UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-K

(Mark One)

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
  For the fiscal year ended December 31, 2017
 
¨ 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   88-0310433
(State of incorporation)   (I.R.S. Employer Identification No.)

 

3945 West Cheyenne Avenue, North Las Vegas, Nevada 89032

(Address of principal executive offices)

 

Registrant's telephone number, including area code:   (702) 384-2425

  

Securities registered pursuant to Section 12(b) of the Act:   None

 

Securities registered pursuant to Section 12(g) of the Act:   Common Stock, par value $0.01 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. ¨ Yes x No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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. x Yes ¨ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its 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 the registrant was required to submit and post such files). x Yes ¨ No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes x No

 

The aggregate market value of the Common Stock held by non-affiliates of the registrant as of June 30, 2017 (the last business day of the most recently completed second fiscal quarter) based on the closing price as reported on the NASDAQ Global Market of $11.93 per share: $47,024,195 .

 

As of March 15, 2018, there were 7,932,794 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

 

Documents Incorporated by Reference:

 

Portions of our definitive Proxy Statement relating to our 2018 annual stockholders’ meeting are incorporated herein by reference in Part III of this Annual Report on Form 10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission no later than 120 days after conclusion of the registrant’s year ended December 31, 2017.

 

 

 

     

 

   

TABLE OF CONTENTS

  

PART I   1
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 11
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Mine Safety Disclosures 12
     
PART II   13
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
  Report of Independent Registered Public Accounting Firm 27
  Consolidated Balance Sheets 28
  Consolidated Statements of Income 29
  Consolidated Statements of Comprehensive Income 30
  Consolidated Statements of Stockholders’ Equity 31
  Consolidated Statements of Cash Flows 32
  Notes to Consolidated Financial Statements 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 50
Item 9A. Controls and Procedures 50
Item 9B. Other Information 51
     
PART III   51
Item 10. Directors, Executive Officers, and Corporate Governance 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 51
Item 13. Certain Relationships and Related Transactions, and Director Independence 51
Item 14. Principal Accounting Fees and Services 51
     
PART IV   52
Item 15. Exhibits, Financial Statement Schedules 52
Item 16. Form 10-K Summary 53

 

     

 

 

PART I

 

Statement Regarding Forward-Looking Statements

 

This report on Form 10-K contains forward-looking statements regarding future events or our future financial and operational performance. Forward-looking statements include statements regarding markets for our products; trends in net sales, gross profits and estimated expense levels; liquidity and anticipated cash needs and availability; and any statement that contains the words “anticipate,” “believe,” “plan,” “forecast,” “foresee,” “estimate,” “project,” “expect,” “seek,” “target,” “intend,” “goal” and other similar expressions. The forward-looking statements included in this report reflect our current expectations and beliefs, and we do not undertake publicly to update or revise these statements, even if experience or future changes make it clear that any projected results expressed in this annual report or future quarterly reports to stockholders, press releases or company statements will not be realized. In addition, the inclusion of any statement in this report does not constitute an admission by us that the events or circumstances described in such statement are material. Furthermore, we wish to caution and advise readers that these statements are based on assumptions that may not materialize and may involve risks and uncertainties, many of which are beyond our control, that could cause actual events or performance to differ materially from those contained or implied in these forward-looking statements. These risks and uncertainties include the business and economic risks described in Item 1A. Risk Factors.

 

Unless otherwise indicated or unless the context requires otherwise, all references in this document to “GPIC,” “our company,” “we,” “us,” “our,” “the Company,” and similar names refer to Gaming Partners International Corporation and its subsidiaries.

 

Item 1.   Business

 

Company Overview

 

Gaming Partners International Corporation, a Nevada corporation, is headquartered in North Las Vegas, Nevada. The Company was formed in 2002 through a reverse merger between Paul-Son Gaming and Bourgogne et Grasset. GPIC 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 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.

 

We are one of the gaming industry’s leading manufacturers and suppliers of casino table game equipment. 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 radio frequency identification (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. Our products fall into two categories – non-consumable and consumable. Non-consumable products consist of casino currencies, gaming furniture, and RFID solutions. These products typically have a useful life of several years or longer. Sales of non-consumables are typically driven by casino openings, expansions, and re-brandings, as well as replacement in the normal course of business. Consumable products consist of playing cards, table layouts, dice, and table accessories. These products each have a useful life that ranges from several hours for playing cards and dice to several months for layouts. Casinos tend to buy these products annually if not more frequently.

 

  1  

 

 

The majority of our products are specifically designed and produced to meet our customers’ requirements, whether they are related to use, branding, aesthetic appeal, security, or anti-counterfeiting features. We believe our ability to produce products with a variety of styles and features, in combination with years of reliable delivery, enhance our competitive position. Our strategy is to be the exclusive supplier of table game products for every new casino. Through this strategy, revenues are generated both from the initial sale and replenishment of consumable products.

 

Product Segment

 

We operate in one operating segment – casino table game products. See Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 13. Geographic and Product Line Information, for information concerning our product lines.

 

Products

 

The following table describes our products by product line and sales (dollars in thousands) for the years ended December 31:

  

    2017     2016     Year-to-Year Change  
                                     
Casino currency without RFID   $ 14,754       18.3 %   $ 15,698       19.1 %   $ (944 )     (6.0 )%
Casino currency with RFID     18,041       22.4 %     16,123       19.6 %     1,918       11.9 %
Total casino currency     32,795       40.7 %     31,821       38.7 %     974       3.1 %
                                                 
Playing cards     24,864       30.8 %     26,708       32.5 %     (1,844 )     (6.9 )%
Table accessories and other products     6,802       8.4 %     6,639       8.1 %     163       2.5 %
Table layouts     5,315       6.6 %     5,259       6.4 %     56       1.1 %
Gaming furniture     3,126       3.9 %     2,645       3.2 %     481       18.2 %
Dice     2,791       3.5 %     2,859       3.5 %     (68 )     (2.4 )%
RFID solutions     1,623       2.0 %     3,000       3.7 %     (1,377 )     (45.9 )%
Shipping     3,286       4.1 %     3,208       3.9 %     78       2.4 %
Total   $ 80,602       100.0 %   $ 82,139       100.0 %   $ (1,537 )     (1.9 )%

 

Casino Currency

 

Casino currency, used at table games, can be divided into two basic styles: American-style, known as chips, and European-style, known as plaques and jetons. Our broad range of currency products enables us to meet our customers’ preferences and specifications, including branding, aesthetic, security, and anti-counterfeiting features. Because casino currency, like real currency, is subject to counterfeiting, we incorporate a variety of custom security and anti-counterfeit features, such as ultra-violet (UV) pigments, UV inks, four-color process UV markings, infrared pigments, DNA type taggants, gold lace materials, alpha dots, customized rings, number serializations, security films, holograms, and micro-text. Manufacturing techniques used to thwart counterfeiting include creation of intricate multi-shot molds and complex currency designs to increase replication difficulty. Our most sophisticated anti-counterfeiting feature is an RFID device, based on a microchip that can be embedded in our casino currency making it counterfeit resistant when combined with our chip inventory, validation and tracking system (CIS).

 

Typically, a casino will order all of its casino currency, including replacement currency, from a single supplier. Accordingly, we strive to become the original casino currency supplier to a casino upon its opening, thereby enhancing our opportunity to receive additional sales when the casino places replacement orders or grows. A new casino order will typically include at least five to seven distinct currency denominations, colors, and styles, ranging in denominations from $0.50 to in excess of $1 million. Our selling price depends on customization, quantities, design, and security features. We hold the leading worldwide market share in casino currency.

 

  2  

 

 

American style Casino Currency. American-style casino currency, commonly known as chips, is used worldwide. There are currently four main manufacturing technologies used to produce this type of currency: injection molding, thermo-compression molding, laser cut-thermo-compression, and sublimation. We produce casino currency using all four of these methods. We sell American-style casino currency under the Paulson ® , Bud Jones ® , Blue Chip ® (BC ® ), Dolphin ® and Bourgogne et Grasset ® (BG ® ) brand names.

 

• Injection-molded Currency. Our BG ® , Dolphin ® and Bud Jones ® Plastic injection-molded casino currencies are made with several injection-molded colors, typically with a central metal piece for added weight, and printed decals. There are several standard diameters and a wide range of design and color combinations. Various security features are used to make the currencies counterfeit resistant, including using various UV, 3-in-1 UV and infra-red pigments, and other ELP pigments, specialty inks, security taggants, holograms, 4C-UV, security film, serialization, Datatrace, DNA security powders (that can be read with specialized equipment), electromagnetic (EM) detection and RFID technology. Under our BG ® brand, our Premium Chip allows for the design and full customization of the chip mold. Our new BG ® V-Series chip line was developed using an exclusive and highly durable injection material formula. The V-Series utilizes a proprietary and interchangeable mold system that offers customers a broader range of mold designs and the option to select between two decal sizes. All V-Series chips come standard with ChipShield, an anti-fungal agent that keeps chips cleaner. All four color shot V-Series chips come standard with an exclusive state-of-the-art hidden infra-red security feature.

 

• Thermo-compression Molded Currency. Our Paulson ® and Blue Chip ® (BC ® ) thermo-compression molded casino currencies are manufactured using a proprietary formulation. Printed decals or “inlays” are incorporated in the product during the compression steps. Customized designs, security, and identifying features can be incorporated into the currencies. These casino currencies have a unique feel when stacked and are commonly referred to as “clay chips.” Various security features are used to make this currency counterfeit resistant, including UV and infra-red pigments, UV and 4C-UV inks, alphadots, custom molds, serialization, EM detection and RFID technology. Our Paulson ® Premium Chip has an outer d é cor ring made from the same materials used in our European-style plaques and jetons. The addition of the décor ring gives customers the option of adding additional security features.

 

• Laser CutThermo-compression Currency . Our BG ® J3 jeton is a laser cut, thermo-compression casino currency that features intricate edge insert designs, two decal size options and the most advanced technology in security features. The J3 is referred to as a hybrid chip as it combines European-style plaque and jeton materials and aesthetic features with the feel and handling properties of American-style casino currency. Security features such as RFID technology, EM detection, microdots, gold lace, serialization, 4C-UV, UV Electro Luminescent and infra-red pigments, holograms and security film can be added to make the currency more counterfeit resistant.

 

• Sublimation Currency. Sublimation currency, manufactured under the BG ® brand, is made from an injection-molded white disc. Currency designs are transferred to the disc using a technology called “pad printing.” This technology permits simultaneous printing of the face and the edge of the chip. We refer to this casino currency style as “Full Face.” The security feature available is infra-red pigments.

 

European-style Casino Currency. Plaques and jetons are European-style casino currency. Plaques can be rectangular, square, oval, or custom-shaped and are available in various sizes. Jetons are circular with multiple diameters. Plaques and jetons are made of laminated cellulose acetate with a large range of colors, shapes, security, and anti-counterfeit components such as UV pigment, number serialization, laser pigment, gold lace material, EM detection, and RFID technology. We offer a number of standard designs as well as highly customized designs. GPI SAS created its original product line in 1925 and has held the leading position in this market since that time.

 

RFID Casino Currency. Since 1996, we have been at the forefront of applying RFID technology to casino currency. Our RFID products include RFID-embedded currency and readers and antennas for the cage, gaming tables, and chip vaults. All of these RFID products can be integrated with our CIS software to provide authentication and inventory management across multiple locations within a casino. RFID enables quick and accurate accounting and verification of casino currency, either one at a time or in larger quantities, whether in stacks, racks, chip trays, or cabinets. When integrated with CIS, casino management can access, in real-time, a number of custom reports.

 

Use of RFID in gaming started with our low-frequency (125 KHz) devices used primarily for security. In 2006, we developed and introduced a faster, high-frequency (13.56 MHz) line of RFID products which offered a higher level of security and had much faster reading speeds, allowing tracking of currency movements within a casino. In 2015, after three years of research and development, we introduced SMART, a proprietary, high-performance RFID technology. Using a new generation of RFID tags and antennas, SMART operates at even faster chip-reading speeds. The SMART reader generates less heat and requires a smaller footprint.

 

  3  

 

 

RFID Solutions. RFID Solutions are customized applications running on CIS which integrate into a casino’s system to authenticate and track casino currency. We also provide associated hardware support and maintenance services.

 

Playing Cards

 

We manufacture and sell two brands (Paulson ® and Gemaco ® ) of paper casino playing cards in single, multi-deck, and pre-shuffled packages. In addition, we offer plastic cards under our Gemaco ® brand. Based on casino controls and practices, playing cards are typically replaced at least every 24 hours, excluding plastic cards which are used for longer periods. A casino typically enters into a one- or two-year purchase commitment with a supplier to supply its playing cards at regular intervals, generally monthly or quarterly. Our playing cards are compatible with all types of playing card shufflers.

 

Table Layouts

 

All live gaming tables are covered with a layout printed with artwork particular to each specific game and casino preference. To give our customers maximum design flexibility, we have developed an extensive range of layouts using wool, polyester, and our proprietary Paulson ® FX material. Printing processes include screen printing, custom hand painting, and full graphic sublimation. All graphic designs are developed in house by our art department.

 

Dice

 

We manufacture and sell various brands of dice. We offer a variety of options, including size, finish type, customer logo, color, serialization, and security features. In a busy casino, a stick of dice (two and one-half pair) does not generally remain in play for more than one day.

 

Gaming Furniture

 

We sell a complete line of table gaming furniture, including tables, bases, and pit podiums. Our hand-crafted gaming furniture is custom built based on a casino’s designs and specifications. Our tables can be designed to incorporate all of our accessories and RFID systems as well as all third-party products, such as playing card shufflers, playing card readers, monitors, and bill validators. Table gaming furniture is typically sold in combination with table layouts and table accessories.

 

Table Accessories and Other Products

 

We offer a full line of table game accessories, including table displays, roulette reader boards, foot rails, chip trays, drop boxes, shoes, cut cards, dice sticks, lammers, markers and buttons. We manufacture many of these products and have aligned with a number of third-party vendors, such as TECHART, to provide products that we don’t manufacture. We are a licensed manufacturer of roulette wheels and sell them worldwide.

 

Backlog

 

At December 31, 2017, our backlog of signed orders to be delivered during 2018 was $21.0 million, consisting of $16.6 million for GPI USA, $3.8 million for GPI Asia, and $0.6 million for GPI SAS. At December 31, 2016, our backlog of signed orders to be delivered in 2017 was $17.4 million, consisting of $9.0 million for GPI USA, $8.1 million for GPI Asia, and $0.3 million for GPI SAS.

 

Sales, Advertising, and Promotion

 

We maintain a global sales network. In the Americas, we primarily sell through our U.S.-based sales force. In Europe and Africa, we primarily sell through our Beaune, France-based sales force. In the Asia-Pacific region, we distribute products through our Macau S.A.R., China-based sales force. In a few cases, when direct selling was not feasible because of local conditions, we have entered into agreements with carefully selected local sales agents or distributors. However, we always maintain direct contact with the customer to ensure that our brand integrity is not compromised.

 

We have product design teams in the United States, Mexico, France, and Asia to support our sales staff to develop artwork for custom products and to assist our manufacturing operations.

 

  4  

 

 

We actively promote our product lines, service capabilities, and product quality in a variety of traditional and emerging media. We place advertising in trade publications, support frequent editorial inquiries, and participate in major casino industry trade shows, including the Global Gaming Expo (G2E) events in Las Vegas, Nevada, and Macau S.A.R., China, the International Casino Exhibition (ICE) show in London, England, and the National Indian Gaming Association (NIGA) show held in various cities in the United States. We also promote our products through periodic direct-to-customer print and e-mail campaigns and maintain a website dedicated to providing our customers with an easy-to-use product information resource.

 

We also market casino-specific themed products in certain gaming jurisdictions, including casino currency, table layouts, playing cards, and dice. These themed products are used by our customers to promote special events, including sporting events, conventions, holidays, casino anniversaries, and premier entertainment events.

 

Competition

 

We compete in all of our product lines with several table game equipment suppliers. Competitive advantages include our reputation, manufacturing capability, sales staff experience, distribution channels, regulatory and jurisdictional licenses, financial strength, and being one of the few companies to provide a complete line of casino table game products.

 

Casino Currency. Major competitors in casino currency are ICON Poker, Inc., based in the United States; Abbiati Casino Equipment Snc., based in Italy; and Matsui Gaming Machine Co., Ltd., based in Japan. Competitive advantages are region-specific products, reputation, quality, widespread jurisdictional licensing, emphasis on and the range of available currency lines and currency security features and configurable custom design options, understanding of players’ and dealers’ preferences, and value.

 

RFID Solutions. Primary competitive advantages for RFID solutions sales are experience with tracking of the complete supply chain of our RFID currency, exclusive licenses and patents, CIS software, product quality, security, service, and value.

 

Playing Cards. Major competitors in playing cards are The United States Playing Card Company based in the United States, and the Angel Playing Cards Co., Ltd, based in Japan. Competitive advantages are card characteristics such as finish, weight of paper, and snap memory, as well as manufacturing capacity, multiple brands, jurisdictional licensing, security, quality control, delivery reliability and value.

 

Table Layouts. Primary competitors in table layouts are Midwest Game Supply Co., and Rye Park Gaming LLC, both based in the United States, TCS/John Huxley based in the United Kingdom, and Matsui Gaming Machine Co., Ltd.,and Colorway, based in Asia. In addition, there are numerous small, regional competitors. Competitive advantages are variety of layout materials offered, fabric quality and durability, quick delivery, printing processes, and value.

 

Table Gaming Furniture. Principal competitors in table gaming furniture are USA Gaming Supply Inc., Avalon Gaming Inc., and MSC Gaming Inc., all based in the United States, TCS/John Huxley, based in the United Kingdom, Abbiati Casino Equipment Snc., based in Italy, and regional wood shops. Primary competitive advantages are the ability to design and produce a wide range of gaming furniture, short production lead times, craftsmanship, jurisdictional approvals, and value.

 

Table Accessories and Other Products. Principal competitors in table accessories and other products are small local distributors. Key competitive advantages are the ability to be a single-source supplier of all table game products, service, and product quality.

 

Dice. Our primary competitor in dice is Midwest Game Supply Co., based in the United States. Primary competitive advantages are brand recognition, product quality, manufacturing capacity, multiple brands, product options, service, and value.

 

Materials and Supplies

 

Where possible, we diversify our supplier base to avoid a disruption of supply. Most of our raw materials are staple goods such as plastic, wood, felt, and synthetic fabric, which are readily available from several suppliers. We believe the availability of these materials is adequate to meet our ongoing manufacturing needs. However, some key components or raw materials, such as RFID tags or paper, have unique suppliers. For these critical supplies, we inventory, when possible, additional quantities.

 

  5  

 

 

Manufacturing

 

Most of our products are produced based on discrete orders. We manufacture few products to inventory. Our manufacturing facilities are in Beaune, France; San Luis Rio Colorado, Mexico; Blue Springs, Missouri; and Macau S.A.R., China. In France we produce our Bourgogne et Grasset ® American-style casino chips, as well as plaques and jetons. In Mexico, we produce Paulson ® , Bud Jones ® , Dolphin ® , and Bourgogne et Grasset ® American-style casino chips, as well as table layouts, gaming furniture, table accessories, and dice. In Blue Springs, we produce Paulson ® and Gemaco ® playing cards, and table layouts. In Macau S.A.R., we manufacture table layouts. We have the facilities, equipment, and personnel necessary to meet expected customer demand.

 

Research and Development

 

We continually invest in developing or acquiring new or improved products. We release new updates to our Chip Inventory System (CIS), we develop new security features for our casino currency products and develop new manufacturing processes to improve the quality of our products. In 2017, we released our Smart Checkpoint which provides the ability to authenticate the RFID currency directly at the table. For information regarding the amounts spent during 2017 and 2016 on research and development activities, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Intellectual Property

 

We own numerous United States and internationally-protected patents, trademarks and logos. Our trademarks, logos, and patent rights are valuable to our operations and are an important part of our marketing strategy. Our policy is to actively pursue and maintain registration of our patents, trade secrets, trademarks and logos, where needed, and to vigorously defend against any infringement or dilution.

 

Environmental Matters

 

Our operations are in compliance with international, federal, state, and local environmental laws and regulations. Liability for environmental remediation is accrued if considered probable and costs can be reasonably estimated.

 

Employees

 

At December 31, 2017, we employed 709 full-time employees, consisting of 340 employees in Mexico, 230 in the United States, 112 in France, and 27 in Macau S.A.R. None of our employees are covered by collective bargaining agreements and we believe that our relations with our employees are good.

 

Regulation and Licensing

 

The gaming operations of each of our subsidiaries, as well as the operations of casinos, are subject to extensive regulation by over 200 state, federal, tribal, and international agencies, with the majority of oversight by individual state gaming control boards and tribal gaming agencies. We have never been denied a gaming-related license.

 

While the regulatory requirements vary from jurisdiction to jurisdiction, most require licenses, permits, findings of suitability, documentation of qualification including evidence of financial stability and/or other required approvals for companies who manufacture and distribute gaming equipment, as well as the individual suitability of officers, directors, major stockholders, and key employees. Under the various gaming regulations, key personnel generally include the current and/or proposed corporate officers and directors of a corporation and its subsidiaries. Laws of the various gaming regulatory agencies are generally intended to protect the public and ensure that gaming-related activity is conducted honestly and competitively and is free of corruption.

 

Certain regulators not only govern the activities within their jurisdiction, but also oversee activities that occur in other jurisdictions to ensure that we comply with local standards on a worldwide basis. As a Nevada corporation, state regulatory authorities require us to maintain, at a minimum, Nevada gaming standards for all operations worldwide. Violations of laws in one jurisdiction could result in disciplinary action in other jurisdictions. A more detailed description of the regulations to which we are subject is provided in Exhibit 99.01 of this annual report on Form 10-K.

 

In August 2012, the Securities and Exchange Commission (SEC) adopted the conflict mineral rules requiring issuers that manufacture products that contain certain minerals and metals, known as conflict minerals, to perform due diligence and to report annually to the SEC whether such minerals originated in the Democratic Republic of Congo or an adjoining country. The implementation of these new requirements could adversely affect the sourcing, availability, and pricing of minerals that we use in the manufacture of our products. In addition, we have incurred and will incur additional costs to comply with these disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. A report is due annually on May 31 for the previous calendar year.

 

  6  

 

 

Dependence on One or a Few Major Customers

 

At December 31, 2017, no casino customer accounted for 10% or more of our accounts receivable balance. At December 31, 2016, one casino customer accounted for 25% of our accounts receivable balance.

 

Because of large orders for casino openings or expansions, it is not unusual to have temporary concentrations of our accounts receivable balance related to one or a few customers.

 

Financial Information about Geographic Areas

 

See Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 13. Geographic and Product Line Information, for financial information by geographic area.

 

Available Information

 

Our principal executive office is located at 3945 West Cheyenne Avenue, North Las Vegas, Nevada 89032. Our telephone number is (702) 384-2425. Our website is www.gpigaming.com . Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and, if applicable, any amendments to those reports, are available on our website free of charge as soon as reasonably practicable after we electronically file, or furnish, them to the SEC. The information found on our website is not incorporated or part of this annual report on Form 10-K or any other report we file or furnish to the SEC. Copies are also available free of charge by (i) telephonic request to our Investor Relations Department at (702) 384-2425, or (ii) written request to Gaming Partners International Corporation, Attn: Investor Relations, 3945 West Cheyenne Avenue, Suite 208, North Las Vegas, Nevada 89032.

 

Item 1A.   Risk Factors

 

An investment in our common stock involves a high degree of risk. You should carefully consider the factors described below, in addition to those discussed elsewhere in this report, in analyzing an investment in our common stock. If any of the events described below occurs, our business, financial condition, and results of operations would likely suffer, the trading price of our common stock could fall, and you could lose all or part of the money you paid for our common stock. The risk factors described below are not the only ones we face. Risks and uncertainties not known to us currently, or that may appear immaterial, also may have a material adverse effect on our business, financial condition, and results of operations.

 

In addition, the following risk factors and uncertainties could cause our actual results to differ materially from those projected in our forward-looking statements, whether made in this annual report or future quarterly reports to stockholders, press releases, or oral statements, whether in presentations, responses to questions, or otherwise. We urge you to carefully review the following discussion of the specific risks and uncertainties that affect our business, any of which could have an adverse effect on our financial condition and results of operations. These include, but are not limited to, the following:

 

Demand for our products could be adversely affected by:

 

• a significant shift in player preferences away from live table games to electronic, mobile, or online gaming, including the further legalization, expansion, and popularity of electronic, mobile, and online gaming;

 

• slow growth rate of new and existing land-based casinos and markets;

 

• delays of scheduled openings of newly constructed or planned land-based casinos;

 

• a decline in the rate of replacement of existing products;

 

• a decline in the public acceptance of gaming;

 

• a decline in the popularity of the types of games with which our products are used;

 

• a decline in the perceived usefulness and necessity of counterfeit security features in our products;

 

• an increase in the popularity of competitors’ products;

 

• a shift in customer preference between American-style casino chips and European-style plaques and jetons; and

 

  7  

 

 

• an increase in the number of competitors in the casino currency market or an inability to compete effectively with existing or new competitors.

 

Our success in the gaming industry depends in part on our ability to develop and introduce innovative products and could be adversely affected by:

 

• any defects in our RFID casino currencies or related products, or a failure of such products containing new innovative technology to perform as contemplated, which could result in the rejection or return of our products, damage to our reputation, lost revenues, increased service costs, warranty claims, and litigation;

 

• a lack of success in integrating our RFID technology with other technology for table game products, such as player tracking systems;

 

• the inability of us or another company to develop, sell, and support RFID-related applications requested by our customers, thereby making our RFID casino currencies less attractive;

 

• any delay by us in introducing new products on schedule;

 

• the development of competing new technologies, making our technology obsolete or undesirable; and

 

• a lack of success in developing or adequately servicing new products, in particular our products with security features.

 

Our intellectual property rights are subject to risks, including :

 

• approval of competitors’ patent applications that may restrict our ability to compete effectively;

 

• competitors’ infringement upon our existing trademarks, patents, trade secrets, and copyrights;

 

• expiration of our patents and licenses;

 

• inability to obtain, maintain, and defend patents, trademarks, copyrights, and trade secrets to protect our products and technology;

 

• costs in defending our intellectual property rights, including indirect costs related to the diversion of management’s time and attention away from the operation of our business;

 

• successful challenge of our patents regarding our RFID embedded casino currencies; and

 

• ineffective or lack of enforcement of patents by our licensors.

 

Our business is vulnerable to changing economic conditions, including:

 

• uncertainties related to changing economic conditions, including those that affect the health of the gaming industry;

 

• declines in discretionary spending on entertainment activities, including gaming, for reasons beyond our control such as continued negative economic conditions, travel or tourism declines, natural disasters, acts of war or terrorism, transportation disruptions and other travel limitations, or health epidemics;

 

• consolidations within the gaming industry;

 

• higher than anticipated manufacturing, selling, administrative, legal, and/or distribution costs;

 

• changes in interest rates resulting in changes in the fair market value of our financial instruments or increased interest expense;

 

• changes in interest rates causing a reduction of investment income or in the value of market-rate-sensitive instruments;

 

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• a tightening of the availability of capital so that loans to us or to our customers would only be available at cost-prohibitive terms and conditions; and

 

• unfavorable changes in federal, state, or foreign taxation laws or application of such laws that could reduce our profitability.

 

We operate in a number of tribal jurisdictions with sovereign immunity, which presents risks we generally do not encounter in United States jurisdictions. We also operate in many countries outside of the United States which subjects us to certain inherent risks, including:

 

• social, political, or economic instability in international markets, particularly those where we have higher sales concentrations and growth;

 

• tariffs, other trade barriers, and import or export licensing requirements;

 

• fluctuations in foreign exchange rates or an inability to effectively hedge our foreign currency exposures;

 

• expropriation, nationalization, and restrictions on repatriation of funds or assets;

 

• additional costs of compliance with international laws or unexpected changes in regulatory requirements, including those related to post-employment benefits;

 

• adverse changes in the creditworthiness of parties with whom we have significant receivables or forward currency exchange contracts;

 

• difficulty protecting our intellectual property;

 

• recessions in foreign economies;

 

• difficulties in maintaining foreign operations, including labor regulations, staffing, and management of widespread operations;

 

• changes in consumer tastes and trends;

 

• acts of war or terrorism; and

 

• U.S. government requirements for import and export.

 

We operate in a highly regulated industry and our ability to sell our products in existing jurisdictions or expand into new jurisdictions could be adversely affected by:

 

• changes in existing gaming laws and regulations or new interpretations of existing laws and regulations that hinder or prevent us from continuing to operate in the jurisdictions where we currently do business or where we intend to do business;

 

• unfavorable public referendums or anti-gaming legislation affecting or directed at gaming manufacturers or gaming operators;

 

• findings of non-compliance with applicable laws or regulations which could lead to a limitation, conditioning, suspension, or revocation of any of our gaming licenses;

 

• delays in obtaining or maintaining licenses or approvals from regulatory agencies;

 

• limited technological expertise by regulatory agencies causing restrictions or burdensome conditions on approvals;

 

• unfavorable determinations or challenges of suitability by gaming regulatory authorities with respect to our company, business, principal stockholders, officers, directors, or key employees; and

 

  9  

 

 

• excessive costs related to obtaining the necessary regulatory approvals.

 

We are subject to risk related to litigation and claims asserted against us, including:

 

• adverse material effects on our financial condition due to asserting or defending claims;

 

• the discovery of facts with respect to legal actions pending against us, but not presently known to us;

 

• agreements with casinos in Native American jurisdictions which may subject us to sovereign immunity risk; and

 

• a diversion of management’s attention from our business.

 

We have a stockholder with effective control of the Company, which means:

 

• it can control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions;

 

• it can delay or prevent a change in control of the Company, even when such change in control is in the best interests of other stockholders; and

 

• its ownership might adversely affect the market price of our common stock.

 

Pursuing or implementing acquisitions could have a material adverse effect on our business, financial condition, and results of operations, including:

 

• significant expenses related to due diligence efforts in connection with potential acquisitions and diversion of management’s attention away from our existing business;

 

• the issuance of potentially dilutive equity securities, significant expenditures of cash, the incurrence of debt and contingent liabilities, or an increase in amortization expenses; and  

 

• the failure to successfully consummate an acquisition on favorable terms or at all.

 

Any acquisition we consummate may fail to produce the revenues, earnings, or business synergies we anticipate for a variety of reasons, including:

 

• the inability to integrate operations, financial reporting, internal controls, technologies, products, and personnel, including issues raised by national, geographic, and cultural differences;

 

• potential impairments in acquired assets;

 

• a less-than-successful entry into markets or acquisition of products or technologies in which we have limited or no prior experience;

 

• expenses associated with any unknown or potential legal liabilities;

 

• changes in or uncertainties of application of laws or regulations;

 

• failures to identify or uncover material risks in due diligence;

 

• management of worldwide operations; and

 

• the inability to exploit acquired intellectual property or the development, sale, or lease of acquired products, or unanticipated increases in manufacturing expenses.

 

Our business operations are subject to other risks, including:

 

• the loss of key employees, sales personnel, and technical staff or an inability to hire a sufficient number of such persons;

 

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• limited or unique suppliers for certain key raw materials for significant products;

 

• possibility of failure of components purchased from suppliers;

 

• the presence of lead in older versions of Paulson ® brand casino chips, which could lead to unanticipated costs;

 

• increased costs due to reliance on third-party suppliers and contract manufacturers or a disruption in our manufacturing processes;

 

• increased costs due to compliance with the conflict mineral rules adopted under the Dodd-Frank Act, including costs related to determining the source of any of the relevant minerals and metals used in our products and any potential reputational harm if we are unable to sufficiently verify the origins for the minerals and metals;

 

• adverse changes in the creditworthiness of parties with whom we have receivables;

 

• casualty, theft, or loss of our casino currencies prior to delivery to casinos or the counterfeiting of our casino currencies;

 

• the possibility of failure of our security systems, or a breakdown in casino procedures designed to prevent the manipulation of our products, to prevent fraud, both against us and our customers, or the experience of any technical difficulties which may cause the public and/or our customers to lose confidence in our products or operations and/or subject us to legal claims by our customers or to investigation by gaming authorities; and

 

• any failures or difficulties in maintaining our computer information systems, including as a result of cyber-attacks, breaches of our computer systems, and other security vulnerabilities, could result in disruption of operations, loss of information, litigation, and unanticipated increases in costs.

 

Item 1B.   Unresolved Staff Comments

 

None.

 

Item 2.   Properties

 

Our headquarters is located in a 15,000 square-foot facility that we lease in North Las Vegas, Nevada. We manufacture and store our primary products at facilities in San Luis Rio Colorado, Mexico; San Luis, Arizona; Blue Springs, Missouri; Beaune, France; and Macau S.A.R., China. We also lease sales offices in Atlantic City, New Jersey; Gulfport, Mississippi; and Macau S.A.R.

 

North Las Vegas, Nevada. Our headquarters is located at 3945 West Cheyenne Avenue, North Las Vegas, Nevada. We are leasing approximately 15,000 square feet for a term of seven years commencing on January 1, 2016.

 

San Luis Rio Colorado, Mexico. We manufacture casino currencies, table accessories, table layouts, dice, and gaming furniture at three facilities in San Luis Rio Colorado, Mexico. These facilities include 80,000 square feet of leased facilities, and a 70,000 square-foot facility, which we own.

 

San Luis, Arizona.   We warehouse inventory in an 8,000 square-foot leased facility in San Luis, Arizona, across the border from our Mexican manufacturing facility.

 

Blue Springs, Missouri . We manufacture playing cards and table layouts at a facility in Blue Springs, Missouri. This facility includes 65,000 square-feet of manufacturing, office, and sales administration space. In addition, we store raw materials in an underground storage facility occupying 20,000 square feet of warehouse space in Independence, Missouri. This lease terminates in May 2018 and we are currently evaluating other warehouse spaces.

 

Beaune, France. We manufacture casino currency and table layouts at a facility in Beaune, France. This facility includes 34,000 square feet of manufacturing, office and sales administration space, which we own. In addition, we own a 15,000 square-foot administrative building. We also lease a 5,000 square-foot building, which houses our mold-making operations.

 

Macau S.A.R., China.   We distribute our full product line in a leased 4,000 square foot sales office in Macau S.A.R., China. In addition, we manufacture and warehouse table layouts in two additional leased facilities in Macau S.A.R., with a total of 6,700 square feet.

 

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Facility Capacity. With a total of approximately 322,700 square feet of manufacturing, warehouse, and administrative facilities as of December 31, 2017, we believe that we have sufficient production capacity to meet anticipated demand for all of our products.

 

Item 3.   Legal Proceedings

 

We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

There can be no assurance that we will prevail in any litigation. Liability for material claims are accrued when a loss is considered probable and can be reasonably estimated. Legal costs associated with claims are expensed as incurred. See Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 12. Commitments and Contingencies, for information regarding legal proceedings and contingencies.

 

Item 4.   Mine Safety Disclosures

 

Not applicable.

 

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PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is traded on the NASDAQ Global Market under the symbol GPIC. The following table sets forth the quarterly high and low prices for trades of our common stock as reported on the NASDAQ Global Market during the periods indicated. All stock prices reflect a fiscal year ending December 31. On March 15, 2018, the closing price was $9.69 per share.

 

    Fiscal Year 2017     Fiscal Year 2016  
    High     Low     High     Low  
First Quarter   $ 12.00     $ 9.66     $ 10.33     $ 8.51  
Second Quarter     12.50       9.13       9.98       8.55  
Third Quarter     12.12       9.65       12.34       9.12  
Fourth Quarter     11.50       10.35       11.95       10.27  

 

Holders

 

There were 70 holders of record of our common stock as of March 15, 2018.

 

Dividend Policy

 

Our Board of Directors has no plans to pay a regular dividend on our common stock, but intends to evaluate from time to time the merit of paying a dividend. In both December 2017 and 2016, we paid a cash dividend of $0.12 per issued and outstanding common share, resulting in aggregate dividends of $952,000 and $951,000, respectively.

 

Transfer Agent

 

Our stock transfer agent and registrar is Broadridge Corporate Issuer Solutions, P.O. Box 1342, Brentwood, NY 11717. Their telephone number is 1-877-830-4936.

 

Purchases of Equity Securities by the Issuer

 

The Company’s stock repurchase program adopted on December 1, 2011, remains in effect. As of December 31, 2017, 215,590 shares remain authorized for repurchase. No common shares were repurchased during 2017 or 2016, and there is no assurance that we will repurchase any additional shares under the repurchase program. See Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 15. Stockholders’ Equity.

 

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Amendments to the 1994 Directors’ Stock Option Plan (Directors’ Plan)

 

On December 26, 2017, the Board of Directors adopted amendments to the Directors’ Plan to extend the term of the plan from January 31, 2019 to January 31, 2022 and allow for the grant of stock appreciation rights to non-employee directors in addition to grants of stock options. Stock appreciation rights entitle non-employee directors to surrender a vested option and receive in exchange a cash payment. Non-employee directors currently hold outstanding stock options which will expire beginning in 2018 unless exercised. However, exercise of these options and the potential resulting sale of the common stock received upon exercise of the stock options could have a significant impact on the price of the Company’s common stock due to its low trading volume. The Board of Directors believes that the low trading volume of the Company’s stock would be unable to support the influx of directors selling shares received upon the exercise of stock options granted under the Directors’ Plan without a corresponding decrease in the Company’s stock price. Therefore, the Board of Directors adopted amendments to the Directors’ Plan to allow for the grant of stock appreciation rights which would entitle the non-employee director to receive the amount by which the fair market value of a share of common stock immediately prior to exercise exceeds the related stock option exercise price. The Board of Directors believes that the grant of stock appreciation rights continues to promote the underlying goals of the Directors’ Plan to encourage directors to take a long-term view of the Company’s affairs and to reward directors for their service to the Company, without directly affecting the Company’s stock price. The amendments to the Directors’ Plan are being submitted to the Company’s stockholders for approval at the annual meeting in May 2018.

 

On December 26, 2017, the Board of Directors, upon the recommendation of the Compensation Committee, granted stock appreciation rights to the Company’s non-employee directors relating to outstanding stock options for an aggregate 262,750 shares of common stock previously granted to them under the Directors’ Plan which expire after December 26, 2017. These grants of stock appreciation rights to our non-employee directors are being submitted to the Company’s stockholders for ratification at the annual meeting in May 2018. For more information see Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 16. Stock Option Programs and Share-based Compensation Expense.

 

Item 6.   Selected Financial Data

 

The selected consolidated financial data included in the following tables should be read in conjunction with Item 8. Financial Statements and Supplementary Data and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The selected consolidated financial data for the years ended December 31, 2017 and 2016 have been derived from our audited consolidated financial statements included at Item 8. Financial Statements and Supplementary Data. The selected consolidated financial data for the years ended December 31, 2015, 2014, and 2013 have been derived from our audited consolidated financial statements not included herein.

 

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    Years Ended December 31,  
    2017     2016     2015     2014     2013  
    (in thousands, except per-share amounts)  
STATEMENT OF INCOME DATA:                                        
Revenues   $ 80,602     $ 82,139     $ 78,238     $ 60,972     $ 56,173  
Cost of revenues     57,924       56,803       51,403       42,657       38,584  
Gross profit     22,678       25,336       26,835       18,315       17,589  
Selling, administrative, and research and development     17,152       17,776       16,926       16,127       16,970  
Operating income     5,526       7,560       9,909       2,188       619  
Other expense, net     (85 )     (34 )     (173 )     227       4  
Income before income taxes     5,441       7,526       9,736       2,415       623  
Income tax provision     1,815       2,343       2,805       (261 )     (543 )
Net income   $ 3,626     $ 5,183     $ 6,931     $ 2,676     $ 1,166  
                                         
Earnings per share:                                        
Basic   $ 0.46     $ 0.65     $ 0.87     $ 0.34     $ 0.15  
Diluted   $ 0.45     $ 0.64     $ 0.86     $ 0.33     $ 0.15  
Weighted-average shares of common stock outstanding:                                        
Basic     7,930       7,929       7,926       7,916       7,942  
Diluted     8,045       8,042       8,040       8,015       8,029  
                                         
BALANCE SHEET DATA:                                        
Cash and cash equivalents   $ 14,064     $ 10,604     $ 17,788     $ 8,969     $ 14,492  
Marketable securities     -       -       3,503       3,597       5,724  
Working capital     24,087       24,496       31,129       16,195       32,069  
Property and equipment, net     24,933       24,310       14,102       15,087       10,996  
Total assets     83,403       79,999       77,244       68,394       55,449  
Current liabilities     16,636       14,596       15,201       19,794       6,106  
Long-term debt     5,265       6,649       8,002       -       -  
Total stockholders' equity  (1)     61,316       57,533       53,788       48,265       47,473  

 

(1) Cash dividends of $952,000 and $951,000 were paid in 2017 and 2016, respectively. No cash dividends were paid in 2015, 2014 or 2013.

 

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Item 7.  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 for the year ended December 31, 2017. When reviewing this material, you should refer to the additional detailed information in our consolidated financial statements and the accompanying notes at Item 8. Financial Statements and Supplementary Data. Except for historical information contained herein, statements in the following discussion may be forward-looking. Such forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ significantly from those expressed. We discuss such risks, uncertainties and other factors throughout this report and specifically under Item 1A. Risk Factors.

 

For an overview of our business and information on our products, as well as other general information, see Item 1. “Business.”

 

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.

 

Our backlog, which reflects signed orders to be delivered over the following twelve months, was as follows at December 31, 2017 and December 31, 2016:

 

    GPI USA     GPI Asia     GPI SAS     Total  
December 31, 2017   $ 16.6 million     $ 3.8 million     $ 0.6 million     $ 21.0 million  
December 31, 2016   $ 9.0 million     $ 8.1 million     $ 0.3 million     $ 17.4 million  

 

Outlook

 

During the second half of 2017, we made significant progress in addressing expansion related issues impacting operations and margins at our Blue Springs facility. These efforts have resulted in improved margins in our card business. In addition, we added sales and marketing staff to enhance development of a retail card business. We do not expect material retail revenue in the short term, as it will take time to build relationships and a significant customer base. While extremely difficult to accurately predict casino opening dates, we currently expect 2018 sales in our Asian markets to be similar to 2017.

 

As previously disclosed in the 8-K filed January 31 st , 2018 we entered into a joint development agreement to provide a table management solution that would combine visioning technology and immersive data analytics with our RFID technology to better secure table currency, increase fraud protection, improve table productivity, and provide data for player behavior applications. We hope to introduce this table management solution at the end of 2018 or early 2019.

 

Financial and Operational Highlights

 

For the fourth quarter of 2017, our revenues were $20.8 million, a decrease of $2.3 million, or 10.2%, compared to revenues of $23.1 million in the fourth quarter of 2016. For the fourth quarter of 2017, our net income was $0.4 million, a decrease of $0.3 million, or 40.5%, compared to net income of $0.7 million in the fourth quarter of 2016.

 

For the year ended December 31, 2017, our revenues were $80.6 million, a decrease of $1.5 million, or 1.9%, compared to revenues of $82.1 million in 2016. Our net income for 2017 was $3.6 million, a decrease of $1.6 million, or 30.0%, compared to net income of $5.2 million for 2016.

 

GPI SAS uses the euro as its functional currency. At December 31, 2017 and 2016, the U.S. dollar to euro exchange rates were 1.20 and 1.05, respectively, which represents a 13.9% stronger dollar compared to the euro. The average exchange rates for the years ended December 31, 2017 and 2016 was $1.13 and $1.11, respectively, which represents a 2.1% stronger dollar compared to the euro.

 

Our Mexican manufacturing plant uses the U.S. dollar as its functional currency. At December 31, 2017 and 2016, the Mexican peso to U.S. dollar exchange rates were 19.69 and 20.75, respectively, which represents a 5.1% weaker dollar compared to the peso. The average exchange rates for the years ended December 31, 2017 and 2016 were 18.92 and 18.72 pesos to the U.S. dollar, respectively, which represents a 1.1% stronger dollar compared to the Mexican peso.

 

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GPI Asia uses the U.S. dollar as its functional currency. At December 31, 2017 and December 31, 2016, the Macau pataca to U.S. dollar exchange rates were 8.05 patacas and 8.20 patacas, respectively, which represents a 1.8% weaker dollar compared to the Macau pataca. The Macau pataca to U.S. dollar average exchange rates for the years ended December 31, 2017 and 2016 were 8.13 patacas and 8.17 patacas, respectively, which represents a 0.5% weaker dollar compared to the Macau pataca.

 

Results of Operations

 

The following table summarizes selected items from our consolidated statements of income (dollars in thousands) and as a percentage of revenues for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
Revenues   $ 80,602       100.0 %   $ 82,139       100.0 %   $ (1,537 )     (1.9 )%
Cost of revenues     57,924       71.9 %     56,803       69.2 %     1,121       2.0 %
Gross profit     22,678       28.1 %     25,336       30.8 %     (2,658 )     (10.5 )%
Selling, administrative, and research and development     17,152       21.3 %     17,776       21.6 %     (624 )     (3.5 )%
Operating income     5,526       6.9 %     7,560       9.2 %     (2,034 )     (26.9 )%
Other expense, net     (85 )     (0.1 )%     (34 )     (0.0 )%     (51 )     150.0 %
Income before income taxes     5,441       6.8 %     7,526       9.3 %     (2,085 )     (27.7 )%
Income tax provision (benefit)     1,815       2.3 %     2,343       2.9 %     (528 )     (22.5 )%
Net income   $ 3,626       4.5 %   $ 5,183       6.3 %   $ (1,557 )     (30.0 )%

 

The following table presents certain data by geographic location (dollars in thousands) and as a percentage of revenues for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
Revenues                                                
The Americas   $ 54,638       67.8 %   $ 56,247       68.5 %   $ (1,609 )     (2.9 )%
Asia-Pacific     23,200       28.8 %     22,080       26.9 %     1,120       5.1 %
Europe and Africa     2,764       3.4 %     3,812       4.6 %     (1,048 )     (27.5 )%
Total   $ 80,602       100.0 %   $ 82,139       100.0 %   $ (1,537 )     (1.9 )%

 

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The following table details our revenues by product line (dollars in thousands) and as a percentage of revenues for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
                                     
Casino currency without RFID   $ 14,754       18.3 %   $ 15,698       19.1 %   $ (944 )     (6.0 )%
Casino currency with RFID     18,041       22.4 %     16,123       19.6 %     1,918       11.9 %
Total casino currency     32,795       40.7 %     31,821       38.7 %     974       3.1 %
                                                 
Playing cards     24,864       30.8 %     26,708       32.5 %     (1,844 )     (6.9 )%
Table accessories and other products     6,802       8.4 %     6,639       8.1 %     163       2.5 %
Table layouts     5,315       6.6 %     5,259       6.4 %     56       1.1 %
Gaming furniture     3,126       3.9 %     2,645       3.2 %     481       18.2 %
Dice     2,791       3.5 %     2,859       3.5 %     (68 )     (2.4 )%
RFID solutions     1,623       2.0 %     3,000       3.7 %     (1,377 )     (45.9 )%
Shipping     3,286       4.1 %     3,208       3.9 %     78       2.4 %
Total   $ 80,602       100.0 %   $ 82,139       100.0 %   $ (1,537 )     (1.9 )%

 

Comparison of Operations for the Years Ended December 31, 2017 and 2016

 

Revenues. For the year ended December 31, 2017, our revenues were $80.6 million, a decrease of $1.5 million, or 1.9%, compared to revenues of $82.1 million in 2016. The decrease in revenues is primarily due to a decrease in playing cards sales and the RFID solutions product lines, offset by an increase in casino currency.

 

Cost of Revenues. For the year ended December 31, 2017, our cost of revenues was $57.9 million, an increase of $1.1 million, or 2.0%, compared to cost of revenues of $56.8 million for 2016. As a percentage of revenues, our cost of revenues increased to 71.9% in 2017 compared to 69.2% in 2016. The increased cost of revenues was driven by the same factors described under Revenues above and Gross Profit below.

 

Gross Profit. For the year ended December 31, 2017, gross profit was $22.7 million, a decrease of $2.6 million, or 10.5%, compared to gross profit of $25.3 million for 2016. As a percentage of revenues, our gross profit decreased to 28.1% in 2017 compared to 30.8% in 2016. This decrease in gross profit was primarily related to a decrease in RFID solutions sales, a decrease in playing cards sales, an exceptional write-down of $0.8 million on slow-moving casino currency inventory items, and an increase in our depreciation of $1.2 million. This increase in depreciation is a result of the expansion at our Blue Springs, Missouri, location and the 2016 Dolphin asset acquisition described at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Dolphin Asset Acquisition..

 

Selling, Administrative, and Research and Development Expenses. The following table details the selling, administrative, and research and development expenses ( dollars in thousands) and as a percentage of revenues for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
Marketing and sales   $ 6,619       8.2 %   $ 6,407       7.8 %   $ 212       3.3 %
General and administrative     9,016       11.1 %     10,181       12.3 %     (1,165 )     (11.4 )%
Research and development     1,517       1.9 %     1,188       1.4 %     329       27.7 %
Total selling, administrative, and research and development   $ 17,152       21.3 %   $ 17,776       21.6 %   $ (624 )     (3.5 )%

 

For the year ended December 31, 2017, selling, administrative, and research and development expenses were $17.2 million, a decrease of $0.6 million, or 3.5%, compared to selling, administrative, and research and development expenses of $17.8 million in 2016. As a percent of revenue, selling, administrative, and research and development expenses remained relatively unchanged in 2017 compared to 2016.

 

Marketing and sales expenses increased $0.2 million to $6.6 million in 2017 compared to $6.4 million in 2016. This is primarily due to increased compensation and related costs.

 

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General and administrative expenses decreased $1.2 million to $9.0 million in 2017 compared to $10.2 million in 2016. This is primarily due to a decreases in bad debt expense of $0.5 million, in intangible asset impairment loss of $0.4 million, in legal fees of $0.2 million, and in gaming license costs for $0.2 million, partially offset by an increase of $0.3 million in stock compensation related costs.

 

Research and development expenses increased $0.3 million to $1.5 million in 2017 compared to $1.2 million in 2016. This is primarily due to an increase in headcount and an increase in subcontracting cost.

 

Other (Expense) and Income, net. The following table details other (expense) and income items ( dollars in thousands) and as a percentage of revenues for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
Interest income   $ 1       0.0 %   $ 23       0.0 %   $ (22 )     (95.7 )%
Interest expense     (249 )     (0.3 )%     (242 )     (0.2 )%     (7 )     2.9 %
Gain on foreign currency transactions     182       0.2 %     187       0.2 %     (5 )     (2.7 )%
Other expense, net     (19 )     (0.0 )%     (2 )     (0.0 )%     (17 )     850.0 %
Total other expense, net   $ (85 )     (0.1 )%   $ (34 )     (0.0 )%   $ (51 )     150.0 %

 

Other expense remained relatively unchanged in 2017 compared to 2016.

 

Income Taxes. During the year ended December 31, 2017, our effective tax rate was 33.4%, compared to an effective tax rate of 31.1% for the year ended December 31, 2016. Our effective tax rate for the year ended December 31, 2017 was favorably affected by the foreign rate differential on the income from our Macau subsidiary, GPI Asia, and the benefit from research and low wage tax credits primarily from our French subsidiary, GPI SAS; partially offset by our Subpart F income adjustment and by the impact of the 2017 Tax Cuts and Jobs Act. Our effective tax rate for the year ended December 31, 2016 differed from the statutory rate primarily because of the foreign rate differential on the income from our Macau subsidiary, GPI Asia, and the benefit from research and low wage tax credits from our French subsidiary, GPI SAS, partially offset by our Subpart F income adjustment.

 

Pre-tax income (loss) by taxing jurisdictions for the years ended December 31 (in thousands) was as follows:

 

    2017     2016  
Macau S.A.R., China   $ 3,620     $ 4,672  
France     1,021       (477 )
Mexico     544       337  
United States     256       2,994  
Total pre-tax income   $ 5,441     $ 7,526  

 

Our corporate tax rate is calculated on a consolidated basis. Included in the United States numbers are the costs of GPIC, which include such items as regulatory fees, board of director expenses, investor relations expenses, auditing and review fees, and corporate legal expenses. We do not allocate these costs to our subsidiaries. These expenses totaled approximately $1.2 million and $1.0 million for 2017 and 2016, respectively.

 

We account for uncertain tax positions in accordance with applicable accounting guidance. At December 31, 2017, we reported unrecognized tax benefits related to the on-going French Tax Administration’s (FTA) examination of GPI SAS for tax years 2013 and 2012. In the first quarter of 2018, in connection with this examination, GPI paid €1.4 million to the FTA. While we were legally obligated to pay this amount, which represents the FTA’s calculation of the taxes owed, this payment does not represent a settlement nor the end of the examination and we are actively disputing the findings of the FTA. At this time, an estimate of the range of the reasonably possible outcomes cannot be made. We do not expect the examination to be completed within the next twelve months. It is reasonably possible that the amount of the unrecognized benefit with respect to our unrecognized tax position could change within the next 12 months. This change may be the result of settlement of the ongoing audit or competent authority proceedings. 

 

In addition to the on-going French Tax Administration examination of GPI SAS for tax years 2013 and 2012, the Company received notification in August 2017, of a federal income tax examination by the Internal Revenue Service for the 2015 tax year. We expect this audit to be finalized in 2018.

 

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Impact of Inflation. To date, inflation has not had a material effect on our operations.

 

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, we 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. We borrowed the full amount under the term loan which will mature on June 26, 2022, and have not drawn any funds under the revolving loan. For additional information, see Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 11. Debt.

 

Other potential sources of capital include, but are not limited to, additional bank credit facilities and the sale of stock. We believe that we have the resources to satisfy our operating 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 December 31, 2017, we had $14.1 million in cash and cash equivalents. Of this amount, $6.6 million is held by GPI SAS, $4.9 million is held by GPI USA, and $2.6 million is held by GPI Asia. As a consequence of the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, of those amounts held outside of the United States, we would not be subject to further taxation if we were to repatriate those amounts, except for potential minimal withholding taxes. Unrepatriated earnings were approximately $6.2 million as of December 31, 2017. Except for the $2.0 million earnings from GPI SAS, these unrepatriated earnings are considered permanently reinvested, since it is management’s intention to reinvest these foreign earnings in future operations. We project that we will have sufficient cash flow in the U.S. and will not need to repatriate the foreign earnings from GPI Asia to finance U.S. operations. Except for the deemed dividends under Section 956 in 2015 and under Subpart F, we continue to assert that earnings from GPI Asia will be permanently reinvested.

 

Working Capital. The following table summarizes our cash and cash equivalents, working capital, and current ratio for the years ended December 31 (dollars in thousands):

 

    2017     2016     Year-to-Year Change  
Cash and cash equivalents   $ 14,064     $ 10,604     $ 3,460       32.6 %
Working capital     24,087       24,496       (409 )     (1.7 )%
Current ratio     2.4       2.7                  

  

The decrease in working capital is mostly due to a decrease of $3.7 million in accounts receivable, an increase of $1.3 million in accounts payable, and of $1.1 million in accrued liabilities, offset by an increase of $3.5 million in cash and cash equivalents, $1.2 million in other current assets, $0.5 million in inventories, $0.5 million in prepaid expenses and a decrease of $0.7 million in customer deposits and deferred revenue. For additional information see Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 10. Accrued Liabilities.

 

Cash Flows. The following table summarizes our cash flow (dollars in thousands) for the years ended December 31:

 

    2017     2016     Year-to-Year Change  
                         
Operating activities   $ 10,140     $ 3,547     $ 6,593       185.9 %
Investing activities     (4,925 )     (8,319 )     3,394       40.8 %
Financing activities     (2,308 )     (2,281 )     (27 )     1.2 %
Effect of exchange rates     553       (131 )     684       522.1 %
Net change   $ 3,460     $ (7,184 )   $ 10,644       148.2 %

 

The increase in cash flows provided by operating activities was primarily caused by an increase of $6.3 million in the change in operating assets and liabilities, and an increase of $0.3 million in net income and the adjustments to reconcile net income to net cash. The change in operating assets and liabilities is mostly due to the timing of sales and manufacturing. The increase in the adjustments to reconcile net income to net cash is mostly due to increases of $1.0 million in depreciation, $0.8 million in inventory write-down, $0.3 million in deferred income taxes, $0.3 million in stock compensation expense, offset by an increase in recovery of bad debt of $0.4 million and a decrease of $0.4 million in impairment of intangible assets.

 

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The decrease in cash flows used in investing activities was primarily due to a decrease of $7.5 million in capital expenditures partially offset by a decrease of $3.6 million in sale of marketable securities.

 

Cash flows used in financing activities remained relatively unchanged in 2017 compared to 2016.

 

The increase from the effect of exchange rates is mostly due to the Euro strengthening compared to the USD in 2017.

 

Facilities. Our facilities are described at Item 2. Properties.

 

C apital Expenditures. In 2018 we currently plan to purchase approximately $5.0 million in property, plant, and equipment, composed mainly of machinery and equipment for our Blue Springs, Missouri, facility. In 2017, we purchased $4.4 million of property, plant, and equipment primarily due to capital investments at our Blue Springs, Missouri facility.

 

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Selected Quarterly Financial Information

 

    Year Ended December 31, 2017  
    First     Second     Third     Fourth     Total  
    (in thousands, except per-share data)  
Revenues   $ 18,913     $ 16,274     $ 24,635     $ 20,780     $ 80,602  
Cost of revenues     13,093       12,416       17,455       14,960       57,924  
Gross profit     5,820       3,858       7,180       5,820       22,678  
Selling, administrative, and research and development expenses     4,361       3,782       4,127       4,882       17,152  
Operating income     1,459       76       3,053       938       5,526  
Other (expense) income, net     (93 )     9       32       (33 )     (85 )
Income before income taxes     1,366       85       3,085       905       5,441  
Income tax provision     434       36       880       465       1,815  
Net income   $ 932     $ 49     $ 2,205     $ 440     $ 3,626  
Net earnings per share:                                        
Basic   $ 0.12     $ 0.01     $ 0.28     $ 0.06     $ 0.47  
Diluted   $ 0.12     $ 0.01     $ 0.27     $ 0.05     $ 0.45  

 

    Year Ended December 31, 2016  
    First     Second     Third     Fourth     Total  
    (in thousands, except per-share data)  
Revenues   $ 16,093     $ 20,344     $ 22,559     $ 23,143     $ 82,139  
Cost of revenues     12,125       13,027       15,036       16,615       56,803  
Gross profit     3,968       7,317       7,523       6,528       25,336  
Selling, administrative, and research and development expenses     4,005       4,444       4,039       5,288       17,776  
Operating (loss) income     (37 )     2,873       3,484       1,240       7,560  
Other (expense) income, net     (82 )     7       43       (2 )     (34 )
(Loss) income before income taxes     (119 )     2,880       3,527       1,238       7,526  
Income tax (benefit) provision     (39 )     803       1,080       499       2,343  
Net (loss) income   $ (80 )   $ 2,077     $ 2,447     $ 739     $ 5,183  
Net (loss) earnings per share:                                        
Basic   $ (0.01 )   $ 0.26     $ 0.31     $ 0.09     $ 0.65  
Diluted   $ (0.01 )   $ 0.26     $ 0.30     $ 0.09     $ 0.64  

 

Contractual Obligations and Commercial Commitments

 

On May 11, 2016, we purchased certain assets dedicated to the design and manufacture of chips and plaques for gaming tables from Dolphin Products Limited (Dolphin) as described at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 2. Dolphin Asset Acquisition. At December 31, 2017, $1.1 million remained to be paid and is included as part of our commitment obligations in the table below.

 

On June 26, 2015, we 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 at Item 8. Financial Statements and Supplementary Date – Notes to Consolidated Financial Statements – Note 11. Debt.

 

The following table presents the impact that our contractual obligations and commercial commitments at December 31, 2017 are anticipated to have on our liquidity and cash flow in future periods. Operating leases and contracts that are on a month-to-month basis are not included. For additional information, see Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 12. Commitments and Contingencies.

 

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    Payments Due by Period  
    (in thousands)  
Contractual Obligations   Total     0 - 1 years     2 - 3 years     4 - 5 years     Thereafter  
Debt   $ 6,666     $ 1,401     $ 2,959     $ 2,306     $ -  
Purchase and other commitment obligations (1)     8,345       8,345       -       -       -  
Operating leases     3,783       899       1,357       1,189       338  
Interest on debt     566       217       278       65       6  
Total contractual cash obligations   $ 19,360     $ 10,862     $ 4,594     $ 3,560     $ 344  

 

(1) Amounts represent agreements to purchase goods or services and exclude any agreements that are cancelable without penalty.

 

As part of our commitment obligations, we included $1.3 million related to the research and development agreements described at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 21. Subsequent events.

 

Off-Balance Sheet Arrangements

 

We have no consolidated off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies and Estimates

 

Our consolidated financial statements included at Item 8. Financial Statements and Supplementary Data have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. Certain of our accounting estimates, including revenue recognition; the allowance for doubtful accounts; write-downs of obsolete, excess, or slow-moving inventories; goodwill; the valuation and amortizable lives of intangible assets; debt; and the recoverability of deferred tax assets require that we apply significant subjective judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, our observance of industry trends, information provided by or gathered from our customers, and information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from our estimates. The estimates discussed below are considered by management to be those in which our estimates and judgments have a significant impact on issues that are inherently uncertain. To provide a further understanding of the methodology we apply, our significant accounting estimates are discussed below and at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements.

 

Revenue Recognition

 

We receive revenues from the sales of our gaming products, as well as licensing and services. Revenues are recognized when all of the following have been satisfied:

 

• The parties have approved the contract and are committed to performing their respective obligations.
• Each party’s rights regarding the goods or services to be transferred can be identified.
• The payment terms are identifiable, and it’s probable the entity will collect the consideration to which it’s entitled in exchange for the goods or services
• The contract has commercial substance.

 

Determining whether these requirements have been met may require us to make assumptions and exercise judgment that could significantly impact the timing and amount of revenue reported each period. In addition, we may enter into arrangements which include software and/or multiple elements or deliverables, such as RFID solutions, which include RFID equipment, embedded software licenses, and software maintenance services. In such cases, additional judgments and estimates are necessary to ensure the appropriate amounts of revenue are recorded for a given period.

 

  23  

 

 

On occasion, we may recognize revenue under a bill and hold arrangement. Under a bill and hold arrangement revenue is recognized when the product is manufactured, completed, invoiced, and segregated from the seller’s other inventory so that it is not subjected to being used to fill other orders. Upon invoicing under this arrangement, ownership has passed to the buyer with no residual warranty obligation or right of return such that the earnings process is complete. The customer must request a bill and hold arrangement, preferably in writing, must commit to the purchase, and the delivery date must be fixed.

 

The application of our revenue recognition policies and changes in our assumptions or judgments affect the timing and amounts of our revenues and costs, as well as deferred revenue.

 

Allowance for Doubtful Accounts

 

We estimate an allowance for doubtful accounts receivable based on a variety of factors, including the length of time the receivables are past due, economic conditions and trends, significant one-time events, and historical experience. Additional amounts are recorded in the allowance based on our awareness of a particular customer’s ability to meet its financial obligations. A change in our estimates of the allowance for doubtful accounts could have a material adverse effect on our consolidated results of operations.

 

Inventories

 

Inventories are stated at the lower of cost or an estimate of net realizable value. The analysis of net realizable value includes reviewing overall inventory levels, historical and projected sales or usage of these items, the projected markets for our products, and selling costs. Inventory that we estimate will not be used within the next year is considered non-current inventory. Inventory that we estimate will not be used within the next three years is written down. A change in our inventory estimates could have a material adverse effect on our consolidated results of operations.

 

Goodwill

 

Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired. Goodwill is measured and tested for impairment on an annual basis or more frequently if we believe indicators of impairment exist. We test goodwill for impairment using qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further testing is performed. If it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative two-step impairment test. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then the second step is used to measure the amount of impairment loss.

 

Long-lived and Intangible Assets

 

Long-lived assets, including property and equipment and intangible assets, are amortized on a straight-line basis over their economic lives. Judgments are made in determining the estimated useful lives of long-lived assets and if or when an asset has been impaired. These estimates affect the amount of amortization expense recognized in the financial results. We assign lives to our assets based on specific legal and economic characteristics. We evaluate these assets with definite lives for potential impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable, and we record an impairment charge when the carrying amount of the long-lived asset is not recoverable and the carrying amount exceeds the estimated fair value. This impairment charge could have a material adverse effect on our consolidated results of operations.

 

Deferred Taxes

 

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered estimated future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. Additionally, we look to the future reversal of existing taxable temporary differences, taxable income in prior carry-back years, the feasibility of tax planning strategies, and estimated future taxable income. The valuation allowance can be affected by changes to global tax laws, statutory tax rates, and future taxable income estimates.

 

The amount of income taxes we pay is subject to audits by federal, state, and foreign tax authorities, which may result in tax assessments. Our estimate for the potential outcome for any uncertain tax issue may be highly subjective and judgmental. We believe that we have adequately provided for any reasonably foreseeable outcome related to these tax issues. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax audits, new regulatory or judicial pronouncements, or other relevant events. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.

 

  24  

 

 

The Tax Act made significant changes to federal tax law, including a reduction in the federal income tax rate from 35% to 21% effective January 1, 2018, and a one-time transition tax on previously deferred earnings of certain foreign subsidiaries. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

 

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act.

 

We review all of our uncertain tax positions and make a determination as to whether our position is more likely than not to be sustained upon audit by taxing authorities. If a tax position meets this more-likely-than-not threshold, then the related tax benefit is measured based on a cumulative probability analysis of the amount that is more likely than not to be realized upon ultimate settlement or disposition of the underlying tax issue.

 

If actual results differ unfavorably from estimates used, we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be required. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to reverse. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in our estimates in the valuation allowance, with a corresponding adjustment to earnings or equity, as appropriate.

 

Recently Issued Accounting Standards

 

Recently Issued Accounting Standards are described at Item 8. Financial Statements and Supplementary Data- Notes to Consolidated Financial Statements – Note 1. Nature of Business and Significant Accounting Policies.

 

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 8.   Financial Statements and Supplementary Data

 

Report of Independent Registered Public Accounting Firm
 
Consolidated Balance Sheets at December 31, 2017 and 2016
 
Consolidated Statements of Income for the Years Ended December 31, 2017 and 2016
 
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017 and 2016
 
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2017 and 2016
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016
 
Notes to Consolidated Financial Statements

 

  25  

 

 

GAMING PARTNERS INTERNATIONAL CORPORATION

AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

  26  

 

 

Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors of

Gaming Partners International Corporation and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Gaming Partners International Corporation and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Moss Adams LLP  
   
San Diego, California  
March 23, 2018  

 

We have served as the Company’s auditor since 2006.

 

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

December 31,

 

(in thousands, except share amounts and par value)

 

    2017     2016  
ASSETS                
Current Assets:                
Cash and cash equivalents   $ 14,064     $ 10,604  
Accounts receivable, net     7,415       11,069  
Inventories     15,118       14,987  
Prepaid expenses     1,290       812  
Other current assets     2,836       1,620  
Total current assets     40,723       39,092  
Property and equipment, net     24,933       24,310  
Goodwill     10,292       10,292  
Intangible assets, net     1,676       1,818  
Investment     411       -  
Deferred income tax assets     675       1,579  
Inventories, non-current     2,453       598  
Other assets, non-current     2,240       2,310  
Total assets   $ 83,403     $ 79,999  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current Liabilities:                
Accounts payable   $ 4,743     $ 3,466  
Accrued liabilities     6,779       5,553  
Customer deposits and deferred revenue     3,020       3,679  
Current portion of long-term debt     1,401       1,367  
Income taxes payable     693       531  
Total current liabilities     16,636       14,596  
Long-term debt     5,265       6,649  
Other liabilities, non-current     186       1,221  
Total liabilities     22,087       22,466  
Commitments and contingencies (Note 12)                
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, 8,223,077 and 7,932,094 shares issued and outstanding, respectively, as of December 31, 2017, and 8,219,577 and 7,928,594 shares issued and outstanding, respectively, as of December 31, 2016     82       82  
Additional paid-in capital     19,272       20,031  
Treasury stock at cost: 290,983 shares     (2,263 )     (2,263 )
Retained earnings     44,718       42,044  
Accumulated other comprehensive loss     (493 )     (2,361 )
Total stockholders' equity     61,316       57,533  
Total liabilities and stockholders' equity   $ 83,403     $ 79,999  

 

See Notes to Consolidated Financial Statements

 

  28  

 

  

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

 

(in thousands, except earnings per share)

 

    2017     2016  
Revenues   $ 80,602     $ 82,139  
Cost of revenues     57,924       56,803  
Gross profit     22,678       25,336  
                 
Marketing and sales     6,619       6,407  
General and administrative     9,016       10,181  
Research and development     1,517       1,188  
Operating income     5,526       7,560  
Other expense, net     (85 )     (34 )
Income before income taxes     5,441       7,526  
Income tax provision     1,815       2,343  
Net income   $ 3,626     $ 5,183  
                 
Earnings per share:                
Basic   $ 0.46     $ 0.65  
Diluted   $ 0.45     $ 0.64  
Weighted-average shares of common stock outstanding:                
Basic     7,930       7,929  
Diluted     8,045       8,042  

 

See Notes to Consolidated Financial Statements

 

  29  

 

 

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31,

 

(in thousands)

 

    2017     2016  
Net income   $ 3,626     $ 5,183  
Other comprehensive income (loss):                
Foreign currency translation adjustment, net of tax     1,868       (485 )
Total comprehensive income   $ 5,494     $ 4,698  

 

See Notes to Consolidated Financial Statements

 

  30  

 

  

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years Ended December 31, 2017 and 2016

 

(in thousands, except share amounts)

 

                                  Accumulated        
    Common Stock     Additional                 Other        
                Paid-In     Treasury     Retained     Comprehensive        
    Shares     Amount     Capital     Stock     Earnings     Loss     Total  
                                           
Balance, January 1, 2016     7,928,594     $ 82     $ 20,033     $ (2,263 )   $ 37,812     $ (1,876 )   $ 53,788  
Net income     -       -       -       -       5,183       -       5,183  
Stock compensation expense     -       -       86       -       -       -       86  
Tax impacts of stock options     -       -       (88 )     -       -       -       (88 )
Dividend paid to shareholders     -       -       -       -       (951 )     -       (951 )
Foreign currency translation adjustment     -       -       -       -       -       (485 )     (485 )
Balance, December 31, 2016     7,928,594     $ 82     $ 20,031     $ (2,263 )   $ 42,044     $ (2,361 )   $ 57,533  
Net income     -       -       -       -       3,626       -       3,626  
Common stock options exercised     3,500       -       35       -       -       -       35  
Stock compensation expense     -       -       104       -       -       -       104  
Stock appreciation rights reclassification     -       -       (898 )     -       -       -       (898 )
Dividend paid to shareholders     -       -       -       -       (952 )     -       (952 )
Foreign currency translation adjustment     -       -       -       -       -       1,868       1,868  
Balance, December 31, 2017     7,932,094     $ 82     $ 19,272     $ (2,263 )   $ 44,718     $ (493 )   $ 61,316  

 

See Notes to Consolidated Financial Statements

 

  31  

 

 

GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

 

(in thousands)

 

    2017     2016  
             
Cash Flows from Operating Activities                
Net income   $ 3,626     $ 5,183  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation of property and equipment     4,359       3,319  
Amortization of intangible assets     242       273  
Recovery of bad debt     (498 )     (102 )
Inventory write-down     847       -  
Deferred income taxes     922       592  
Stock compensation expense     400       86  
Tax benefit on exercise or forfeiture of stock options     -       (88 )
Loss on sale or disposal of property and equipment     87       7  
(Gain) on sale of marketable securities     -       (1 )
Impairment of intangibles assets     -       414  
Loss in equity investment     40       -  
Change in operating assets and liabilities:                
Accounts receivable     4,175       (293 )
Inventories     (2,227 )     (4,909 )
Prepaid expenses and other current assets     (1,589 )     96  
Non-current other assets     290       234  
Accounts payable     1,185       (1,047 )
Accrued liabilities and non current other liabilities     (1,198 )     (1,525 )
Customer deposits and deferred revenue     (683 )     1,601  
Income taxes payable     162       (293 )
Net cash provided by operating activities     10,140       3,547  
                 
Cash Flows from Investing Activities                
Proceeds from sale of marketable securities     -       3,556  
Purchase of equity method investment     (451 )     -  
Purchase of licensing rights     (100 )     -  
Capital expenditures     (4,374 )     (11,875 )
Net cash used in investing activities     (4,925 )     (8,319 )
                 
Cash Flows from Financing Activities                
Principal payments on long-term debt     (1,349 )     (1,330 )
Dividends paid     (952 )     (951 )
Proceeds from exercise of stock options     35       -  
Cash paid for exercise of stock appreciation rights     (42 )     -  
Net cash used in financing activities     (2,308 )     (2,281 )
Effect of exchange rate changes on cash     553       (131 )
Net increase (decrease) in cash and cash equivalents     3,460       (7,184 )
Cash and cash equivalents, beginning of period     10,604       17,788  
Cash and cash equivalents, end of period   $ 14,064     $ 10,604  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest   $ 249     $ 242  
Cash paid, net of refunds received, for income taxes   $ 1,229     $ 2,126  
                 
Supplemental disclosure of non-cash investing and financing activities                
Stock appreciation rights liability, classified under accrued liabilities   $ 1,153     $ -  
Property, plant and equipment acquired through accounts payable, accrued and non-current other liabilities   $ 62     $ 1,849  

 

See Notes to Consolidated Financial Statements

 

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GAMING PARTNERS INTERNATIONAL CORPORATION AND SUBSIDIARIES

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Nature of Business and Significant Accounting Policies

 

Organization and Nature of Business

 

Gaming Partners International Corporation (GPIC, Our or the Company) is headquartered in North Las Vegas, Nevada. Our business activities include the manufacture and sale of casino currencies, playing cards, table accessories, table layouts, dice, gaming furniture, roulette wheels, and RFID readers and software, all of which are used with casino table games such as blackjack, poker, baccarat, craps, and roulette.

 

We have 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 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.

 

We are one of the gaming industry’s leading manufacturers and suppliers of casino table game equipment. We custom manufacture and supply casino currencies, playing cards, table layouts, gaming furniture, table accessories, dice, roulette wheels, and RFID readers and software, all of which are used with casino table games such as blackjack, poker, baccarat, craps, and roulette. Our products fall into two categories – non-consumable and consumable. Non-consumable products consist of casino currencies, gaming furniture, and RFID solutions. These products typically have a useful life of several years or longer. Sales of non-consumables are typically driven by casino openings, expansions, and rebranding, as well as replacements in the normal course of business. Consumable products consist of playing cards, table accessories, table layouts, and dice. These products each have a useful life that ranges from several hours for playing cards and dice to several months for layouts. Casinos tend to buy these products annually if not more frequently.

 

Significant Accounting Policies

 

Basis of Consolidation and Presentation. The consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI USA, GPI SAS, GPI Asia and GPI Mexicana. We also include the income or loss earned on our equity method investments, based on our share of the Company’s assets. All material intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. Certain amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current presentation.

 

Cash and Cash Equivalents. We consider all highly-liquid investments with original maturities of three months or less to be cash and cash equivalents. We maintain cash and cash equivalents in various United States banks. Several accounts are in excess of the federally-insured limit of $250,000. We also maintain cash and cash equivalents in foreign banks that are not insured.

 

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Fair Value of Financial Instruments . The fair value of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and the current portion of long-term debt approximates the carrying amount of these financial instruments due to their short-term nature. The carrying values of the Company's long-term debt instruments are considered to approximate their fair values because the interest rates of these instruments are variable or comparable to current rates available to the Company.

 

Marketable Securities . We account for our investments in marketable securities as available-for-sale and, as such, they are recorded on our consolidated balance sheets at estimated fair value. Unrealized holding gains and losses are excluded from earnings and are, instead, reported within accumulated other comprehensive loss.

 

Accounts Receivables and Customer Deposits. We perform ongoing credit evaluations of our customers and for casino currency and most significant orders, such as those orders for casino openings, generally require a deposit prior to commencing work on a customer order. These customer deposits are classified as a current liability on the consolidated balance sheets. We also maintain an allowance for doubtful accounts to state trade receivables at their estimated realizable value. This allowance applies to all customers and is estimated based on a variety of factors, including the length of time the receivables are past due, economic conditions and trends, significant one-time events, and historical experience. Changes are made to the allowance based on our awareness of a particular customer’s ability to meet its financial obligations. Receivables are written-off when management determines that collectability is remote.

 

Inventories. Inventories are stated at the lower of cost or an estimate of net realizable value. Cost is determined using a weighted-average method for GPI SAS and a first-in, first-out method for GPI USA and GPI Asia. Market value is determined by comparing inventory item carrying values to estimates of net realizable value. The analysis of net realizable value includes reviewing overall inventory levels, historical and projected sales, usage of these items, the projected markets for our products, and selling costs. Inventory that we estimate will not be used within one year is considered non-current inventory. Inventory that we estimate will not be used within the next three years is written down.

 

Property and Equipment . Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method for financial reporting purposes over the following estimated useful lives:

 

  Years
Buildings and Improvements 3 - 40
Equipment and Furniture 2 - 15
Vehicles 5 - 7

 

Goodwill. Goodwill is recorded when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired. Goodwill is measured and tested for impairment on an annual basis or more frequently if we believe indicators of impairment exist. We test goodwill for impairment using qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, no further testing is performed. If it is more likely than not that the fair value of the reporting unit is less than its carrying amount, we perform a quantitative two-step impairment test. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds fair value, then the second step is used to measure the amount of impairment loss.

 

Long-Lived and Intangible Assets. We evaluate the carrying value of long-lived assets (including property and equipment and intangible assets) for possible impairment when events or change in circumstances indicate that the carrying value of an asset may not be recoverable. In general, we will identify a potential impairment loss when the sum of undiscounted expected cash flows from the asset is less than the carrying amount of such asset. We record an impairment loss when the carrying amount of the long-lived asset is not recoverable and the carrying amount exceeds the estimated fair value. Intangible assets, such as patents and trademarks, are amortized using the straight-line method over their economic lives.

 

Revenue Recognition . For casino table game product sales, we record revenue, net of excise and sales taxes, when it is realized, or realizable, and earned. We consider these criteria met when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable, collectability is reasonably assured and, if required, acceptance is received from the customer. Shipping costs billed to our customers are reflected in revenues, with the related expense included in cost of revenues. Sales tax collected from customers is excluded from revenue and included in accrued expenses.

 

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We occasionally enter into multiple-element arrangements with our customers to provide RFID solutions. Such transactions may include deliverables such as RFID equipment, installation and training services, embedded RFID software licenses, and limited software support services. In such arrangements, RFID equipment and embedded RFID software work together to deliver the functionality purchased by our customer. Therefore, we apply the provisions of multiple-element accounting to separate the deliverables and allocate the total arrangement consideration based upon relative estimated selling prices. Each unit of accounting is then accounted for under the applicable revenue recognition guidance. For RFID equipment and related services, revenue generally is recorded when all customer-defined acceptance criteria are satisfied. For RFID software support services, revenue generally is amortized over the term of the support contract.

 

On occasion, we may recognize revenue under a bill and hold arrangement. Under a bill and hold arrangement, revenue is recognized when the product is manufactured, completed, invoiced, and segregated from the seller’s other inventory so that it is not subjected to being used to fill other orders. Upon invoicing under this arrangement, ownership has passed to the buyer with no residual warranty obligation or right of return such that the earnings process is complete. The customer must request a bill and hold arrangement, preferably in writing, must commit to the purchase, and the delivery date must be fixed.

 

Research and Development. Research and development costs are the costs related to developing new and improved products and manufacturing processes, including staff compensation and related expenses, subcontract costs, materials, and supplies. Such costs are charged to expense when incurred and are included in our consolidated statements of income.

 

Income Taxes. We recognize a current tax liability or asset for estimated taxes payable or refundable on tax returns for the current year and a deferred non-current tax liability or asset for estimated future tax effects, attributable to temporary differences and carryforwards.

 

The Tax Act made significant changes to federal tax law, including a reduction in the federal income tax rate from 35% to 21% effective January 1, 2018, and a one-time transition tax on previously deferred earnings of certain foreign subsidiaries. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

 

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act.

 

GPIC and its subsidiaries file separate income tax returns in their respective jurisdictions. Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of assets and liabilities for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes.

 

We review all of our tax positions and make a determination as to whether our position is more likely than not to be sustained upon examination by tax authorities. If a tax position meets the more-likely-than-not standard, then the related tax benefit is measured based on the cumulative probability that the amount is more likely than not to be realized upon ultimate settlement or disposition of the underlying issue. We recognize interest and penalties related to unrecognized tax positions in the provision for income taxes on our consolidated statements of income.

 

Foreign Currency Transactions . The financial statements of GPI SAS are measured using the euro as the functional currency. Assets and liabilities of GPI SAS are translated into the U.S. dollar at exchange rates at the balance sheet date. Revenues and expenses are translated into the U.S. dollar at average rates of exchange in effect during the year. The resulting cumulative translation adjustments are recorded within accumulated other comprehensive loss.

 

The financial statements of GPI Asia and GPI Mexicana are measured using the U.S. dollar as the functional currency. Non-monetary assets and liabilities are translated at historical exchange rates, and monetary assets and liabilities are translated at current exchange rates. Exchange gains and losses arising from translation are included in other income and expense in the consolidated statements of income.

 

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Transaction gains and losses that arise from exchange rate fluctuations on transactions with third parties denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

Other Comprehensive Loss. Comprehensive loss includes net income and foreign currency translation adjustments.

 

Estimates. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions have been made in determining the allowance for doubtful accounts receivable; write-downs of slow moving, excess, and obsolete inventories; the depreciable lives of fixed and intangible assets; estimates for the recoverability of long-lived assets, including intangible assets; the recoverability of deferred tax assets; and potential exposures relating to litigation, claims, and assessments. Actual results could differ from those estimates and assumptions.

 

Recently Issued Accounting Standards.  In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-17,  Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost . The amendments require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company does not expect the adoption of this guidance to significantly impact the consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04,  Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment . These amendments eliminate Step 2 from the goodwill impairment test. The amendments are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not expect the adoption of this guidance to significantly impact the consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01,  Business Combinations (Topic 805): Clarifying the Definition of a Business . These amendments clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The amendments are effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those periods. The Company does not expect the adoption of this guidance to significantly impact the consolidated financial statements.

 

In October 2016, the FASB issued ASU 2016-16,  Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory . These amendments require an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments eliminate the tax exception for an intra-entity transfer of an asset other than inventory. The ASU becomes effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. Entities are required to adopt the ASU using a modified retrospective approach with a cumulative adjustment to retained earnings for previously unrecognized income tax expense. The Company anticipates a decrease in retained earnings of $0.4 million upon adoption related to the unrecognized income tax effects of asset transfers that occurred prior to 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 is currently evaluating the impact of adoption and will consult with accounting experts as needed to assist with the implementation of this standard.

 

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. This guidance supersedes existing revenue recognition guidance, including most industry-specific guidance, as well as certain related guidance on accounting for contract costs. To further assist with adoption and implementation of ASU 2014-09, the FASB issued the following ASUs:

 

•ASU 2016-08 (Issued March 2016) -  Principal versus Agent Consideration (Reporting Revenue Gross versus Net)

•ASU 2016-10 (Issued April 2016) -  Identifying Performance Obligations and Licensing

•ASU 2016-12 (Issued May 2016) -  Narrow-Scope Improvements and Practical Expedients

 

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•ASU 2016-20 (Issued December 2016) -  Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers

 

The guidance provides for a five-step model to determine the revenue recognized for the transfer of goods or services to customers that reflects the expected entitled consideration in exchange for those goods or services. It also provides clarification for principal versus agent considerations and identifying performance obligations. In addition, the FASB introduced practical expedients related to disclosures of remaining performance obligations, as well as other amendments to guidance on collectability, non-cash consideration and the presentation of sales and other similar taxes. Financial statement disclosures required under the guidance will enable users to understand the nature, amount, timing, judgments, and uncertainty of revenue and cash flows relating to customer contracts. The two permitted transition methods under the guidance are the full retrospective approach or a cumulative effect adjustment to the opening retained earnings in the year of adoption (cumulative effect approach). The guidance is effective in 2018. The Company will adopt it in the first quarter of 2018 under the modified retrospective method.

 

Through our comprehensive approach we concluded that this new guidance will not have a material impact, on our consolidated financial statements. We did not need to significantly change our business processes, systems and controls to support recognition and disclosure under the new guidance.

 

Recently Adopted Accounting Standards. 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: income tax consequences; classification of awards as either equity or liabilities; and 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. During the first quarter of 2017, the Company adopted this guidance on a prospective basis. The adoption of this guidance did not have a significant impact on the consolidated financial statements.

 

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. During the first quarter of 2017, the Company adopted this guidance prospectively. The adoption of this guidance had no impact on the consolidated statements of income and comprehensive income.

 

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 primarily equipment and inventory with allocated costs of $5.7 million and $1.6 million, respectively.

 

The acquisition was treated as an asset acquisition. The total cost of the acquisition was $7.3 million, with $5.1 million paid in 2016, $1.1 million paid in 2017 and $1.1 million, included in accrued liabilities, to be paid in May 2018.

 

Note 3.  Cash and Cash Equivalents

 

We hold our cash and cash equivalents 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 at December 31 (in thousands):

 

    2017     2016  
France   $ 6,611     $ 3,263  
United States (including Mexico)     4,936       3,237  
Macau S.A.R., China     2,517       4,104  
Total   $ 14,064     $ 10,604  

 

Note 4. Accounts Receivable and Allowance for Doubtful Accounts

 

At December 31, 2017, no casino customer accounted for 10% or more of our accounts receivable balance. At December 31, 2016, one casino customer accounted for 25% of our accounts receivable balance.

 

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The allowance for doubtful accounts consists of the following (in thousands):

 

    Balance at
Beginning of
Year 		    Reduction of
provision 		    Write-offs,
Net of
Recoveries 		    Exchange
Rate Effect 		    Balance at
End of Period 		 
2017   $ 804     $ (498 )   $ -     $ 1     $ 307  
2016   $ 990     $ (102 )   $ (84 )   $ -     $ 804  

 

Note 5. Inventories

 

Inventories consist of the following at December 31 (in thousands):

 

    2017     2016  
Raw materials   $ 11,637     $ 11,129  
Work in progress     2,432       1,137  
Finished goods     3,502       3,319  
Total inventories   $ 17,571     $ 15,585  

 

We booked an exceptional $0.8 million inventory write-down for Dolphin related raw materials acquired in 2016. We estimate this inventory will not be used within the next three years.

 

We classified a portion of our inventories as non-current because we currently do not expect this portion to be used within one year. The classification of our inventories on our consolidated balance sheets is as follows at December 31 (in thousands):

 

    2017     2016  
Current   $ 15,118     $ 14,987  
Non-current     2,453       598  
Total inventories   $ 17,571     $ 15,585  

 

The increase of $1.9 million in non-current inventory is mainly due to $0.9 million of bulk purchases of various raw materials. In addition, $0.6 million of Dolphin related raw materials acquired in 2016 was moved to non-current inventory in accordance with our accounting policies. We currently believe this inventory will be used within three years.

 

  38  

 

  

Note 6. Other Current Assets

 

Other current assets consist of the following at December 31 (in thousands):

 

    2017     2016  
Income tax-related assets   $ 1,435     $ 722  
Refundable value-added tax     996       516  
Deposits     327       328  
Other, net     78       54  
Total other current assets   $ 2,836     $ 1,620  

 

Note 7. Property and Equipment

 

Property and equipment consist of the following at December 31 (in thousands):

 

    2017     2016  
Land   $ 669     $ 636  
Buildings and improvements     11,196       10,280  
Equipment and furniture     40,714       35,618  
Vehicles     408       379  
Construction in progress     529       1,327  
      53,516       48,240  
Less accumulated depreciation     (28,583 )     (23,930 )
Property and equipment, net   $ 24,933     $ 24,310  

 

Depreciation expense for the years ended December 31, 2017 and 2016 was $4.4 million and $3.3 million, respectively. At December 31, 2017 the $0.5 million of construction in progress was primarily related to various equipment. At December 31, 2016 the $1.3 million of construction in progress was primarily related to Dolphin assets waiting to be placed in service and the building expansion at our Blue Springs, Missouri facility.

 

Note 8. Goodwill and Intangible Assets

 

We have goodwill of $10.3 million as of December 31, 2017 arising from the GemGroup acquisition in 2014.

 

Intangible assets consist of the following at December 31 (dollars in thousands):

 

    2017     2016        
    Gross
Carrying
Amount 		    Accum
Amort 		    Net
Carrying
Amount 		    Gross
Carrying
Amount 		    Accum
Amort 		    Net
Carrying
Amount 		      Estimated
Useful Life
(Years) 		 
Trademarks   $ 1,711     $ (700 )   $ 1,011     $ 1,711     $ (579 )   $ 1,132       10-15  
Customer list     897       (353 )     544       897       (278 )     619       10-15  
Patents     542       (534 )     8       542       (527 )     15       14  
Other intangible assets     472       (359 )     113       372       (320 )     52       3-10  
Total intangible assets   $ 3,622     $ (1,946 )   $ 1,676     $ 3,522     $ (1,704 )   $ 1,818          

 

Amortization expense for intangible assets for the years ended December 31, 2017 and 2016 was $242,000 and $273,000, respectively.

 

In 2016, a $414,000 impairment loss for a decrease in fair value of a trademark and a customer list was recorded under general and administrative expenses. The decrease in fair value was the result of the loss of two customers.

 

  39  

 

 

The following table provides estimated amortization expense for the years ending December 31 (in thousands):

 

    Amortization  
Year   Expense  
2018   $ 229  
2019     223  
2020     222  
2021     213  
2022     155  
Thereafter     634  
Total   $ 1,676  

 

Note 9. Equity Method Investment

 

On May 31, 2017, GPIC acquired 20% of the outstanding shares of Onlive Gaming SAS for $451,000. Onlive Gaming SAS is a company dedicated to the development of electronic products using the RFID technology. The Company used the equity method to account for this investment because of its ability to exercise significant influence, but not control, over the operating and financial policies of Onlive Gaming SAS. Since the acquisition, we reduced the book value of the investment by $40,000, which represents our percentage of the net loss.

 

Note 10. Accrued Liabilities

 

Accrued liabilities consist of the following at December 31 (in thousands):

 

    2017     2016  
Accrued salaries, wages, and related costs   $ 1,359     $ 1,037  
Stock appreciation rights liability     1,153       -  
Accrued fixed asset acquisition liability     1,076       1,076  
Accrued vacation     964       894  
Accrued bonuses and commissions     953       1,221  
Miscellaneous taxes     560       578  
Other     714       747  
Total accrued liabilities   $ 6,779     $ 5,553  

 

The Stock appreciation rights liability is the result of the Board of Director’s decision to grant stock appreciation rights to certain non-employee directors (Note 16).

 

The accrued fixed asset acquisition liability is the balance owed to EGT and resulting from the Dolphin acquisition (Note 2).

 

Note 11. Debt

 

On June 26, 2015, the Company entered into a Credit Agreement with Nevada State Bank to borrow up to 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. The Credit Agreement contains customary representations, warranties, and events of default, and affirmative, negative and financial covenants. The covenants contain, among other things, limitations on the Company's and its subsidiaries' ability to merge, consolidate, dispose of assets, or incur liens or certain indebtedness. The Company is required to maintain a fixed charge coverage ratio greater than 1.15 to 1.00 and a leverage ratio less than 3.00 to 1.00. The Company is in compliance with all financial covenants as of December 31, 2017.

 

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.

 

  40  

 

 

At December 31, 2017, estimated repayment obligations for the principal balance of long-term debt are as follows (in thousands):

 

Year  

Long Term

Debt

 
2018   $ 1,401  
2019     1,453  
2020     1,506  
2021     1,561  
2022     745  
    $ 6,666  

 

Note 12. Commitments and Contingencies

 

Operating Lease Commitments. The Company has various operating leases that are used in the normal course of business. The operating leases consist of buildings and equipment that expire at various points through 2023.

 

Operating lease expense for the years ended December 31, 2017 and 2016 was $1.0 million and $1.7 million, respectively. The Company’s operating lease expenses are recognized on a straight-line basis.

 

The following schedule reflects our future minimum lease payments under operating leases, including related-party payments described at Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements - Note 20. Related-Party Transactions for the years ending December 31 (in thousands):

 

    Minimum  
    Lease  
Year   Payments  
2018   $ 899  
2019     737  
2020     620  
2021     625  
2022     564  
Thereafter     338  
Total   $ 3,783  

  

Legal Proceedings and Contingencies. Liabilities for material claims against the Company are accrued when a loss is considered probable and can be reasonably estimated. Legal costs associated with claims are expensed as incurred.

 

From time to time we are engaged in disputes and claims that arise in the normal course of business. We believe that 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.

 

Employment Agreements. The Company has employment agreements with key employees which include severance commitments in the event the Company terminates the employee without cause. Total commitments under the agreements aggregate approximately $0.6 million as of December 31, 2017.

 

Note 13. 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.

 

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The following table presents certain data by geographic area for the years ended December 31 (dollars in thousands):

 

    2017     2016  
Revenues                        
The Americas   $ 54,638       67.8 %   $ 56,247       68.5 %
Asia-Pacific     23,200       28.8 %     22,080       26.9 %
Europe and Africa     2,764       3.4 %     3,812       4.6 %
Total   $ 80,602       100.0 %   $ 82,139       100.0 %

 

The following table presents our net sales by product line for the years ended December 31 (dollars in thousands):

 

    2017     2016  
                         
Casino currency without RFID   $ 14,754       18.3 %   $ 15,698       19.1 %
Casino currency with RFID     18,041       22.4 %     16,123       19.6 %
Total casino currency     32,795       40.7 %     31,821       38.7 %
                                 
Playing cards     24,864       30.8 %     26,708       32.5 %
Table accessories and other products     6,802       8.4 %     6,639       8.1 %
Table layouts     5,315       6.6 %     5,259       6.4 %
Gaming furniture     3,126       3.9 %     2,645       3.2 %
Dice     2,791       3.5 %     2,859       3.5 %
RFID solutions     1,623       2.0 %     3,000       3.7 %
Shipping     3,286       4.1 %     3,208       3.9 %
Total   $ 80,602       100.0 %   $ 82,139       100.0 %

 

In 2017 and 2016, we had no casino customer that accounted for 10% or more of revenues.

 

The following table presents our property and equipment, net by geographic area at December 31 (in thousands):

 

    2017     2016  
United States   $ 13,708     $ 13,242  
Mexico     6,851       6,142  
France     3,936       4,614  
Macau S.A.R., China     438       312  
Total   $ 24,933     $ 24,310  

 

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The following table presents our intangible assets, net by geographic area at December 31 (in thousands):

 

    2017     2016  
United States   $ 1,634     $ 1,772  
Macau S.A.R., China     42       46  
Total   $ 1,676     $ 1,818  

 

Note 14. Pension Plans

 

For employees of GPI SAS, we sponsor a non-contributory, defined-benefit pension plan (the Pension Plan) which funds a mandatory payment when employees retire at age 65. The lump-sum benefit amount is based on years of service, job classification, and compensation in the 12 months prior to retirement. The following amounts relate to the Pension Plan at December 31 (in thousands):

 

    2017     2016  
Change in benefit obligation:                
Benefit obligation at beginning of year   $ 497     $ 458  
Service cost     31       28  
Interest cost     8       10  
Actuarial loss     29       38  
Benefits paid     (8 )     (18 )
Effect of foreign exchange rate changes     73       (19 )
Benefit obligation at end of year   $ 630     $ 497  
                 
Change in plan assets:                
Fair value of plan assets at beginning of year   $ 317     $ 362  
Actual (loss) return on plan assets     8       (34 )
Effect of foreign exchange rate changes     45       (11 )
Fair value of plan assets at end of year     370       317  
Funded status and accrued benefit cost   $ (260 )   $ (180 )

 

At December 31, 2017 and 2016, the accrued benefit cost of $0.3 million and $0.2 million, respectively, was recognized in the consolidated balance sheet in other accrued liabilities.

 

Pension Plan assets are measured using a Level 1 valuation methodology and consist of the following asset funds at December 31 (in thousands):

 

    2017     2016  
Worldwide bond fund   $ 179     $ 158  
Guaranteed equity fund     34       31  
European equity fund     157       128  
Fair value of plan assets at end of year   $ 370     $ 317  

 

We did not make any contribution to the Pension Plan in either 2017 or 2016.

 

The weighted-average assumptions used in measuring the net periodic benefit cost and Pension Plan obligations as of December 31 are:

 

    2017     2016  
Net periodic benefit cost:                
Discount rate     1.30 %     1.50 %
                 
Pension Plan obligations:                
Discount rate     1.30 %     1.50 %
Rate of compensation increase     2.00 %     2.00 %

 

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The accumulated benefit obligation was $0.5 million and $0.4 million as of December 31, 2017 and 2016, respectively.

 

Net pension expense consisted of the following for the years ended December 31 (in thousands):

 

    2017     2016  
Service-cost benefits earned during the period   $ 31     $ 28  
Interest expense on benefit obligation     8       10  
Actual (return) loss on plan assets     (8 )     34  
Actuarial loss     29       38  
Net pension expense   $ 60     $ 110  

 

Projected benefit payments from the Pension Plan as of December 31, 2017 are estimated at $8,000 for 2018 through 2021, and an aggregate of $0.2 million for 2022 through 2025.

 

We also sponsor a 401(k) plan for employees in the United States (the 401K Plan) who have worked for us for longer than six months and are 21 years of age or older. Our contributions to the 401K Plan are based on the amounts contributed by eligible employees. Eligible employees can elect to contribute into the 401K Plan up to the lesser of the Internal Revenue Service annual limit or 75 percent of their earnings. We contribute $0.50 for each $1.00 contributed by a participant in the 401K Plan up to 4 percent of the participant’s wages. Our contributions to the 401K Plan for each of the years ended December 31, 2017 and 2016 was $0.1 million.

 

Note 15. Stockholders’ Equity

 

On December 1, 2011, the Board of Directors approved a stock repurchase program which authorized the repurchase of up to 5%, or 409,951 shares, of our common stock. On November 30, 2012, the Board of Directors increased the number of shares available for repurchase to 498,512 shares. From the program’s inception through December 31, 2017, we have repurchased an aggregate of 282,922 shares of our common stock at a cost of $2.1 million, or a weighted-average price of $7.30 per share. No shares were repurchased during 2017 or 2016, and there is no assurance that we will repurchase any additional shares under the repurchase program. As of December 31, 2017, there remained 215,590 shares authorized for repurchase. Repurchases are subject to market conditions, share price, and other factors, as well as periodic review by the Board of Directors.

 

In each of December 2017 and December 2016 we paid a cash dividend of $0.12 per issued and outstanding common share for an aggregate dividend of $1.0 million in each year.

 

Note 16. Stock Option Programs and Share-based Compensation Expense

 

We have one active stock option plan which is the 1994 Directors’ Stock Option Plan, as amended and extended (the Directors’ Plan). We are also party to a stock option agreement (the Gronau Agreement) with our CEO, Gregory S. Gronau. The Directors’ Plan and the Gronau Agreement were both approved by our stockholders, except for the most recent amendments to the Directors’ Plan adopted by the Board of Directors on December 26, 2017, described below, which are being submitted to the stockholders for approval in May 2018.

 

The Directors’ Plan provides that each non-employee director, upon joining the Board of Directors, will receive an initial option to purchase 6,000 shares of common stock. The initial option grant vests over a three-year period, with one-third of the option grant vesting at the end of each year. At the beginning of the fourth year of service on the Board of Directors, and each year thereafter, each non-employee director receives an annual grant to purchase 2,000 shares of common stock. In addition, each non-employee director annually receives options to purchase 1,500 shares of common stock for serving on certain committees of the Board of Directors. Options granted after the initial option grant vest immediately and are exercisable after six months.

 

The Board of Directors may grant discretionary stock options covering up to 100,000 shares to non-employee directors. Discretionary stock options vest immediately and are exercisable after six months. There were no discretionary stock option grants in 2017 or 2016. A maximum of 450,000 shares of common stock may be issued pursuant to options granted under the Directors’ Plan.

 

  44  

 

 

On December 26, 2017, the Board of Directors adopted amendments to the Directors’ Plan to extend the term of the plan from January 31, 2019 to January 31, 2022 and allow for the grant of stock appreciation rights to non-employee directors in addition to grants of stock options. Each stock appreciation right shall entitle a non-employee director to surrender to GPIC a vested option and to receive from GPIC in exchange a cash payment. Non-employee directors currently hold outstanding stock options which will expire beginning in 2018, unless exercised. The Board of Directors adopted amendments to the Directors’ Plan to allow for the grant of stock appreciation rights which would entitle the non-employee director to receive the amount by which the fair market value of a share of common stock immediately prior to exercise exceeds the related stock option exercise price. The amendments to the Directors’ Plan are being submitted to the Company’s stockholders for approval at the annual meeting in May 2018.  

 

On December 26, 2017, the Board of Directors, upon the recommendation of our Compensation Committee, granted stock appreciation rights to our non-employee directors relating to outstanding stock options for an aggregate 262,750 shares of common stock previously granted to them under the Directors’ Plan which expire after December 26, 2017. As a result of this decision we modified the accounting treatment of the outstanding stock options. We accounted for a $1.2 million current liability which was generated by a $0.3 million stock compensation expense and a $0.9 million reclassification from additional paid in capital. This liability represents the fair value of all outstanding options as of December 31, 2017. These grants of stock appreciation rights to our non-employee directors are being submitted to the Company’s stockholders for ratification at the annual meeting in May 2018.

 

Mr. Gronau, was granted an option to purchase 150,000 shares of our common stock in 2009 pursuant to the Gronau Agreement. The stock option has a ten-year term and vested over a five-year period as follows: 20,000 shares on the first anniversary of the date of the grant; 30,000 shares on each of the second, third, and fourth anniversaries; and 40,000 shares on the fifth anniversary of the date of grant.

 

The following table summarizes stock option activity for the years ended December 31, 2017 and 2016:

 

    Options    

Weighted-

Average

Exercise Price

   

Weighted-

Average

Remaining

Contractual

Term (Years)

   

Aggregate

Intrinsic Value
(in thousands)

 
Outstanding at January 1, 2016     392,750     $ 7.65       4.3     $ 782  
Granted     25,500       9.83                  
Expired     (15,500 )     19.40                  
Outstanding at December 31, 2016     402,750       7.34       3.9     $ 1,855  
Granted     25,500       10.97                  
Expired     (12,000 )     10.72                  
Exercised     (49,500 )     7.07                  
Outstanding at December 31, 2017     366,750     $ 7.35       3.8     $ 1,431  
Exercisable at December 31, 2017     354,750     $ 7.24       3.6     $ 1,425  

 

Of the 49,500 options exercised in 2017, 46,000 were surrendered in connection with the exercise of stock appreciation rights, subject to stockholder approval at the annual meeting in May 2018. At December 31, 2017, 36,000 stock appreciation rights remained to be paid. The liability related to the surrender of those options was accrued under accrued liabilities.

 

For the year ended December 31, 2017, the total intrinsic value of options exercised was $0.2 million. For the year ended December 31, 2016, there were no options exercised.

 

We estimate the fair value of each stock option award on the grant date, and at each subsequent remeasurement, using the Black-Scholes valuation model. Dividends and expected volatility are based on historical factors related to our common stock. The risk-free rate is based on United States Treasury rates appropriate for the expected term, which is based on the contractual term of the options, as well as historical exercise and termination behavior.

 

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The following table summarizes the weighted-average assumptions used, and related information, for option activity for the years indicated.

 

    2017     2016  
Option valuation assumptions:            
Dividend yield     1.1 %     0.0 %
Expected volatility     36.5 %     34.1 %
Risk-free interest rate     1.91 %     1.36 %
Expected term of options     5.6 yrs       5.6 yrs  
                 
Weighted-average fair value of options granted during the period   $ 4.05     $ 3.35  

 

The following table summarizes our reported stock compensation expense, which is included in general and administrative expenses in our consolidated statements of income as of December 31 (in thousands):

 

    2017     2016  
Stock compensation   $ 400     $ 86  
Estimated tax benefit     (144 )     (31 )
Total stock compensation, net of tax benefit   $ 256     $ 55  

 

Note 17. Other Income and Expense

 

Other income and expense consist of the following for the years ended December 31 (in thousands):

 

    2017     2016  
Interest income   $ 1     $ 23  
Interest expense     (249 )     (242 )
Gain on foreign currency transactions     182       187  
Other expense, net     (19 )     (2 )
Total other expense, net   $ (85 )   $ (34 )

 

Note 18. Income Taxes

 

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case of certain other provisions, January 1, 2018. As such, January 1, 2018 would be the first day of the taxable year for purposes of applying the effective date of the new tax legislation for provisions which are applicable to tax years beginning after December 31, 2017. New tax legislation provisions that are applicable for the tax year ended December 31, 2017 have been accounted for within the current period ended December 31, 2017.

 

Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

 

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the Tax Cuts and Jobs Act.

 

The Company has determined a reasonable estimate related to the reduction in the U.S. corporate income tax rate to 21%, which resulted in the Company reporting additional income tax expense of $0.3 million as a result of the Tax Act. This increase in tax expense is comprised of $0.3 million of deferred tax expense due to the remeasurement of deferred tax assets at the 21% tax rate, and $1.4 million of additional tax expense related to a one-time transition tax which is completely offset by associated deferred tax assets for foreign tax credits. The provisional amount could be impacted by the Company’s assessment of 100% bonus depreciation for qualified assets placed in service after September 27, 2017. A reasonable estimate cannot yet be made with respect to the global intangible low-taxed income ( “ GILTI ” ) in accordance with the enactment of the Tax Act. The Company requires additional time to analyze the impacts of the legislative change.

 

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The following table provides an analysis of our provision for income taxes for the years ended December 31 (in thousands):

 

    2017     2016  
Current:                
U.S. Federal   $ (47 )   $ 1,035  
U.S. State     182       43  
Foreign     494       619  
Total Current     629       1,697  
                 
Deferred:                
U.S. Federal     759       666  
U.S. State     48       59  
Foreign     379       (79 )
Total Deferred     1,186       646  
Income tax provision (benefit)   $ 1,815     $ 2,343  

 

Income before income taxes consisted of the following for the years ended December 31 (in thousands):

 

    2017     2016  
Foreign   $ 5,185     $ 4,532  
United States     256       2,994  
Income before income taxes   $ 5,441     $ 7,526  

 

A reconciliation of our income tax expense as compared to the tax expense calculated by applying the statutory federal tax rate to income before income taxes for the years ended December 31 is as follows:

 

    2017     2016  
Computed expected income tax expense     34.0 %     34.0 %
State income taxes, net of federal benefits     1.2 %     1.0 %
Subpart F income adjustment     7.4 %     8.6 %
Foreign rate differential (excluding research credit)     (13.3 )%     (10.2 )%
Impact of the Tax Act     5.2 %     -  
French research and low wage credit     (4.3 )%     (3.0 )%
Other, net     3.1 %     0.7 %
Income tax expense     33.4 %     31.1 %

 

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The primary components of net deferred income tax assets at December 31 are as follows (in thousands):

 

    2017     2016  
Deferred tax assets:                
Tax credits   $ 2     $ 1,549  
Property and equipment     -       357  
Stock compensation     371       557  
French deferred assets     367       410  
Bad debt reserves and inventory     608       774  
Accrued Expenses     188       321  
Operating loss carry forwards     -       7  
Other     6       16  
Total deferred tax assets     1,542       3,991  
                 
Deferred tax liabilities:                
Excess book basis in shares of GPI-SAS   $ -     $ 1,547  
French deferred liabilities     246       262  
Property and equipment     80       -  
Intangible assets     541       603  
Total deferred tax liabilities     867       2,412  
Deferred tax assets, net   $ 675     $ 1,579  

 

We adopted FASB ASU No. 2016-09, regarding several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, in the current period on a prospective basis. As a result of the Company’s application of ASU No. 2016-09, certain excess tax benefits at the time of exercise are recognized as income tax benefits, while tax deficiencies of an option at the time of exercise or expiring unexercised are recognized as income tax expense in the statement of income. As of December 31, 2017, the adoption of ASU No. 2016-09 has not materially impacted our consolidated financial statements.

 

Unrepatriated earnings were approximately $6.2 million as of December 31, 2017. Except for the $2.0 million earnings from GPI SAS, these unrepatriated earnings are considered permanently reinvested, since it is management’s intention to reinvest these foreign earnings in future operations. We project that we will have sufficient cash flow in the U.S. and will not need to repatriate the foreign earnings from GPI Asia to finance U.S. operations. Except for the deemed dividends under Section 956 in 2015 and under Subpart F, we continue to assert that earnings from GPI Asia will be permanently reinvested.

 

We are subject to taxation in the U.S. and various states and foreign jurisdictions. With few exceptions, the tax years 2014 through 2017 remain open to examination under the statute of limitations by the U.S. Internal Revenue Service and various states for GPIC and GPI USA, by the French Tax Administration for GPI SAS, and by the Government of the Macau Special Administrative Region - Financial Services Bureau for GPI Asia. In 2015, the French Tax Administration started an examination of GPI SAS for tax years 2013 and 2012 that is on-going. In the first quarter of 2018, in connection with the FTA’s examination of GPI SAS for tax years 2013 and 2012, GPI paid €1.4 million to the FTA. While we were legally obligated to pay this amount, which represents the FTA’s calculation of the taxes owed, this payment does not represent a settlement nor the end of the examination and we are actively disputing the findings of the FTA. In addition to the on-going French Tax Administration examination of GPI SAS for tax years 2013 and 2012, the Company received notification in August 2017, of a federal income tax examination by the Internal Revenue Service for the 2015 tax year. 

 

  48  

 

 

A reconciliation of the beginning and ending amounts of unrecognized tax benefits, including estimated interest and penalties, is as follows (in thousands):

 

    2017     2016  
             
Balance at beginning of year   $ 258     $ 241  
Foreign currency translation     36       17  
Balance at end of year   $ 294     $ 258

 

All of the liability as of December 31, 2017 would affect our effective tax rate if recognized and amounts of interest and penalties are not expected to be significant. We anticipate that the balance of the unrecognized tax benefits will be eliminated within the next twelve months.

 

Note 19. Earnings per Share

 

The weighted-average number of common shares outstanding used in the computation of basic and diluted earnings per share is as follows (in thousands):

 

    2017     2016  
Weighted-average number of common shares outstanding - basic     7,930       7,929  
Potential dilution from equity grants     115       113  
Weighted-average number of common shares outstanding - diluted     8,045       8,042  

 

At December 31, 2017 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. Outstanding anti-dilutive options for the years ended December 31, 2017 and 2016 totaled to 13,018 and 38,077, respectively.

 

Note 20. Related-Party Transactions

 

We lease two manufacturing facilities totaling approximately 80,000 square feet located in San Luis Rio Colorado, Mexico, from an entity controlled by the family of Frank Moreno, the General Manager of GPI Mexicana. The facilities are leased through December 2023 at a monthly rent amount of $0.31 per square foot, or approximately $28,000. We also have an immaterial service agreement with a company owned by a relative of the General Manager.

 

In 2016, Alexandre Thieffry became our Executive Vice President of Finance. Mr. Alexandre Thieffry is the son of Alain Thieffry, our Chief Financial Officer and Chairperson of the Board. Mr. Alexandre Thieffry served as our Controller from 2011 through 2015.

 

Neither Mr. Moreno nor Alexandre Thieffry are directors or executive officers of the Company. Mr. Alain Thieffry is a director and executive officer of the Company. Our audit committee reviews any related party transactions involving our directors and executive officers.

 

Note 21. Subsequent event

 

On January 26, 2018, the Company entered into global strategic agreements for development, licensing, and revenue sharing with both BrainChip Holdings Limited (ASX: BRN), a leading developer of software and hardware accelerated solutions for advanced artificial intelligence and machine learning applications, and Xuvi, LLC, developers of an immersive data analytics and automation platform. The companies plan to jointly develop products for worldwide deployment in casino currency security, table game operations, and player behavior applications. The terms require payments to BrainChip Holdings Limited and Xuvi, LLC of approximately $0.6 million and $0.7 million, respectively, and are contingent upon completion of project phases.

  

  49  

 

   

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.   Controls and Procedures

 

Effectiveness of Disclosure Controls and Procedures

 

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2017. Based upon this evaluation, our CEO and CFO have concluded that, as of December 31, 2017, the end of the period covered by this annual report on Form 10-K, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports under the Exchange Act is (a) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (b) accumulated and communicated to our management, including the CEO and CFO, to allow timely decisions regarding required disclosure.

 

Inherent Limitations on Effectiveness of Controls

 

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the unintended or intended circumvention or overriding of the controls and procedures. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

 

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 December 31, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Beginning January 1, 2018, we implemented internal controls to ensure we have adequately evaluated our contracts and properly assessed the impact of the new accounting standards related to revenue recognition to facilitate adoption on that date. We do not expect significant changes to our internal control over financial reporting due to the adoption of the new standard.

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:

 

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America,

 

(3) provide reasonable assurance that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

(4) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

 

  50  

 

 

Under the supervision of our CEO and CFO, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) . Based on this assessment, management concluded that, as of December 31, 2017, our internal control over financial reporting is effective. Management reviewed this assessment with the Audit Committee of our Board of Directors.

 

Item 9B.   Other Information

 

None.

 

PART III

 

This Part III incorporates certain information from our definitive proxy statement for our 2018 annual meeting of stockholders (Proxy Statement) to be filed with the SEC not later than 120 days after the end of our fiscal year covered by this annual report on Form 10-K.

 

Item 10.   Directors, Executive Officers, and Corporate Governance

 

The information required by this Item is incorporated by reference to the Proxy Statement including the sections entitled “Nominees for Election of Directors,” “Board of Directors and Committees of the Board,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Executive Officers.”

 

Item 11.   Executive Compensation

 

The information required by this Item is incorporated by reference to the Proxy Statement including the sections entitled “Executive Compensation,” “Director Compensation Table,” “Non-Employee Director Stock Options,” and “Non-Employee Director Cash Compensation.”

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this Item is incorporated by reference to the Proxy Statement including the section entitled “Security Ownership of Management and Other Beneficial Owners” and “Equity Compensation Plan Information.”

 

Item 13.   Certain Relationships and Related Transactions and Director Independence

 

The information required by this Item is incorporated by reference to the Proxy Statement including the sections entitled “Board of Directors and Committees of the Board.”

 

Item 14.   Principal Accounting Fees and Services

 

The information required by this Item is incorporated by reference to the Proxy Statement including the sections entitled “Fees Paid to Independent Public Accounting Firm” and “Pre-Approval Policies and Procedures.”

 

  51  

 

 

PART IV

 

Item 15.   Exhibits, Financial Statement Schedules

 

(a)(1) Financial Statements

 

Included at Item 8. Financial Statements and Supplementary Data of this report:

 

Consolidated Balance Sheets at December 31, 2017 and 2016
 
Consolidated Statements of Income for the Years Ended December 31, 2017 and 2016
 
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017 and 2016
 
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2017 and 2016
 
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016
 
Notes to Consolidated Financial Statements

 

(a)(2) and (c) Financial Statement Schedules

 

All required schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto included at Item 8. Financial Statements and Supplementary Data.

 

(a)(3) and (b) Exhibits

 

The exhibits listed in the Index of Exhibits are filed with, or incorporated by reference in, this annual report:

 

  52  

 

  

Index of Exhibits

 

                          Incorporated by Reference To
No.   Exhibit Description   Filed with this 10-K   Form   File No.   Date Filed
2.01*   Agreement and Plan of Exchange and Stock Purchase Agreement, dated April 11, 2002, between Registrant and Etablissements Bourgogne et Grasset SA, as amended by the First Amendment thereto, dated May 13, 2002       DEF 14A   000-23588   8/09/2002
2.02*   Stock Purchase Agreement, dated April 11, 2002, among Eric P. Endy, The Paul S. Endy, Jr. Living Trust, the other Endy family trusts listed on the signature pages thereto, and the stockholders of Etablissements Bourgogne et Grasset SA listed on the signature pages thereto       DEF 14A   000-23588   8/09/2002
2.03*   Asset Purchase Agreement, dated July 1, 2014, among Registrant and GemGroup Inc., Gemaco Inc., GemAsia LLC, GemTech LLC, the shareholders of GemGroup Inc., and Danny R. Carpenter, as Agent       8-K   000-23588   7/07/2014
2.04*   Asset Purchase Agreement, dated May 11, 2016, among Registrant, Entertainment Gaming Asia Inc. and Dolphin Products Limited       10-Q   000-23588     8/11/2016
3.01   Registrant's Amended and Restated Articles of Incorporation       10-K   000-23588   3/24/2016
3.02   Registrant's Amended and Restated Bylaws       8-K   000-23588   12/28/2007
4.01   Specimen Certificate for Registrant's Common Stock       10-K   000-23588   5/15/2007
10.01+   Registrant's 1994 Directors’ Stock Option Plan, as adopted by the Board of Directors on December 26, 2017, subject to stockholder approval   X            
10.02+   Employment Agreement, dated October 28, 2008, between Gregory Gronau and Registrant       8-K   000-23588   10/28/2008
10.03+   Employment Agreement Amendment of 2017 dated March 22, 2017, between Gregory Gronau and Registrant       10-K   000-23588   03/24/2017
10.04+   Stock Option Agreement, dated May 6, 2009, between Gregory S. Gronau and Registrant       DEF 14A   000-23588   4/6/2009
10.05   Demand Line of Credit Agreement, dated June 26, 2014, between Gaming Partners International USA, Inc. and HSBC Bank USA, National Association       8-K   000-23588   7/07/2014
10.06   Demand Note, dated June 26, 2014, by Gaming Partners International USA, Inc. payable to the order of HSBC Bank USA, National Association       8-K   000-23588   7/07/2014
10.07   Security Agreement, dated June 26, 2014, between Gaming Partners International USA, Inc. and HSBC Bank USA, National Association       8-K   000-23588   7/07/2014
10.08   Unlimited Guaranty, dated June 26, 2014 by Registrant for the benefit of HSBC Bank USA, National Association       8-K   000-23588   7/07/2014
10.09   Credit Agreement, dated June 26, 2015, between Registrant and Nevada State Bank       8-K   000-23588   7/02/2015
10.10   Pledge and Security Agreement and Irrevocable Proxy, dated June 26, 2015, among Registrant, Gaming Partners International USA, Inc. and Nevada State Bank       8-K   000-23588   7/02/2015
10.11   Guaranty, dated June 26, 2015, by Gaming Partners International USA, Inc. and Gaming Partners International Asia Limited in favor of Nevada State Bank       8-K   000-23588   7/02/2015
10.12   Lease Agreement dated March 5, 2018, between Copropiedad Arte Y Diseno, as lessor, and GPI Mexicana, S.A. de C.V., as lessee   X            
21.01   List of Subsidiaries       10-K   000-23588   3/29/2011
23.01   Consent of Moss Adams LLP   X            
31.01   Certification of Registrant's Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002   X            
31.02   Certification of Registrant's Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002   X            
32.01**   Certification of Registrant's Chief Executive Officer and Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002   X            
99.01   Government Gaming Regulation   X            
101.INS   XBRL Instance   X            
101.SCH   XBRL Taxonomy Extension Schema   X            
101.CAL   XBRL Taxonomy Extension Calculation   X            
101.DEF   XBRL Taxonomy Extension Definition   X            
101.LAB   XBRL Taxonomy Extension Labels   X            
101.PRE   XBRL Taxonomy Extension Presentation   X            

 

+ Management contract or compensatory plan or arrangement
* The schedules and exhibits to this document have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Registrant will furnish copies of any annexes or schedules to the Securities and Exchange Commission upon request.
** This exhibit is intended to be furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise.

 

Item 16.   Form 10-K Summary

 

Not required.

 

  53  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  GAMING PARTNERS
INTERNATIONAL CORPORATION
   
Date: March 23, 2018 By:

/s/ Gregory S. Gronau

Gregory S. Gronau
President and Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Date: March 23, 2018 By:

/s/ Gregory S. Gronau

Gregory S. Gronau
President, Chief Executive Officer, and Director
(Principal Executive Officer)

     
Date: March 23, 2018 By:

/s/ Alain Thieffry

Alain Thieffry
Chief Financial Officer, and Chairperson of the Board (Principal Financial Officer and Principal Accounting Officer)

     
Date: March 23, 2018 By:

/s/ Eric P. Endy

Eric P. Endy
Director

     
Date: March 23, 2018 By:

/s/ Martin A. Berkowitz

Martin A. Berkowitz
Director

     
Date: March 23, 2018 By:

/s/ Charles R. Henry

Charles R. Henry
Director

     
Date: March 23, 2018 By:

/s/ Robert J. Kelly

Robert J. Kelly
Director

     
Date: March 23, 2018 By:

/s/ Jean-Francois Lendais

Jean-Francois Lendais
Director

 

  54  

  

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