EGT Entertainment Gaming Asia Incorporated

  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): March 10, 2016

  

 

ENTERTAINMENT GAMING ASIA INC.

(Exact Name of Registrant as Specified in Its Charter)

  

 

Nevada		001-32161		91-1696010
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification Number)

 

Unit C1, Ground Floor, Koon Wah Building

No. 2 Yuen Shun Circuit

Yuen Chau Kok, Shatin

New Territories, Hong Kong SAR

(Address of principal executive offices, including zip code)

 

+ 852-3147-6600

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions.

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)

 

 

Item 2.02

Results of Operations and Financial Condition

 

On March 10, 2016, we issued a press release announcing our results of operations for the financial quarter and fiscal year ended December 31, 2015. The full text of the press release is furnished as Exhibit 99.1 to this report.

 

Item 9.01

Financial Statements and Exhibits

 

(d)

Exhibits

Method Filing

 

The following exhibit is filed with this report:

 

Exhibit 99.1

Press release dated March 10, 2016 regarding the registrant’s financial results for its quarter and fiscal year ended December 31, 2015.

Filed Electronically herewith

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	ENTERTAINMENT GAMING ASIA INC.
Dated: March 10, 2016	/s/  Clarence Chung
	Clarence (Yuk Man) Chung
	Chief Executive Officer

 

  

Exhibit 99.1

 

 

For Immediate Release

 

CONTACTS:

Entertainment Gaming Asia Inc.

Traci Mangini

tracimangini@EGT-Group.com

872/802-4227

 

ENTERTAINMENT GAMING ASIA INC. REPORTS FOURTH QUARTER AND

2015 FISCAL YEAR RESULTS

 

- Fourth Quarter Earnings Impacted by $2.6 Million in Non-Cash Impairment Charges –

 

- Record Gaming Products Performance and Improvements in Gaming Operations

Drive Fiscal Year Profitability –

 

Hong Kong – March 10, 2016 – Entertainment Gaming Asia Inc. (NASDAQ: EGT) (“Entertainment Gaming Asia” or “the Company”), a gaming company focused on emerging gaming markets in Pan-Asia, today reported operating results for the fourth quarter and fiscal year ended December 31, 2015 and reviewed recent corporate progress.

 

Key Financial Metrics

 

·

Consolidated revenues of $7.3 million for the fourth quarter and $31.5 million for the 2015 fiscal year

·

Adjusted EBITDA (earnings from continuing operations before interest, taxes, depreciation, amortization and non-cash charges) of $2.1 million for the fourth quarter and $11.2 million for the 2015 fiscal year

·

Net loss of $2.7 million for the fourth quarter and net income of $820,000 for the 2015 fiscal year, which includes $2.6 million in non-cash impairments taken in the fourth quarter of 2015 in connection with the Company’s annual valuation review

·

Cash balance of $30.7 million and zero debt as of December 31, 2015

 

Fourth Quarter of 2015 Financial Performance

 

The Company’s fourth quarter of 2015 consolidated revenue was $7.3 million, a decrease of 12% compared to $8.3 million in the fourth quarter of 2014 due to a decrease in gaming product sales partially offset by an increase in gaming operations revenue.

 

Gaming operations revenue was $4.7 million for the fourth quarter of 2015, an increase of 15% compared to $4.1 million in the fourth quarter of 2014. Average consolidated daily net win per unit was $131 for the fourth quarter of 2015, an increase of 22% compared to $107 in the fourth quarter of 2014. The increases were primarily due to improvements in the Cambodia operations.

 

Cambodia average daily net win per unit was $164 for the fourth quarter of 2015, an increase of 27% compared to $129 in the prior year period primarily due to improved performance for NagaWorld and Thansur Bokor. NagaWorld average daily net win per unit was $234 in the fourth quarter of 2015, an increase of 19% compared to $197 in the prior year period mainly as a result of an increase in VIP player traffic.

 

Philippines average daily net win per unit was $67 for the fourth quarter of 2015, an increase of 3% compared to $65 in the prior year period primarily due to increased marketing programs.

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Revenue from gaming products was $2.6 million for the fourth quarter of 2015 compared to $4.2 million in the fourth quarter of 2014. The decrease was primarily a result of lower product sales in the fourth quarter of 2015 compared to the prior year period, which benefitted from two significant gaming chip and plaque orders from the Philippines totaling $4.0 million. Despite the decrease in revenue, the Company achieved a gross profit of $170,000 for this division for the fourth quarter of 2015 compared to a gross margin loss of $570,000 in the prior year period. The gross margin increase was primarily due to improved production efficiencies for gaming chips and plaques in the fourth quarter of 2015 and production inefficiencies related to the plaque operations in the fourth quarter of 2014.

 

Selling, general and administrative (SG&A) and research and development (R&D) expenses totaled $2.1 million for the fourth quarter of 2015 compared to $2.5 million in the fourth quarter of 2014.

 

In connection with its annual valuation review, the Company recorded a non-cash impairment charge totaling $2.6 million as of December 31, 2015. The impairment primarily related to the write-down of building infrastructure and related gaming assets for Dreamworld Poipet as the carrying values of these assets were higher than the expected value of the projected future cash flows.  It also included the write-down of certain assets related to historical Cambodia gaming projects that are no longer intended to be pursued. By comparison, the Company recorded an impairment of $121,000 in the fourth quarter of 2014 primarily related to the write-down of obsolete plant and machinery for the gaming products business.

 

Entertainment Gaming Asia reported adjusted EBITDA of $2.1 million in the fourth quarter of 2015 compared to $370,000 in the fourth quarter of 2014.

 

The Company reported a net loss of $2.7 million, or $0.18 per share, on a weighted average diluted share count of 14.5 million shares for the fourth quarter of 2015. This compared to a net loss of $1.5 million, or $0.15 per share, on a weighted average diluted share count of 10.2 million shares for the fourth quarter of 2014. The fourth quarter of 2014 net loss included net income of $90,000 from discontinued operations related to a gain on disposal of Dreamworld Pailin. Excluding the discontinued operations, the Company reported a net loss from continuing operations of $1.6 million, or $0.16 per share, for the fourth quarter of 2014.

 

The increase in net loss from continuing operations was primarily a result of the $2.6 million non-cash impairment charge, a $404,000 loss on the disposition of obsolete gaming equipment for the gaming products division, higher R&D expenses related to new projects and tax expenses compared to benefits in the prior year period. These factors were partially offset by higher gaming operations revenue and higher gaming products gross margin in the fourth quarter of 2015 and lower SG&A expenses largely due to a $520,000 provision of an uncollectable receivable for a tax refund related to the Philippines operations taken in the fourth quarter of 2014.

 

2015 Fiscal Year Financial Performance:

 

Consolidated revenue was $31.5 million for the 2015 fiscal year, an increase of 41% compared to $22.4 million for the 2014 fiscal year due to increases in both the gaming operations and gaming products business divisions.

 

Gaming operations revenue was $18.1 million for the 2015 fiscal year, an increase of 11% compared to $16.4 million in the 2014 fiscal year. Average consolidated daily net win per unit was $122 for the 2015 fiscal year, an increase of 16% compared to $105 in the 2014 fiscal year. The increases were due to improvements in the Cambodia operations partially offset by declines in the Philippines operations.

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Cambodia average daily net win per unit was $152 for the 2015 fiscal year, an increase of 24% compared to $123 in the prior year primarily due to improved performance at NagaWorld and a lower machine base at Thansur Bokor. NagaWorld average daily net win per unit was $225 in the 2015 fiscal year, an increase of 19% compared to $189 in the prior year mainly as a result of lower player traffic in the 2014 fiscal year primarily due to political and labor unrest in the first half of the year and NagaWorld renovations of the casino floor that impacted certain areas of the Company’s slot operations in the second half of the year.

 

Philippines average daily net win per unit was $65 for the 2015 fiscal year, a decrease of 8% compared to $71 in the prior year. The decrease was primarily due to increased competition from the development of integrated casino resorts in Manila over the last several years.

 

Revenue from gaming products was $13.4 million for the 2015 fiscal year compared to $6.0 million in the 2014 fiscal year. The increase was primarily a result of higher gaming chip and plaque sales related to both new casino openings and existing customer reorders in the 2015 fiscal year compared to the prior year. Orders from new casino openings represented $4.8 million and $3.5 million in revenue for the 2015 and 2014 fiscal years, respectively. The Company achieved a gross profit of $2.1 million for this division for the 2015 fiscal year compared to a gross margin loss of $1.8 million in the prior year. The gross margin increase was primarily due to higher production volumes and improved efficiencies for gaming chips and plaques in the 2015 fiscal year and production inefficiencies related to the plaque operations and temporary machinery issues in the 2014 fiscal year.

 

SG&A and R&D expenses totaled $6.4 million for the 2015 fiscal year compared to $6.9 million in the 2014 fiscal year.

 

Entertainment Gaming Asia reported adjusted EBITDA of $11.2 million in the 2015 fiscal year compared to $5.1 million in the 2014 fiscal year.

 

Income tax expenses were $217,000 in the 2015 fiscal year compared to a benefit of $41,000 in the prior year. The 2015 tax expense was mainly due to a tax provision for the Philippines operations, as its tax loss had been fully utilized in the 2014 fiscal year.

 

The Company reported net income of $820,000, or $0.06 per share, on a weighted average diluted share count of 14.5 million shares for the 2015 fiscal year. This compared to a net loss of $2.8 million, or $0.35 per share, on a weighted average diluted share count of 8.2 million shares for the 2014 fiscal year. The 2014 fiscal year included a net loss of $325,000 from discontinued operations related to Dreamworld Pailin. Excluding the discontinued operations, the Company reported a net loss from continuing operations of $2.5 million, or $0.31 per share, for the 2014 fiscal year.

 

The increase in net income from continuing operations was primarily a result of the significant improvement in gaming products sales and gross margin, an increase in gaming operations revenue and a reduction in SG&A expenses. The increase was partially offset by the $2.6 million non-cash impairment charge and the loss on the disposition of obsolete gaming equipment for the gaming products division in the fourth quarter of 2015, tax expenses compared to benefits in the prior year period and higher foreign currency losses due to the settlement of U.S. dollar denominated payables for the Philippines operations with an appreciated U.S. dollar in the 2015 fiscal year.

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, “We are pleased to report a profitable 2015 fiscal year driven by strong gaming operations revenue, record gaming products performance and cost controls. We accomplished this despite incurring approximately $3.0 million in non-cash charges associated with both impairments of certain gaming operations assets and the loss on disposal of obsolete equipment for the gaming products division in the fourth quarter.

 

As a result of this solid performance, we have increased our cash position by nearly $13.4 million in the 2015 fiscal year to $30.7 million as of December 31, 2015. We are focused on utilizing these resources to secure projects in new and existing markets with the goal of fueling long-term growth for the Company.”

 

Entertainment Gaming Asia is hosting a conference call and simultaneous webcast at 8:30 a.m. ET today, March 10, 2016, both of which are open to the general public. The conference call number is 800/768-9711 or 212/231-2922. Questions and answers will be reserved for call-in analysts and investors. Interested parties may also access the live call on the Internet at www.EGT-Group.com. Please allow 15 minutes to register and download and install any necessary software.  Following its completion, a replay of the call can be accessed for thirty days on the Internet at www.EGT-Group.com.

 

About Entertainment Gaming Asia Inc.

 

Entertainment Gaming Asia Inc. (NASDAQ: EGT), an indirect, majority-owned subsidiary of Melco International Development Limited, is a gaming company in Pan-Asia engaged in the leasing of electronic gaming machines on a lease and revenue sharing basis to the gaming industry in Cambodia and the Philippines and the development and operation of gaming venues in Asia under its “Dreamworld” brand.  The Company also manufactures and sells RFID and traditional gaming chips and plaques to major casinos under its “Dolphin” brand.  

 

Forward Looking Statements

 

This press release contains forward-looking statements concerning Entertainment Gaming Asia within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include statements regarding expectations for the Company’s slot operations business model, growth of the gaming industry in Asia, the Company’s ability to secure new projects and fund those projects, expectations for the growth and profitability of the Company’s gaming chips and plaques operations and expectations for expanding its business model to new businesses that will provide growth for the Company. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, risks related to the Company’s ability to: place gaming machines at significant levels and generate the expected amount of net win from the gaming machines placed; identify and implement successful marketing and promotional strategies for the Company’s gaming projects and identify and successfully develop additional projects; acquire additional capital as and when needed; identify and implement successful marketing and promotional strategies and obtain and fulfill significant purchase orders from the customers for the Company’s gaming chips and plaques; successfully improve manufacturing processes and enhance production efficiencies for the Company’s gaming chips and plaques; adapt to potential changes in gaming policies and political stability in the countries in which the Company operates and those other risks set forth in the Company’s annual report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 26, 2015 and subsequently filed quarterly reports on Form 10-Q. The Company cautions readers not to place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.

 

- financial tables follow -

 

 

Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Entertainment Gaming Asia Inc.

Consolidated Statements of Comprehensive Income/(Loss)

(Unaudited)

  

		Three-Month Period								Year Ended
		Ended December 31,								December 31,
														(Audited)
(amounts in thousands, except per share data)		2015				2014				2015				2014
Revenues:
Gaming operations			4,720				4,096				18,127				16,364
Gaming products			2,598				4,226				13,382				5,998
Total revenues			7,318				8,322				31,509				22,362
Operating costs and expenses:
Cost of gaming operations
Gaming property and equipment depreciation			720				857				3,073				3,538
Casino contract amortization			606				610				2,436				2,445
Other gaming related intangibles amortization			63				63				252				252
Other operating costs			1,015				926				3,733				3,543
Cost of gaming products			2,428				4,796				11,252				7,781
Selling, general and administrative expenses			1,751				2,425				5,955				6,528
Impairment of assets			2,563				121				2,563				121
Loss on disposition of assets			404				79				382				55
Research and development expenses			305				76				421				387
Depreciation and amortization			53				60				212				219
Total operating costs and expenses			9,908				10,013				30,279				24,869
(Loss)/income from operations			(2,590	)			(1,691	)			1,230				(2,507	)
Other (expenses)/income:
Interest expense and finance fees			—				(2	)			(3	)			(4	)
Interest income			3				1				13				2
Foreign currency losses			(31	)			(6	)			(241	)			(60	)
Other			11				5				38				22
Total other expenses			(17	)			(2	)			(193	)			(40	)
(Loss)/income from continuing operations before income tax			(2,607	)			(1,693	)			1,037				(2,547	)
Income tax (expenses)/benefit			(51	)			85				(217	)			41
Net (loss)/income from continuing operations			(2,658	)			(1,608	)			820				(2,506	)
Net income/(loss) from discontinued operations, net of tax			—				90				—				(325	)
Net (loss)/income attributable to EGT stockholders		$	(2,658	)		$	(1,518	)		$	820			$	(2,831	)
Other comprehensive income/(loss):
Foreign currency translation			35				46				(44	)			11
Total other comprehensive income/(loss), net of tax			35				46				(44	)			11
Comprehensive (loss)/income attributable to EGT stockholders		$	(2,623	)		$	(1,472	)		$	776			$	(2,820	)
Per share data (basic and diluted):
(Loss)/earnings		$	(0.18	)		$	(0.15	)		$	0.06			$	(0.35	)
(Loss)/earnings from continuing operations		$	(0.18	)		$	(0.16	)		$	0.06			$	(0.31	)
Earnings/(loss) from discontinued operations, net of tax		$	—			$	0.01			$	—			$	(0.04	)
Weighted average common shares outstanding:
Basic			14,460				10,223				14,457				8,188
Diluted			14,460				10,223				14,485				8,188

 

All historical revenues and expenses associated with Dreamworld Pailin, which ceased operation in June 2014, have been reclassified as discontinued operations for the presented periods. Historical share amounts have been proportionally adjusted to reflect the impact of the Company’s 1:4 reverse stock split effected on February 26, 2015 for the presented periods.

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Entertainment Gaming Asia Inc.

Consolidated Balance Sheets

 

		December 31,				December 31,
		2015				2014
(amounts in thousands, except per share data)		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	30,681			$	17,301
Accounts receivable, net			724				830
Amounts due from related parties			257				2,112
Other receivables			78				316
Inventories			2,378				2,617
Prepaid expenses and other current assets			295				1,447
Contract amendment fees			18				—
Total current assets			34,431				24,623
Gaming equipment, net			2,985				5,624
Casino contracts			528				2,982
Property and equipment, net			5,919				8,895
Goodwill			332				351
Intangible assets, net			391				595
Contract amendment fees			—				126
Deferred tax asset			274				142
Prepaids, deposits and other assets			425				1,316
Total assets		$	45,285			$	44,654
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	288			$	645
Amounts due to related parties			239				47
Accrued expenses			1,755				2,009
Income tax payable			2				—
Deferred revenues, current portion			9				—
Customer deposits and other current liabilities			529				306
Total current liabilities			2,822				3,007
Other liabilities			880				845
Deferred tax liability			29				107
Total liabilities			3,731				3,959
Stockholders’ equity:
Common stock, $.001 par value, 38,000,000 shares authorized;14,464,220 and 14,471,095 shares issued and outstanding, respectively			14				14
Additional paid-in-capital			47,763				47,680
Accumulated other comprehensive income			709				753
Accumulated losses since January 1, 2011 ($386.1 million accumulated deficit eliminated)			(6,933	)			(7,753	)
Total EGT stockholders’ equity			41,553				40,694
Non-controlling interest			1				1
Total stockholders’ equity			41,554				40,695
Total liabilities and stockholders’ equity		$	45,285			$	44,654

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Entertainment Gaming Asia Inc.

Adjusted EBITDA from Continuing Operations

(Unaudited)

 

		Three-Month Period								Year Ended
		Ended December 31,								December 31,
														(Audited)
(amounts in thousands)		2015				2014				2015				2014
Net (loss)/income from continuing operations – GAAP basis		$	(2,658	)		$	(1,608	)		$	820			$	(2,506	)
Interest expense and finance fees			—				2				3				4
Interest income			(3	)			(1	)			(13	)			(2	)
Income tax expenses			51				(85	)			217				(41	)
Depreciation and amortization			1,731				1,861				7,100				7,289
Stock-based compensation expenses			15				1				83				160
Impairment of assets			2,563				121				2,563				121
Loss on disposition of assets			404				79				382				55
Adjusted EBITDA from continuing operations		$	2,103			$	370			$	11,155			$	5,080

 

Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, stock-based compensation, and other non-cash operating income and expenses. Adjusted EBITDA is presented exclusively as a supplemental disclosure because management believes that it is widely used to measure the performance, and as a basis for valuation, of gaming companies. Management uses Adjusted EBITDA as a measure of the operating performance of its segments and to compare the operating performance of its operations with those of its competitors. The Company also presents Adjusted EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements. Gaming companies have historically reported EBITDA as a supplement to financial measures in accordance with generally accepted accounting principles in the United States (“GAAP”). Adjusted EBITDA should not be considered as an alternative to operating income as an indicator of the Company’s performance, as an alternative to cash flows from operating activities as a measure of liquidity, or as an alternative to any other measure determined in accordance with GAAP. Unlike net income/(loss), Adjusted EBITDA does not include depreciation or interest expense and,  therefore, does not reflect current or future capital expenditures or the cost of capital. The Company compensates for these limitations by using Adjusted EBITDA as only one of several comparative tools, together with GAAP measurements, to assist in the evaluation of operating performance. Such GAAP measurements include operating income, net income/(loss), cash flows from operations and cash flow data. The Company has significant uses of cash flows, including capital expenditures, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA. Entertainment Gaming Asia’s calculation of Adjusted EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.

 

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Entertainment Gaming Asia Reports Q4 and 2015 Fiscal Year Earnings Results, 3/10/2016

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Entertainment Gaming Asia Inc.

Gaming Operations Performance Metrics

(Unaudited)

 

		Three-Month Period								Year Ended
		Ended December 31,								December 31,
														(Audited)
		2015				2014				2015				2014
Net Revenue to EGT (in thousands)
Cambodia		$	3,887			$	3,204			$	14,614			$	12,442
Philippines			667				648				2,585				2,912
Service revenue(1)			166				244				928				1,010
Consolidated		$	4,720			$	4,096			$	18,127			$	16,364
Average Daily Net Win (per unit)
Cambodia		$	164			$	129			$	152			$	123
Philippines			67				65				65				71
Consolidated			131				107				122				105
EGM Seats in Operation
Cambodia											993				1,062
Philippines											550				557
Consolidated											1,543				1,619

 

(1) Service revenue represents reimbursements of certain expenses, which for accounting purposes, are included in the revenue and grossed up in the cost of gaming operations.

 

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