
)%
|
Current ratio
|
|
|
2.6
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
At September 30, 2016, working capital totaled
$27.0 million, a decrease of $4.1 million when compared to working capital of $31.1 million at December 31, 2015. The change in
cash is mostly due to capital expenditures, including the Dolphin asset acquisition. See Note 2 to the unaudited condensed consolidated
financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Cash Flows
. The following
table summarizes our cash flows (dollars in thousands):
|
|
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
Period-to-Period
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,065
|
)
|
|
$
|
8,711
|
|
|
$
|
(9,776
|
)
|
|
|
(112.2
|
)%
|
Investing activities
|
|
|
(5,337
|
)
|
|
|
(4,261
|
)
|
|
|
(1,076
|
)
|
|
|
(25.3
|
)%
|
Financing activities
|
|
|
(995
|
)
|
|
|
(238
|
)
|
|
|
(757
|
)
|
|
|
318.1
|
%
|
Effect of exchange rates
|
|
|
114
|
|
|
|
(352
|
)
|
|
|
466
|
|
|
|
132.4
|
%
|
Net change
|
|
$
|
(7,283
|
)
|
|
$
|
3,860
|
|
|
$
|
(11,143
|
)
|
|
|
288.7
|
%
|
The increase in cash flows used by operating
activities was primarily caused by an increase in assets, a decrease in accounts payable and accrued liabilities, partially offset
by an increase in customer deposits and deferred revenue.
The increase in cash flows used by investing
activities was primarily due to an increase in capital expenditures, including the Dolphin acquisition, partially offset by a decrease
in net purchases of marketable securities.
The increase in cash flows used by financing
activities was primarily due to an increase in principal payments on long-term debt.
C
apital
Expenditures
. We intend to purchase approximately $3.0 million in property and equipment during the remainder of
2016. This is primarily related to the expansion of our Blue Springs, Missouri facility described below at “Contractual Obligations
and Commercial Commitments.”
Cash
Dividend.
Our Board of Directors has no current plans to pay a regular dividend on our common stock, but may evaluate
the merit of paying a dividend in the future.
Backlog
.
At September 30, 2016, our backlog of signed orders for the next twelve months was $19.1 million, consisting of $10.1 million for
GPI Asia, $8.4 million for GPI USA, and $0.6 million for GPI SAS. At September 30, 2015, the backlog of signed orders for the next
twelve months was $17.2 million, consisting of $9.1 million for GPI Asia, $7.7 million for GPI USA, and $0.4 million for GPI
SAS.
Contractual Obligations and Commercial Commitments
On May 11, 2016, the Company purchased certain
assets dedicated to the design and manufacture of chips and plaques for gaming tables from EGT and Dolphin as described in Note
2 to the unaudited condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
On February 24, 2016, the Company entered
into a construction contract with Miller Staunch Construction Co., Inc. (Contractor) to expand its Blue Springs, Missouri manufacturing
facility. The Blue Springs building expansion is expected to be completed before the end of the fourth quarter of 2016 for a fixed
price of $2.2 million, subject to any additions or deductions agreed to by the Company and the Contractor. The Company expects
to fund the construction of the Blue Springs expansion with available cash and cash from operations.
On December 30, 2015, the Company sold its
building and land in Las Vegas, Nevada to an unrelated third party for $3.95 million in cash. In early 2016, the Company relocated
its headquarters to 3945 West Cheyenne Avenue, North Las Vegas, Nevada. The lease term for the building (approximately 15,000 square
feet) is seven years commencing on January 1, 2016 for approximately $16,000 per month.
On June 26, 2015, the Company entered into
a Credit Agreement with Nevada State Bank for a combined $15.0 million, consisting of a $10.0 million seven-year term loan and
a $5.0 million five-year revolving loan described in Note 8 to the unaudited condensed consolidated financial statements included
in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Forward-Looking Information Statements and Risk Factors
Throughout this Quarterly Report on Form 10-Q,
we make some forward-looking statements which do not relate to historical or current facts, but are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other
information based on forecasts of future results and estimates of amounts not yet determinable that, while considered reasonable
by us, are inherently subject to significant business, economic, and competitive risks and uncertainties, many of which are beyond
our control and are subject to change. The statements also relate to our future prospects and anticipated performance, development,
and business strategies such as statements relating to anticipated future sales or the timing thereof, potential acquisitions,
the long-term growth and prospects of our business or any jurisdiction, the duration or effects of unfavorable economic conditions
which may reduce our product sales, and the long-term potential of the RFID gaming chips market and our ability to capitalize on
any such growth opportunities. These statements are identified by their use of terms and phrases such as anticipate, believe,
could, would, estimate, expect, intend, may, plan, predict, project, pursue, will, continue, feel, or the negative or other variations
thereof, and other similar terms and phrases, including references to assumptions.
Although we believe that
the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from
those expressed or implied. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and to inherent known and unknown risks and uncertainties such as those identified in Part I-Item 1A.
“Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with
the SEC on March 24, 2016. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect
future events or circumstances.