UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) |
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x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended: March 31, 2015 |
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OR |
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¨ |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition
period from to
Commission file number: 0-23588
GAMING PARTNERS INTERNATIONAL CORPORATION
(Exact name of registrant as specified
in its charter)
NEVADA |
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88-0310433 |
(State or other jurisdiction |
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(I.R.S. Employer Identification No.) |
of incorporation or organization) |
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1700 Industrial Road, |
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89102 |
Las Vegas, Nevada |
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(Zip Code) |
(Address of principal executive offices) |
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(702) 384-2425
(Registrant’s telephone number, including
area code)
None
(Former name, former address, and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on the Corporate Website, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that registrant
was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of
“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer ¨ |
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Accelerated filer ¨ |
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Non-accelerated filer ¨ |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of each
of the registrant’s classes of common stock as of April 30, 2015, the latest practicable date, was 7,928,594 shares of Common
Stock.
GAMING PARTNERS INTERNATIONAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED March 31, 2015
TABLE OF CONTENTS
PART I.
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED
BALANCE SHEETS
(unaudited)
(in thousands, except share amounts)
|
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March 31, |
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December 31, |
|
|
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2015 |
|
2014 |
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ASSETS |
|
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|
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Current Assets: |
|
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
10,117 |
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$ |
8,969 |
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Marketable securities |
|
|
5,380 |
|
|
3,597 |
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Accounts receivable, net |
|
|
9,080 |
|
|
10,327 |
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Inventories |
|
|
7,973 |
|
|
9,063 |
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Prepaid expenses |
|
|
1,068 |
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|
749 |
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Deferred income tax assets |
|
|
1,097 |
|
|
1,011 |
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Other current assets |
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2,242 |
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2,273 |
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Total current assets |
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36,957 |
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35,989 |
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Property and equipment, net |
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14,145 |
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15,087 |
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Goodwill |
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10,292 |
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10,292 |
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Intangibles, net |
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2,717 |
|
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2,794 |
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Deferred income tax asset |
|
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2,570 |
|
|
2,003 |
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Inventories, non-current |
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|
504 |
|
|
523 |
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Other assets |
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1,589 |
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1,706 |
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Total assets Total assets |
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$ |
68,774 |
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$ |
68,394 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities: |
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|
|
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Accounts payable |
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$ |
4,047 |
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$ |
3,321 |
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Accrued liabilities |
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3,783 |
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|
3,906 |
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Customer deposits and deferred revenue |
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1,126 |
|
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2,224 |
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Current portion of short term debt |
|
|
10,000 |
|
|
10,000 |
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Income taxes payable |
|
|
802 |
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|
343 |
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Total current liabilities |
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19,758 |
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19,794 |
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Deferred income tax liability |
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245 |
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|
272 |
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Other liabilities |
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65 |
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63 |
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Total liabilities Total liabilities |
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20,068 |
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20,129 |
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Commitments and contingencies - see Note 9 |
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Stockholders' Equity: |
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Preferred stock, authorized 10,000,000 shares, $.01 par value, none issued and outstanding |
|
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- |
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- |
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Common stock, authorized 30,000,000 shares, $.01 par value, 8,219,577 and 7,928,594 issued and outstanding, respectively, as of March 31, 2015, and 8,207,077 and 7,916,094 issued and outstanding, respectively, as of December 31, 2014 |
|
|
82 |
|
|
82 |
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Additional paid-in capital |
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19,991 |
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19,886 |
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Treasury stock at cost: 290,983 shares |
|
|
(2,263 |
) |
|
(2,263 |
) |
Retained earnings |
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|
32,838 |
|
|
30,881 |
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Accumulated other comprehensive loss |
|
|
(1,942 |
) |
|
(321 |
) |
Total stockholders' equity |
|
|
48,706 |
|
|
48,265 |
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Total liabilities and stockholders' equity |
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$ |
68,774 |
|
$ |
68,394 |
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per-share amounts)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Revenues | |
$ | 18,656 | | |
$ | 10,559 | |
Cost of revenues | |
| 12,332 | | |
| 7,800 | |
Gross profit | |
| 6,324 | | |
| 2,759 | |
| |
| | | |
| | |
Marketing and sales | |
| 1,800 | | |
| 1,303 | |
General and administrative | |
| 2,416 | | |
| 2,068 | |
Research and development | |
| 339 | | |
| 437 | |
Operating income (loss) | |
| 1,769 | | |
| (1,049 | ) |
Other income, net | |
| 35 | | |
| 55 | |
Income (loss) before income taxes | |
| 1,804 | | |
| (994 | ) |
Income tax (benefit) provision | |
| (153 | ) | |
| 137 | |
Net income (loss) | |
$ | 1,957 | | |
$ | (1,131 | ) |
| |
| | | |
| | |
Earnings per share: | |
| | | |
| | |
Basic | |
$ | 0.25 | | |
$ | (0.14 | ) |
Diluted | |
$ | 0.24 | | |
$ | (0.14 | ) |
Weighted-average shares of common stock outstanding: | |
| | | |
| | |
Basic | |
| 7,916 | | |
| 7,916 | |
Diluted | |
| 8,025 | | |
| 7,916 | |
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
(in thousands)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Net income (loss) | |
$ | 1,957 | | |
$ | (1,131 | ) |
Other comprehensive loss: | |
| | | |
| | |
Foreign currency translation adjustment | |
| (1,621 | ) | |
| (20 | ) |
Other comprehensive loss, net of tax | |
| (1,621 | ) | |
| (20 | ) |
Total comprehensive income (loss) | |
$ | 336 | | |
$ | (1,151 | ) |
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except per share amounts)
| |
| | |
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| | |
| | |
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Accumulated | | |
| |
| |
Common
Stock | | |
Additional | | |
| | |
| | |
Other | | |
| |
| |
| | |
| | |
Paid-In | | |
Treasury | | |
Retained | | |
Comprehensive | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Stock | | |
Earnings | | |
Income | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance, January 1, 2014 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,771 | | |
$ | (2,262 | ) | |
$ | 28,205 | | |
$ | 1,677 | | |
$ | 47,473 | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,131 | ) | |
| - | | |
| (1,131 | ) |
Stock compensation expense | |
| - | | |
| - | | |
| 52 | | |
| - | | |
| - | | |
| - | | |
| 52 | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (20 | ) | |
| (20 | ) |
Balance, March 31, 2014 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,823 | | |
$ | (2,262 | ) | |
$ | 27,074 | | |
$ | 1,657 | | |
$ | 46,374 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, January 1, 2015 | |
| 7,916,094 | | |
$ | 82 | | |
$ | 19,886 | | |
$ | (2,263 | ) | |
$ | 30,881 | | |
$ | (321 | ) | |
$ | 48,265 | |
Net income | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1,957 | | |
| - | | |
| 1,957 | |
Common stock options exercised | |
| 12,500 | | |
| - | | |
| 87 | | |
| - | | |
| - | | |
| - | | |
| 87 | |
Tax benefit of stock options exercised | |
| - | | |
| - | | |
| 3 | | |
| - | | |
| - | | |
| - | | |
| 3 | |
Stock compensation expense | |
| - | | |
| - | | |
| 15 | | |
| - | | |
| - | | |
| - | | |
| 15 | |
Foreign currency translation adjustment | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,621 | ) | |
| (1,621 | ) |
Balance, March 31, 2015 | |
| 7,928,594 | | |
$ | 82 | | |
$ | 19,991 | | |
$ | (2,263 | ) | |
$ | 32,838 | | |
$ | (1,942 | ) | |
$ | 48,706 | |
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Cash Flows from Operating Activities | |
| | | |
| | |
Net income (loss) | |
$ | 1,957 | | |
$ | (1,131 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating
activities: | |
| | | |
| | |
Depreciation | |
| 680 | | |
| 565 | |
Amortization of intangible assets | |
| 77 | | |
| 31 | |
Provision for bad debt | |
| 139 | | |
| 38 | |
Deferred income taxes | |
| (672 | ) | |
| 431 | |
Stock compensation expense | |
| 15 | | |
| 52 | |
Loss on sale or disposal of PPE | |
| 38 | | |
| - | |
(Gain) on sale of marketable securities | |
| (1 | ) | |
| (1 | ) |
Change in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 1,072 | | |
| 325 | |
Inventories | |
| 780 | | |
| (5 | ) |
Prepaid expenses and other current assets | |
| (495 | ) | |
| (186 | ) |
Non-current other assets | |
| 63 | | |
| 40 | |
Accounts payable | |
| 810 | | |
| (243 | ) |
Accrued liabilities | |
| 122 | | |
| (17 | ) |
Customer deposits and deferred revenue | |
| (1,086 | ) | |
| 626 | |
Other current liabilities | |
| (87 | ) | |
| - | |
Income taxes payable | |
| 462 | | |
| (12 | ) |
Net cash provided by operating activities | |
| 3,874 | | |
| 513 | |
| |
| | | |
| | |
Cash Flows from Investing Activities | |
| | | |
| | |
Purchases of marketable securities | |
| (6,759 | ) | |
| (5,204 | ) |
Proceeds from sale of marketable securities | |
| 4,508 | | |
| 5,068 | |
Initial deposit on business acquisition | |
| - | | |
| (1,000 | ) |
Proceeds from sale of PPE | |
| 18 | | |
| - | |
Capital expenditures | |
| (174 | ) | |
| (53 | ) |
Net cash used in investing activities | |
| (2,407 | ) | |
| (1,189 | ) |
| |
| | | |
| | |
Cash Flows from Financing Activities | |
| | | |
| | |
Proceeds from exercise of stock options | |
| 87 | | |
| - | |
Net cash provided by financing activities | |
| 87 | | |
| - | |
Effect of exchange rate changes on cash | |
| (406 | ) | |
| (3 | ) |
Net increase (decrease) in cash and cash equivalents | |
| 1,148 | | |
| (679 | ) |
Cash and cash equivalents, beginning of period | |
| 8,969 | | |
| 14,492 | |
Cash and cash equivalents, end of period | |
$ | 10,117 | | |
$ | 13,813 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 63 | | |
$ | - | |
Cash paid for income taxes, net of refunds | |
$ | 3 | | |
$ | 11 | |
| |
| | | |
| | |
Supplemental disclosure of non-cash investing and financing activities | |
| | | |
| | |
Property and equipment acquired through accounts payable | |
$ | 47 | | |
$ | - | |
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED
NOTES TO 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 Las Vegas, Nevada and 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 is
either manufactured in France or purchased from United States vendors. We also warehouse
inventory in San Luis, Arizona, Blue Springs, Missouri, and at our Las Vegas, Nevada
headquarters, and have sales offices in 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 all
our casino currencies, radio frequency identification device (RFID) product solutions,
playing cards, and other table accessories in the Asia-Pacific region. GPI Asia also
sells table layouts and upholstery that it manufactures in Macau S.A.R. |
Our business activities include the manufacture
and supply of casino currencies, playing cards, table layouts, gaming furniture, table accessories, dice, upholstery, roulette
wheels, and RFID readers and software, all of which are used with casino table games such as blackjack, poker, baccarat, craps,
and roulette.
Significant Accounting Policies
Basis of Consolidation and Presentation. The
accompanying condensed consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI SAS,
GPI USA, GPI Mexicana, and GPI Asia. All material intercompany balances and transactions have been eliminated in consolidation.
The 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/A for the fiscal year ended December 31, 2014,
filed with the SEC on March 20, 2015.
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
2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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. At present, this guidance is effective for annual
reporting periods beginning after December 15, 2016 and early application is not permitted. In April 2015, the FASB proposed a
deferral of the effective date of ASU 2014-09. The proposal would defer required adoption for a one-year, until December 15, 2017,
and would permit early application though in no case could the new guidance be applied before the original effective date. The
Company is currently evaluating the impact of this ASU on its consolidated financial statements.
Note 2. Acquisition
On July 1, 2014, we acquired substantially
all of the net gaming assets of GemGroup (GemGroup Acquisition), a manufacturer of playing cards, table layouts and casino currency
primarily sold under the Gemaco® brand. The results of the GemGroup Acquisition have been consolidated with the Company’s
results of operations and cash flows beginning on the date of the acquisition. The information in this Quarterly Report on Form
10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report
on Form 10-K/A for the fiscal year ended December 31, 2014, filed with the SEC on March 20, 2015.
Due to integration of the combined businesses
since the day of acquisition, it is impracticable to determine the earnings or loss contributed by the acquisition.
The following unaudited supplemental pro
forma consolidated results of operations for the three months ended March 31, 2015 and for the three months ended March 31, 2014
have been prepared as if the GemGroup Acquisition had occurred at January 1, 2014 (unaudited; in thousands, except for per share
data):
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Net revenues | |
$ | 18,656 | | |
$ | 16,628 | |
Net income attributable to common stockholders | |
| 1,957 | | |
| (596 | ) |
Earnings per share—Basic | |
| 0.25 | | |
| (0.08 | ) |
Earnings per share—Diluted | |
| 0.24 | | |
| (0.07 | ) |
The unaudited supplemental pro forma consolidated
results of operations is provided for illustrative purposes only and do not purport to be indicative of the results that would
have been obtained if the GemGroup Acquisition had actually occurred as of the dates indicated or of those results that may be
obtained in the future. These unaudited supplemental pro forma consolidated results of operations were derived, in part, from
the historical financial statements of GemGroup and other available information and assumptions believed to be reasonable under
the circumstances.
Note 3. Cash, Cash Equivalents, and Marketable Securities
We hold our cash, cash equivalents, and
marketable securities in various financial institutions. Substantially all accounts have balances in excess of government-insured
limits. The following summarizes the geographic location of our holdings (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Cash and Cash
Equivalents | | |
Marketable Securities | | |
Total | | |
Cash and Cash
Equivalents | | |
Marketable Securities | | |
Total | |
United States (including Mexico) | |
$ | 4,331 | | |
$ | - | | |
$ | 4,331 | | |
$ | 3,160 | | |
$ | - | | |
$ | 3,160 | |
France | |
| 823 | | |
| 5,380 | | |
| 6,203 | | |
| 644 | | |
| 3,597 | | |
| 4,241 | |
Macau S.A.R., China | |
| 4,964 | | |
| - | | |
| 4,964 | | |
| 5,165 | | |
| - | | |
| 5,165 | |
Total | |
$ | 10,117 | | |
$ | 5,380 | | |
$ | 15,497 | | |
$ | 8,969 | | |
$ | 3,597 | | |
$ | 12,566 | |
Available-for-sale marketable securities
consist of investments in securities such as certificates of deposit offered by French banks and bond mutual funds (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
| |
Cost | | |
Unrealized Gain/(Loss) | | |
Fair Value | | |
Cost | | |
Unrealized Gain/(Loss) | | |
Fair Value | |
Certificates of deposit | |
$ | 1,085 | | |
$ | - | | |
$ | 1,085 | | |
$ | 1,215 | | |
$ | - | | |
$ | 1,215 | |
Bond mutual funds | |
| 4,295 | | |
| - | | |
| 4,295 | | |
| 2,382 | | |
| - | | |
| 2,382 | |
Total marketable securities | |
$ | 5,380 | | |
$ | - | | |
$ | 5,380 | | |
$ | 3,597 | | |
$ | - | | |
$ | 3,597 | |
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 March 31, 2015, one Macau customer,
whose account is current, accounted for 12% of our accounts receivable balance. At December 31, 2014, one Macau casino customer
accounted for 30% of our accounts receivable balance.
The allowance for doubtful accounts consists
of the following (in thousands):
| |
Balance at Beginning
of Year | | |
Provision (Benefit) | | |
Write-offs, Net
of Recoveries | | |
Exchange
Rate Effect | | |
Balance at End
of Period | |
March 31, 2015 | |
$ | 302 | | |
$ | 139 | | |
$ | (7 | ) | |
$ | (5 | ) | |
$ | 429 | |
December 31, 2014 | |
$ | 114 | | |
$ | 193 | | |
$ | (5 | ) | |
$ | - | | |
$ | 302 | |
Note 5. Inventories
Inventories consist of the following (in
thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
Raw materials | |
$ | 5,540 | | |
$ | 5,747 | |
Work in progress | |
| 996 | | |
| 1,257 | |
Finished goods | |
| 1,941 | | |
| 2,582 | |
Total inventories | |
$ | 8,477 | | |
$ | 9,586 | |
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 condensed consolidated balance sheets is as follows (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
Current | |
$ | 7,973 | | |
$ | 9,063 | |
Non-current | |
| 504 | | |
| 523 | |
Total inventories | |
$ | 8,477 | | |
$ | 9,586 | |
Note 6. Property and Equipment
Property and equipment consists of the
following (in thousands):
| |
March 31, 2015 | | |
December 31, 2014 | |
Land | |
$ | 1,754 | | |
$ | 1,784 | |
Buildings and improvements | |
| 9,474 | | |
| 9,857 | |
Equipment and furniture | |
| 24,948 | | |
| 26,033 | |
Vehicles | |
| 379 | | |
| 368 | |
| |
| 36,555 | | |
| 38,042 | |
Less accumulated depreciation | |
| (22,410 | ) | |
| (22,955 | ) |
Property and equipment, net | |
$ | 14,145 | | |
$ | 15,087 | |
Depreciation expense for the three months
ended March 31, 2015 and 2014 was $680 and $565, respectively.
Note 7. Goodwill and Intangible Assets
We have goodwill valued
at $10.3 million as of March 31, 2015 arising from the July 1, 2014 GemGroup Acquisition.
Intangible assets consist
of the following (in thousands):
| |
March
31, 2015 | | |
December
31, 2014 | | |
|
| |
Gross
Carrying Amount | | |
Accum
Amort | | |
Net
Carrying Amount | | |
Gross
Carrying Amount | | |
Accum
Amort | | |
Net
Carrying Amount | | |
Estimated
Useful Life (Years) |
Trademarks | |
$ | 1,742 | | |
$ | (358 | ) | |
$ | 1,384 | | |
$ | 1,742 | | |
$ | (327 | ) | |
$ | 1,415 | | |
10-15 |
Customer list | |
| 1,298 | | |
| (133 | ) | |
| 1,165 | | |
| 1,298 | | |
| (107 | ) | |
| 1,191 | | |
10-15 |
Patents | |
| 542 | | |
| (511 | ) | |
| 31 | | |
| 542 | | |
| (503 | ) | |
| 39 | | |
13-14 |
Other intangible assets | |
| 427 | | |
| (290 | ) | |
| 137 | | |
| 207 | | |
| (58 | ) | |
| 149 | | |
3-10 |
Total intangible assets | |
$ | 4,009 | | |
$ | (1,292 | ) | |
$ | 2,717 | | |
$ | 3,789 | | |
$ | (995 | ) | |
$ | 2,794 | | |
|
Amortization expense for intangible assets
for the three months ended March 31, 2015 and 2014 was $77 and $31, respectively.
Note 8. Debt
On June 26, 2014, GPI USA and HSBC Bank
USA, National Association, entered into a demand line of credit agreement with a limit of $10.0 million. Interest on the line
of credit is LIBOR plus 2.25%. GPI USA borrowed $10.0 million under the line of credit to finance the GemGroup Acquisition. The
line of credit is secured by a lien on all of the assets of GPI USA. The line of credit is guaranteed by GPIC and is subject to
renewal by HSBC Bank USA in its sole discretion on June 30 of each year.
Note 9. Commitments and Contingencies
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.
Note 10. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive
income, net of tax, and by component for the three months ended March 31, 2015, were as follows (in thousands):
| |
Foreign Currency Translation | | |
Unrealized Gains on Securities | | |
Total | |
Balance at January 1, 2015 | |
$ | (322 | ) | |
$ | 1 | | |
$ | (321 | ) |
Other comprehensive loss | |
| (1,621 | ) | |
| - | | |
| (1,621 | ) |
Balance at March 31, 2015 | |
$ | (1,943 | ) | |
$ | 1 | | |
$ | (1,942 | ) |
Note 11. 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,” “product line,” or other overall
managers who report to our CEO.
The following tables present our net sales
by geographic area (in thousands):
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Revenues | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 12,304 | | |
| 65.9 | % | |
$ | 5,270 | | |
| 49.9 | % |
Asia-Pacific | |
| 5,969 | | |
| 32.0 | % | |
| 4,805 | | |
| 45.5 | % |
Europe and Africa | |
| 383 | | |
| 2.1 | % | |
| 484 | | |
| 4.6 | % |
Total | |
$ | 18,656 | | |
| 100.0 | % | |
$ | 10,559 | | |
| 100.0 | % |
The following tables present our net sales
by product line (in thousands):
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
Casino currency with RFID | |
| 3,619 | | |
| 19.4 | % | |
| 3,880 | | |
| 36.7 | % |
Casino currency without RFID | |
$ | 3,079 | | |
| 16.5 | % | |
$ | 2,276 | | |
| 21.6 | % |
Total casino currency | |
| 6,698 | | |
| 35.9 | % | |
| 6,156 | | |
| 58.3 | % |
| |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 5,773 | | |
| 30.9 | % | |
| 1,538 | | |
| 14.6 | % |
Table layouts | |
| 1,694 | | |
| 9.1 | % | |
| 856 | | |
| 8.1 | % |
Table accessories and other products | |
| 1,642 | | |
| 8.8 | % | |
| 651 | | |
| 6.2 | % |
Dice | |
| 601 | | |
| 3.2 | % | |
| 510 | | |
| 4.8 | % |
Gaming furniture | |
| 588 | | |
| 3.2 | % | |
| 256 | | |
| 2.4 | % |
RFID solutions | |
| 860 | | |
| 4.6 | % | |
| 246 | | |
| 2.3 | % |
Shipping | |
| 800 | | |
| 4.3 | % | |
| 346 | | |
| 3.3 | % |
Total | |
$ | 18,656 | | |
| 100.0 | % | |
$ | 10,559 | | |
| 100.0 | % |
For the three months ended March 31, 2015,
one casino customer accounted for 11% of revenues and for the three months ended March 31, 2014, a different customer accounted
for 23% of revenues.
The following table presents our property
and equipment by geographic area (in thousands):
Property and equipment, net: | |
March 31, 2015 | | |
December 31, 2014 | |
United States | |
$ | 8,008 | | |
$ | 8,199 | |
France | |
| 3,215 | | |
| 3,699 | |
Mexico | |
| 2,763 | | |
| 3,055 | |
Asia | |
| 159 | | |
| 134 | |
Total | |
$ | 14,145 | | |
$ | 15,087 | |
The following table presents our intangible
assets by geographic area (in thousands):
Intangible assets, net: | |
March 31, 2015 | | |
December 31, 2014 | |
United States | |
$ | 2,185 | | |
$ | 2,249 | |
Asia | |
| 525 | | |
| 535 | |
France | |
| 7 | | |
| 10 | |
Total | |
$ | 2,717 | | |
$ | 2,794 | |
Note 12. Earnings per Share (EPS)
Shares used to compute basic and diluted
earnings per share from operations are as follows:
| |
Three Months Ended | |
| |
March 31, | |
| |
2015 | | |
2014 | |
Weighted-average number of common shares outstanding - basic | |
| 7,916 | | |
| 7,916 | |
Potential dilution from equity grants | |
| 109 | | |
| - | |
Weighted-average number of common shares outstanding - diluted | |
| 8,025 | | |
| 7,916 | |
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 results of operations and our present financial condition and should be read in conjunction
with our consolidated condensed financial statements and related notes and the other financial information included in the Quarterly
Report on Form 10-Q. The 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/A for the fiscal year ended December 31, 2014, filed with the SEC
on March 20, 2015.
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/A for
the fiscal year ended December 31, 2014, filed with the SEC on March 20, 2015.
Overview of Our Business
We custom manufacture and supply casino
currency with multiple security and design options. Additionally, we 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).
We also manufacture playing cards, table layouts, dice, gaming furniture, roulette wheels, table accessories, and other products
that 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®) and Bud
Jones®. GPIC is headquartered in Las Vegas, Nevada, with offices in Beaune, France; Macau S.A.R., China; San Luis
Rio Colorado, Mexico; Blue Springs, Missouri; Atlantic City, New Jersey; and Gulfport, Mississippi. We 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 is
either manufactured in France or purchased from United States vendors. We also warehouse
inventory in San Luis, Arizona, Blue Springs, Missouri, and at our Las Vegas, Nevada
headquarters, and have sales offices in 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 all
our casino currencies, radio frequency identification device (RFID) product solutions,
playing cards, and other table accessories in the Asia-Pacific region. GPI Asia also
sells table layouts and upholstery that it manufactures in Macau S.A.R. |
On July 1, 2014, GPIC started manufacturing
and selling playing cards and table layouts under the recently acquired Gemaco® brand name in connection with the GemGroup
Acquisition. During the last half of 2014, all GPIC’s playing card manufacturing was centralized in Gemaco’s Blue
Springs’ Missouri facility in order to take advantage of their capacity and manufacturing expertise. In December, 2014,
we completed the relocation of all our playing card production from Mexico to our facility in Blue Springs, Missouri. The consolidation
is part of our strategic plan to improve the efficiency of our playing card production and is expected to provide savings in the
manufacturing of playing cards. Further, it expands our product offerings in the growing Asia-Pacific region as the Gemaco brand
has a strong market presence in the Asia-Pacific layout business.
Historically, we have experienced significant
fluctuations in our quarterly operating results which are primarily due to increased orders we receive as a result of the opening
of new casinos, the expansion of existing casinos, or large replacement orders for casino currency, a major product line. However,
we anticipate such fluctuations to somewhat lessen as a result of the GemGroup Acquisition due to our increased market share of
both playing cards and table layouts, two important sources of recurring revenue. Our backlog, which reflects signed orders, was
as follows at March 31, 2015 and March 31, 2014 (in millions):
| |
GPI
USA | | |
GPI
Asia | | |
GPI
SAS | | |
Total | |
March 31, 2015 | |
$ | 6.6 | | |
| million | | |
$ | 2.9 | | |
| million | | |
$ | 0.4 | | |
| million | | |
$ | 9.9 | | |
| million | |
March 31, 2014 | |
$ | 4.2 | | |
| million | | |
$ | 1.1 | | |
| million | | |
$ | 0.3 | | |
| million | | |
$ | 5.6 | | |
| million | |
Outlook
On April 29, 2015, we received a $7.2 million
order to supply gaming chips and plaques for a new casino in Macau S.A.R. The order includes the Company’s Bourgogne et
Grasset brand of plaques as well as the newly released V-Series American style chips. This order is not reflected in the backlog
immediately above. This order is expected to deliver later this year.
We anticipate several large casino openings
will take place in 2015 and beyond in the Asia-Pacific region. Accordingly, we anticipate
that our 2015 currency revenues will be higher than 2014. We also anticipate a significant increase in 2015 of playing cards and
table layout revenue as a result of the GemGroup Acquisition. Playing cards in particular will likely be a larger percentage of
overall revenue than in past quarters.
Financial and Operational Highlights
For the first quarter of 2015, our revenues
were $18.7 million, an increase of $8.1 million, or 76.7%, compared to revenues of $10.6 million for the same period of 2014. For
the first quarter of 2015, our net income was $2.0 million, an increase of $3.1 million, or 273.0%, compared to net loss
of $1.1 million for the same period in 2014. The increase in our results for the three months ended March 31, 2015 is primarily
due to the additional business generated by the GemGroup Acquisition.
GPI SAS uses the euro
as its functional currency. At March 31, 2015 and December 31, 2014, the U.S. dollar to euro exchange rates were $1.09 and $1.22,
respectively, which represents a 10.7% stronger dollar compared to the euro. The average exchange rates for the three months ended
March 31, 2015 and 2014 were $1.13 and $1.37, respectively, which represents a 17.5% stronger dollar compared to the euro.
GPI Mexicana uses the
U.S. dollar as its functional currency. At March 31, 2015 and December 31, 2014, the Mexican peso to U.S. dollar exchange rates
were 15.24 and 14.47, respectively, which represents a 5.3% stronger dollar compared to the peso. The average exchange rates for
the three months ended March 31, 2015 and 2014 were 14.94 pesos and 13.23 pesos to the U.S. dollar, respectively, which represents
a 12.9% stronger dollar compared to the Mexican peso.
GPI Asia, our exclusive distributor for
GPI USA and GPI SAS products in the Asia-Pacific region, and our layout manufacturer in the Asia-Pacific region, uses the U.S.
dollar as its functional currency. We believe the impact of the Macanese pataca to U.S. dollar exchange rate is immaterial because
of the number of transactions using the local currency is minimal.
Other Matters
On July 1, 2014, we acquired substantially
all of the net gaming assets of GemGroup for $19.75 million, using a combination of cash and bank financing. GemGroup was a manufacturer
of playing cards, casino currency, and table layouts primarily sold under the Gemaco brand. See Note 2 – Acquisition.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated condensed financial statements
included in this report, 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 condensed consolidated financial statements are prepared using
the same critical accounting estimates discussed in our Annual Report on Form 10-K/A for the fiscal year ended December 31,
2014, filed with the SEC on March 20, 2015. 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 condensed consolidated statements of operations (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
Revenues | |
$ | 18,656 | | |
| 100.0 | % | |
$ | 10,559 | | |
| 100.0 | % | |
$ | 8,097 | | |
| 76.7 | % |
Cost of revenues | |
| 12,332 | | |
| 66.1 | % | |
| 7,800 | | |
| 73.9 | % | |
| 4,532 | | |
| 58.1 | % |
Gross profit | |
| 6,324 | | |
| 33.9 | % | |
| 2,759 | | |
| 26.1 | % | |
| 3,565 | | |
| 129.2 | % |
Selling, administrative, and research and development | |
| 4,555 | | |
| 24.4 | % | |
| 3,808 | | |
| 36.1 | % | |
| 747 | | |
| 19.6 | % |
Operating income (loss) | |
| 1,769 | | |
| 9.5 | % | |
| (1,049 | ) | |
| (10.0 | )% | |
| 2,818 | | |
| 268.6 | % |
Other income | |
| 35 | | |
| 0.2 | % | |
| 55 | | |
| 0.5 | % | |
| (20 | ) | |
| (36.4 | )% |
Income (loss) before income taxes | |
| 1,804 | | |
| 9.7 | % | |
| (994 | ) | |
| (9.5 | )% | |
| 2,798 | | |
| 281.5 | % |
Income tax (benefit) provision | |
| (153 | ) | |
| (0.8 | )% | |
| 137 | | |
| 1.3 | % | |
| (290 | ) | |
| (211.7 | )% |
Net income (loss) | |
$ | 1,957 | | |
| 10.5 | % | |
$ | (1,131 | ) | |
| (10.8 | )% | |
$ | 3,088 | | |
| 273.0 | % |
The following tables present
certain data by geographic area (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
Revenues | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
The Americas | |
$ | 12,304 | | |
| 65.9 | % | |
$ | 5,270 | | |
| 49.9 | % | |
$ | 7,034 | | |
| 133.5 | % |
Asia-Pacific | |
| 5,969 | | |
| 32.0 | % | |
| 4,805 | | |
| 45.5 | % | |
| 1,164 | | |
| 24.2 | % |
Europe and Africa | |
| 383 | | |
| 2.1 | % | |
| 484 | | |
| 4.6 | % | |
| (101 | ) | |
| (20.9 | )% |
Total | |
$ | 18,656 | | |
| 100.0 | % | |
$ | 10,559 | | |
| 100.0 | % | |
$ | 8,097 | | |
| 76.7 | % |
The following tables present our revenues
by product line (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Casino currency with RFID | |
| 3,619 | | |
| 19.4 | % | |
| 3,880 | | |
| 36.7 | % | |
| (261 | ) | |
| (6.7 | )% |
Casino currency without RFID | |
$ | 3,079 | | |
| 16.5 | % | |
$ | 2,276 | | |
| 21.6 | % | |
$ | 803 | | |
| 35.3 | % |
Total casino currency | |
| 6,698 | | |
| 35.9 | % | |
| 6,156 | | |
| 58.3 | % | |
| 542 | | |
| 8.8 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Playing cards | |
| 5,773 | | |
| 30.9 | % | |
| 1,538 | | |
| 14.6 | % | |
| 4,235 | | |
| 275.4 | % |
Table layouts | |
| 1,694 | | |
| 9.1 | % | |
| 856 | | |
| 8.1 | % | |
| 838 | | |
| 97.9 | % |
Table accessories and other products | |
| 1,642 | | |
| 8.8 | % | |
| 651 | | |
| 6.2 | % | |
| 991 | | |
| 152.2 | % |
Dice | |
| 601 | | |
| 3.2 | % | |
| 510 | | |
| 4.8 | % | |
| 91 | | |
| 17.8 | % |
Gaming furniture | |
| 588 | | |
| 3.2 | % | |
| 256 | | |
| 2.4 | % | |
| 332 | | |
| 129.7 | % |
RFID solutions | |
| 860 | | |
| 4.6 | % | |
| 246 | | |
| 2.3 | % | |
| 614 | | |
| 249.6 | % |
Shipping | |
| 800 | | |
| 4.3 | % | |
| 346 | | |
| 3.3 | % | |
| 454 | | |
| 131.2 | % |
Total | |
$ | 18,656 | | |
| 100.0 | % | |
$ | 10,559 | | |
| 100.0 | % | |
$ | 8,097 | | |
| 76.7 | % |
Comparison of Operations for the Three Months Ended March 31,
2015 and 2014
Revenues. For the
three months ended March 31, 2015, our revenues were $18.7 million, an increase of $8.1 million, or 76.7%, compared to revenues
of $10.6 million for the same period of 2014. The increase in revenues is primarily attributable to increased playing card and
table layout revenues resulting from the GemGroup Acquisition in July 2014.
Cost of Revenues. For
the three months ended March 31, 2015, cost of revenues was $12.3 million, an increase of $4.5 million, or 58.1%, compared
to cost of revenues of $7.8 million for the same period in 2014. As a percentage of revenues, our cost of revenues decreased to
66.1% in 2015 compared to 73.9% in 2014. 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 March 31, 2015, gross profit was $6.3 million, an increase of $3.6 million, or 129.2%, compared to gross profit of
$2.8 million for the same period in 2014. As a percentage of revenues, our gross profit increased to 33.9% from 26.1%. The improvements
are primarily due to efficiency improvement in our playing card production as a result of completing the relocation of all our
playing card production from Mexico to our facility in Blue Springs, Missouri in December 2014. Additional factors are a stronger
dollar as compared to the euro, and an increase in revenue of our higher margin currency products.
Selling, Administrative,
and Research and Development Expenses. The following tables present the selling, administrative, and research and development
expenses (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
Marketing and sales | |
$ | 1,800 | | |
| 9.6 | % | |
$ | 1,303 | | |
| 12.3 | % | |
$ | 497 | | |
| 38.1 | % |
General and administrative | |
| 2,416 | | |
| 13.0 | % | |
| 2,068 | | |
| 19.7 | % | |
| 348 | | |
| 16.8 | % |
Research and development | |
| 339 | | |
| 1.8 | % | |
| 437 | | |
| 4.1 | % | |
| (98 | ) | |
| (22.4 | )% |
Total selling, administrative,
and research and development | |
$ | 4,555 | | |
| 24.4 | % | |
$ | 3,808 | | |
| 36.1 | % | |
$ | 747 | | |
| 19.6 | % |
For the three months
ended March 31, 2015, selling, administrative, and research and development expenses were $4.6 million, an increase of $0.7 million,
or 19.6%, compared to selling, administrative, and research and development expenses of $3.8 million during the same period in
2014. Selling, administrative, and research and development expenses decreased as a percent of revenue to 24.4% in the first three
months of 2015 from 36.1% in the same period in 2014.
Marketing and sales expenses
increased by $0.5 million during the first quarter of 2015, compared to the same period in 2014 which is primarily due to an increase
in sales expenses for additional personnel associated with the GemGroup Acquisition in July of 2014.
General and administrative
expenses increased by $0.3 million during the first quarter of 2015, compared to the same period in 2014 which is primarily due
to an increase in personnel and other general administrative expenses associated with the GemGroup Acquisition in July of 2014.
Research and development
expenses remained relatively unchanged in the first quarter of 2015 compared to the same period in 2014.
Other Income
and (Expense). The following tables present other income and (expense) items (in thousands) and as a percentage of revenues:
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
Interest income | |
$ | 5 | | |
| 0.0 | % | |
$ | 78 | | |
| 0.7 | % | |
$ | (73 | ) | |
| (93.6 | )% |
Interest expense | |
| (63 | ) | |
| (0.3 | )% | |
| - | | |
| 0.0 | % | |
| (63 | ) | |
| 0.0 | % |
Gain (Loss) on foreign currency transactions | |
| 89 | | |
| 0.5 | % | |
| (25 | ) | |
| (0.2 | )% | |
| 114 | | |
| (456.0 | )% |
Other income, net | |
| 4 | | |
| 0.0 | % | |
| 2 | | |
| 0.0 | % | |
| 2 | | |
| 100.0 | % |
Total other income | |
$ | 35 | | |
| 0.2 | % | |
$ | 55 | | |
| 0.5 | % | |
$ | (20 | ) | |
| (36.4 | )% |
Income Taxes. Our effective
income tax rate for the three months ended March 31, 2015 and 2014 was (8.49%) and (13.78%), respectively. Our effective tax rate
for the three months ended March 31, 2015 was favorably affected by the release of valuation allowance related to foreign tax
credits, 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. Without the decrease in the valuation
allowance related to foreign tax credits, our effective tax rate for the three months ended March 31, 2015 would have been 24.42%.
Our effective tax rate for the three months
ended March 31, 2014 differed from the statutory rate primarily due to the increase in our valuation allowance related to foreign
tax credits, offset by a favorable impact from the foreign rate differential on income from our Macau subsidiary, GPI Asia, and
the benefit from a research credit from our French subsidiary, GPI SAS. In 2015, the French Tax Administration has started an
examination of GPI SAS for tax years 2013 and 2012.
We account for uncertain tax positions
in accordance with applicable accounting guidance. There were no unrecognized tax benefits reported at March 31, 2015 or December
31, 2014.
Liquidity and Capital Resources
Sources of Liquidity and Capital
Resources. Historically, our primary source of liquidity and capital resources has been cash from operations. On June
26, 2014, GPI USA and HSBC Bank USA entered into a demand line of credit agreement with a limit of $10.0 million. Interest on
the line of credit is LIBOR plus 2.25%. We borrowed $10.0 million under the line of credit to finance the GemGroup Acquisition
on June 26, 2014. The line of credit is secured by a lien on all of the assets of GPI USA and is guaranteed by GPIC. The line
of credit is subject to renewal by the bank in its sole discretion on June 30 of each year. Other potential sources of capital
include, but are not limited to, marketable securities and bank credit facilities both in the United States and abroad. We believe
that the combination of these resources will satisfy our needs for working capital, capital expenditures, purchases of common
stock under our stock repurchase program, litigation, dividends or acquisitions.
At March 31, 2015, we had $10.1 million
in cash and cash equivalents and $5.4 million in marketable securities, totaling $15.5 million. Of this amount, $6.2 million
is held by GPI SAS, $5.0 million is held by GPI Asia, and $4.3 million is held by GPI USA. Of those amounts held outside of the
United States, 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. We may repatriate amounts from GPI SAS and, accordingly, our condensed financial
statements reflect the tax impacts that would result from repatriation. We do not anticipate repatriation from GPI Asia and, accordingly,
our condensed financial statements do not reflect the tax impacts that would result from repatriation.
Working
Capital. The following summarizes our cash and cash equivalents, marketable securities, and working capital (all
in thousands), and our current ratio:
| |
March 31, | | |
December 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
Cash and cash equivalents | |
$ | 10,117 | | |
$ | 8,969 | | |
$ | 1,148 | | |
| 12.8 | % |
Marketable securities | |
| 5,380 | | |
| 3,597 | | |
| 1,783 | | |
| 49.6 | % |
Working capital | |
| 17,199 | | |
| 16,195 | | |
| 1,004 | | |
| 6.2 | % |
Current ratio | |
| 1.9 | | |
| 1.8 | | |
| | | |
| | |
At March 31, 2015, working capital totaled
$17.2 million, an increase of $1.0 million, or 6.2%, compared to working capital of $16.2 million at December 31, 2014. This increase
is due to an increase in current assets of $1.0 million.
Cash Flows. The following
summarizes our cash flows (in thousands):
| |
Three Months Ended | | |
| | |
| |
| |
March 31, | | |
Period-to-Period | |
| |
2015 | | |
2014 | | |
Change | |
| |
| | |
| | |
| | |
| |
Operating activities | |
$ | 3,874 | | |
$ | 513 | | |
$ | 3,361 | | |
| 655.1 | % |
Investing activities | |
| (2,407 | ) | |
| (1,189 | ) | |
| (1,218 | ) | |
| 102.5 | % |
Financing activities | |
| 87 | | |
| - | | |
| 87 | | |
| 0.0 | % |
Effect of exchange rates | |
| (406 | ) | |
| (3 | ) | |
| (403 | ) | |
| 13,446.7 | % |
Net change | |
$ | 1,148 | | |
$ | (679 | ) | |
$ | 1,825 | | |
| 268.8 | % |
The increase in cash flows provided by
operating activities was primarily caused by an increase in net income of $3.1 million.
The increase in cash flows used by investing
activities was primarily due to an increase in purchases of marketable securities of $1.6 million offset by a decrease of
the business acquisition deposit of $1.0 million due to the GemGroup Acquisition.
Cash flows provided by financing activities
remained relatively flat as compared to the three months ended March 31, 2014.
Capital
Expenditures. We intend to purchase approximately $1.6 million in property, plant, and equipment during the
remainder of 2015. In the first quarter of 2015, we purchased $0.2 million of property, plant, and equipment. Previously anticipated
capital expenditures of approximately $2.0 million have been postponed until 2016.
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 from time to time.
Backlog.
At March 31, 2015, our backlog of signed orders for 2015 was $9.9 million, consisting of $6.6 million for GPI USA, $2.9 million
for GPI Asia, and $0.4 million for GPI SAS. At March 31, 2014, our backlog of signed orders for 2014 was $5.6 million, consisting
of $4.2 million for GPI USA, $1.1 million for GPI Asia, and $0.3 million for GPI SAS.
Contractual Obligations and Commercial Commitments
There was no material change in our contractual
obligations and commercial commitments during the three months ended March 31, 2015.
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/A for the fiscal year ended December 31, 2014, filed with
the SEC on March 20, 2015. We do not intend, and undertake no obligation, to update our forward-looking statements to reflect
future events or circumstances.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting
company.
ITEM 4. CONTROLS
AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, including the Chief Executive
Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures
pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") as of March 31, 2015. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that, as of March 31, 2015, the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure
controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time
periods specified in the SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Management has determined that there was
no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
during the quarter ended March 31, 2015, that materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
None.
ITEM
1A. RISK FACTORS
Not required for a smaller reporting company.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No common shares were repurchased by the
Company in the first quarter of 2015.
ITEM
3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM
5. OTHER INFORMATION
None
ITEM
6. EXHIBITS
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. |
|
|
31.2 |
Certification of Chief Financial and Principal Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
32 |
Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
101.INS |
XBRL Instance |
|
|
101.SCH |
XBRL Taxonomy Extension Schema |
|
|
101.CAL |
XBRL Taxonomy Extension Calculation |
|
|
101.DEF |
XBRL Taxonomy Extension Definition |
|
|
101.LAB |
XBRL Taxonomy Extension Labels |
|
|
101.PRE |
XBRL Taxonomy Extension Presentation |
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
GAMING PARTNERS INTERNATIONAL CORPORATION |
|
|
Date: May 13, 2015 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau |
|
|
President and Chief Executive Officer |
|
|
|
Date: May 13, 2015 |
By: |
/s/ Alain Thieffry |
|
|
Alain Thieffry |
|
|
Chief Financial Officer, and Chairperson of the Board |
EXHIBIT 31.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER
Section 302 Certification
I, Gregory S. Gronau, certify that:
1. I
have reviewed this quarterly report on Form 10-Q of Gaming Partners International Corporation;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements and other financial information included in this report fairly present, in all material
respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information;
and
b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 13, 2015 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau
President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION OF
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
Section 302 Certification
I, Alain Thieffry, certify that:
1. I
have reviewed this quarterly report on Form 10-Q of Gaming Partners International Corporation;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based
on my knowledge, the financial statements and other financial information included in this report fairly present, in all material
respects, the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information;
and
b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: May 13, 2015 |
By: |
/s/ Alain Thieffry |
|
|
Alain Thieffry
Chief Financial Officer, and Chairperson of the Board |
Exhibit 32.0
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report
on Form 10-Q of Gaming Partners International Corporation (the Company), for the quarter ended March 31, 2015, as filed with
the Securities and Exchange Commission (SEC) on the date hereof (the Report), Gregory S. Gronau, as Chief Executive Officer of
the Company, and Alain Thieffry, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C.
§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
| 1. | The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company. |
|
GAMING PARTNERS INTERNATIONAL CORPORATION |
|
|
|
Date: May 13, 2015 |
By: |
/s/ Gregory S. Gronau |
|
|
Gregory S. Gronau |
|
|
President and Chief Executive Officer |
|
|
|
Date: May 13, 2015 |
By: |
/s/ Alain Thieffry |
|
|
Alain Thieffry |
|
|
Chief Financial Officer, and Chairperson of the Board |
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