ITEM 1. FINANCIAL
STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share amounts)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
15,517
|
|
|
$
|
14,492
|
|
Marketable securities
|
|
|
4,989
|
|
|
|
5,724
|
|
Accounts receivable, net
|
|
|
4,195
|
|
|
|
5,905
|
|
Inventories
|
|
|
8,110
|
|
|
|
7,407
|
|
Prepaid expenses
|
|
|
838
|
|
|
|
965
|
|
Deferred income tax asset
|
|
|
630
|
|
|
|
628
|
|
Restricted Cash
|
|
|
10,000
|
|
|
|
-
|
|
Other current assets
|
|
|
2,438
|
|
|
|
3,054
|
|
Total current assets
|
|
|
46,717
|
|
|
|
38,175
|
|
Property and equipment, net
|
|
|
10,139
|
|
|
|
10,996
|
|
Intangibles, net
|
|
|
923
|
|
|
|
985
|
|
Deferred income tax asset
|
|
|
3,264
|
|
|
|
3,643
|
|
Inventories, non-current
|
|
|
509
|
|
|
|
175
|
|
Other assets
|
|
|
2,349
|
|
|
|
1,475
|
|
Total assets
|
|
$
|
63,901
|
|
|
$
|
55,449
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Demand line of credit
|
|
$
|
10,000
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
2,402
|
|
|
|
2,291
|
|
Accrued liabilities
|
|
|
2,925
|
|
|
|
2,918
|
|
Customer deposits and deferred revenue
|
|
|
1,395
|
|
|
|
646
|
|
Income taxes payable
|
|
|
195
|
|
|
|
251
|
|
Total current liabilities
|
|
|
16,917
|
|
|
|
6,106
|
|
Deferred income tax liability
|
|
|
1,865
|
|
|
|
1,870
|
|
Total liabilities
|
|
|
18,782
|
|
|
|
7,976
|
|
Commitments and contingencies - see Note 9
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, authorized 10,000,000 shares, $.01 par value,
|
|
|
|
|
|
|
|
|
none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, authorized 30,000,000 shares, $.01 par value,
|
|
|
|
|
|
|
|
|
8,207,077 and 7,916,094 issued and outstanding, respectively
|
|
|
82
|
|
|
|
82
|
|
Additional paid-in capital
|
|
|
19,853
|
|
|
|
19,771
|
|
Treasury stock at cost: 290,983 shares
|
|
|
(2,262
|
)
|
|
|
(2,262
|
)
|
Retained earnings
|
|
|
25,920
|
|
|
|
28,205
|
|
Accumulated other comprehensive income
|
|
|
1,526
|
|
|
|
1,677
|
|
Total stockholders' equity
|
|
|
45,119
|
|
|
|
47,473
|
|
Total liabilities and stockholders' equity
|
|
$
|
63,901
|
|
|
$
|
55,449
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(unaudited)
(in thousands, except per-share amounts)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
|
$
|
10,216
|
|
|
$
|
14,146
|
|
|
$
|
20,775
|
|
|
$
|
28,914
|
|
Cost of revenues
|
|
|
7,463
|
|
|
|
9,761
|
|
|
|
15,263
|
|
|
|
20,249
|
|
Gross profit
|
|
|
2,753
|
|
|
|
4,385
|
|
|
|
5,512
|
|
|
|
8,665
|
|
Marketing and sales
|
|
|
1,343
|
|
|
|
1,505
|
|
|
|
2,646
|
|
|
|
3,010
|
|
General and administrative
|
|
|
2,043
|
|
|
|
2,382
|
|
|
|
4,111
|
|
|
|
4,481
|
|
Research and development
|
|
|
417
|
|
|
|
494
|
|
|
|
854
|
|
|
|
1,027
|
|
Operating (loss) income
|
|
|
(1,050
|
)
|
|
|
4
|
|
|
|
(2,099
|
)
|
|
|
147
|
|
Other income and (expense), net
|
|
|
49
|
|
|
|
(40
|
)
|
|
|
106
|
|
|
|
38
|
|
(Loss) income before income taxes
|
|
|
(1,001
|
)
|
|
|
(36
|
)
|
|
|
(1,993
|
)
|
|
|
185
|
|
Income tax provision (benefit)
|
|
|
154
|
|
|
|
18
|
|
|
|
292
|
|
|
|
(293
|
)
|
Net (loss) income
|
|
$
|
(1,155
|
)
|
|
$
|
(54
|
)
|
|
$
|
(2,285
|
)
|
|
$
|
478
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.06
|
|
Diluted
|
|
$
|
(0.15
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.06
|
|
Weighted-average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
7,916
|
|
|
|
7,949
|
|
|
|
7,916
|
|
|
|
8,038
|
|
Diluted
|
|
|
7,916
|
|
|
|
7,949
|
|
|
|
7,916
|
|
|
|
8,116
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(unaudited)
(in thousands)
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Net (loss) income
|
|
$
|
(1,155
|
)
|
|
$
|
(54
|
)
|
|
$
|
(2,285
|
)
|
|
$
|
478
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on securities, net of tax
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
Amortization of pension transition asset, net of tax
|
|
|
-
|
|
|
|
4
|
|
|
|
-
|
|
|
|
4
|
|
Foreign currency translation adjustment
|
|
|
(131
|
)
|
|
|
214
|
|
|
|
(151
|
)
|
|
|
(445
|
)
|
Other comprehensive (loss) income, net of tax
|
|
|
(131
|
)
|
|
|
217
|
|
|
|
(151
|
)
|
|
|
(442
|
)
|
Total comprehensive (loss) income
|
|
$
|
(1,286
|
)
|
|
$
|
163
|
|
|
$
|
(2,436
|
)
|
|
$
|
36
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Income
|
|
|
Total
|
|
Balance, January 1, 2013
|
|
|
8,045,904
|
|
|
$
|
82
|
|
|
$
|
19,563
|
|
|
$
|
(1,250
|
)
|
|
$
|
27,039
|
|
|
$
|
1,187
|
|
|
$
|
46,621
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
478
|
|
|
|
-
|
|
|
|
478
|
|
Repurchases of common stock
|
|
|
(113,941
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(885
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(885
|
)
|
Unrealized gain on securities, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
110
|
|
Amortization of pension transition asset,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4
|
|
|
|
4
|
|
Foreign currency translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(445
|
)
|
|
|
(445
|
)
|
Balance,
June 30, 2013
|
|
|
7,931,963
|
|
|
$
|
82
|
|
|
$
|
19,673
|
|
|
$
|
(2,135
|
)
|
|
$
|
27,517
|
|
|
$
|
745
|
|
|
$
|
45,882
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2014
|
|
|
7,916,094
|
|
|
$
|
82
|
|
|
$
|
19,771
|
|
|
$
|
(2,262
|
)
|
|
$
|
28,205
|
|
|
$
|
1,677
|
|
|
$
|
47,473
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,285
|
)
|
|
|
-
|
|
|
|
(2,285
|
)
|
Stock compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
82
|
|
Foreign currency translation
adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(151
|
)
|
|
|
(151
|
)
|
Balance,
June 30, 2014
|
|
|
7,916,094
|
|
|
$
|
82
|
|
|
$
|
19,853
|
|
|
$
|
(2,262
|
)
|
|
$
|
25,920
|
|
|
$
|
1,526
|
|
|
$
|
45,119
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(unaudited)
(in thousands)
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,285
|
)
|
|
$
|
478
|
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
|
|
|
|
|
Depreciation
|
|
|
1,110
|
|
|
|
1,130
|
|
Amortization of intangible assets
|
|
|
61
|
|
|
|
63
|
|
Provision (benefit) for bad debt
|
|
|
55
|
|
|
|
(19
|
)
|
Deferred income taxes
|
|
|
371
|
|
|
|
(878
|
)
|
Stock compensation expense
|
|
|
82
|
|
|
|
110
|
|
Loss on sale of property and equipment
|
|
|
24
|
|
|
|
-
|
|
(Gain) on sale of marketable securities
|
|
|
(2
|
)
|
|
|
(10
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,649
|
|
|
|
(277
|
)
|
Inventories
|
|
|
(1,062
|
)
|
|
|
49
|
|
Prepaid expenses and other current assets
|
|
|
1,717
|
|
|
|
(1,027
|
)
|
Non-current other assets
|
|
|
(872
|
)
|
|
|
89
|
|
Accounts payable
|
|
|
26
|
|
|
|
(83
|
)
|
Customer deposits and deferred revenue
|
|
|
750
|
|
|
|
(1,921
|
)
|
Accrued liabilities
|
|
|
21
|
|
|
|
(1,921
|
)
|
Income taxes payable
|
|
|
(55
|
)
|
|
|
(152
|
)
|
Net cash provided by (used in) operating activities
|
|
|
1,590
|
|
|
|
(4,369
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(7,881
|
)
|
|
|
-
|
|
Proceeds from sale of marketable securities
|
|
|
8,565
|
|
|
|
7,879
|
|
Initial deposit on business acquisition
|
|
|
(1,000
|
)
|
|
|
-
|
|
Change in restricted cash
|
|
|
(10,000
|
)
|
|
|
-
|
|
Purchase of business assets
|
|
|
-
|
|
|
|
(775
|
)
|
Capital expenditures
|
|
|
(241
|
)
|
|
|
(1,197
|
)
|
Proceeds from sale of property and equipment
|
|
|
14
|
|
|
|
-
|
|
Net cash (used in) provided by investing activities
|
|
|
(10,543
|
)
|
|
|
5,907
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from demand line of credit
|
|
|
10,000
|
|
|
|
-
|
|
Repurchases of common stock
|
|
|
-
|
|
|
|
(885
|
)
|
Net cash provided by (used in) financing activities
|
|
|
10,000
|
|
|
|
(885
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(22
|
)
|
|
|
(217
|
)
|
Net increase in cash and cash equivalents
|
|
|
1,025
|
|
|
|
436
|
|
Cash and cash equivalents, beginning of period
|
|
|
14,492
|
|
|
|
14,038
|
|
Cash and cash equivalents, end of period
|
|
$
|
15,517
|
|
|
$
|
14,474
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash (received) paid for income taxes, net of refunds
|
|
$
|
(934
|
)
|
|
$
|
1,483
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Property and equipment acquired through accounts payable
|
|
$
|
91
|
|
|
$
|
25
|
|
See notes to unaudited condensed consolidated
financial statements.
CONDENSED CONSOLIDATED NOTES TO FINANCIAL
STATEMENTS
(unaudited)
Note 1. Nature of Business and Significant Accounting
Policies
Organization and Nature of Business
Gaming Partners
International Corporation (GPIC or the Company) is headquartered in Las Vegas, Nevada and has three operating subsidiaries: Gaming
Partners International USA, Inc. (GPI USA) (including GPI Mexicana, our maquiladora manufacturing operation in Mexico), Gaming
Partners International SAS (GPI SAS), and Gaming Partners International Asia Limited (GPI Asia).
On
July 1, 2014, we acquired
substantially all of the net gaming assets of GemGroup Inc. and its subsidiaries (GemGroup) (see
Note 14 – Subsequent Events
)
.
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 at our facility in San Luis Rio Colorado, Mexico and, since July 1, 2014, at our facility in Blue
Springs, Missouri. The remainder is either manufactured in France or purchased from United States vendors. We also warehouse inventory
in San Luis, Arizona and at our Las Vegas, Nevada headquarters, and have sales offices in Las Vegas; Atlantic City, New Jersey;
and Gulfport, Mississippi.
|
|
●
|
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, with an office in Macau S.A.R., China, is the exclusive distributor of GPI USA and GPI SAS products in the Asia-Pacific
region. GPI Asia primarily sells casino currency, manufactured in France or in Mexico, as well as radio frequency identification
device (RFID) product solutions. Since July 1, 2014, GPI Asia also sells layouts manufactured in Macau.
|
GPIC was formed in 2002 through a combination
between Paul-Son Gaming Corporation and Bourgogne et Grasset S.A. initiated by the late Francois Carrette, whose firm, Holding
Wilson, S.A., remains GPIC’s controlling stockholder. We have established brand names such as Paulson
®
, Bourgogne
et Grasset
®
(BG
®
), Blue Chip (BC
®
), and Bud Jones
®
. On July 1,
2014, GPIC started manufacturing and selling playing cards and table layouts under the recently acquired Gemaco® brand name
(see
Note 14 – Subsequent Events
). GPIC and each of its subsidiaries are sometimes collectively referred to herein
as the “Company,” “us,” “we” or “our.” GPI USA was founded in 1963 as Paul-Son
Gaming Supplies, Inc. by Paul S. Endy, Jr., and initially manufactured and sold dice to casinos in Las Vegas. GPI SAS was
founded in 1923 as Etablissements Bourgogne et Grasset S.A. by Etienne Bourgogne and Claudius Grasset in Beaune, France to produce
and sell counterfeit-resistant currencies to casinos in Monaco.
Our business activities include the manufacture
and supply of casino currencies, table layouts, playing cards, 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.
Significant Accounting Policies
Basis of Consolidation and Presentation.
The condensed
consolidated financial statements include the accounts of GPIC and its wholly-owned subsidiaries GPI SAS, GPI USA, GPI Mexicana,
and GPI Asia. All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP)
for interim financial information and do not include all of the information and notes required by generally accepted accounting
principles for complete financial statements. These statements should be read in conjunction with our annual audited consolidated
financial statements and related notes included in our Form 10-K for the year ended December 31, 2013.
These unaudited condensed consolidated financial
statements, in the opinion of management, reflect only normal and recurring adjustments necessary for a fair presentation of results
for such periods. The results of operations for an interim period are not necessarily indicative of the results for the full year.
Subsequent Events
.
We evaluated subsequent events
through August 12, 2014, the date this Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission (SEC).
Recently Issued Accounting Standards.
In May 2014, the FASB issued ASU 2014-09,
Revenues from Contracts with Customers (Topic 606). This guidance applies to any entity that either enters into contracts with
customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts
are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. This guidance supersedes existing revenue recognition guidance, including
most industry-specific guidance, as well as certain related guidance on accounting for contract costs. For public entities, this
guidance is effective for annual reporting periods beginning after December 15, 2016. Early application is not permitted. The Company
is currently evaluating the impact of this ASU on its financial statements.
Note 2. Acquisition
In May 2013, we purchased certain assets
of The Blue Chip Company, LLC (Blue Chip), a privately-held manufacturer of compression-molded gaming chips. The acquisition is
part of our overall acquisition strategy to use our cash position to acquire companies, products or technologies that enable us
to grow and diversify our product offerings. We completed the acquisition of Blue Chip on May 31, 2013 for total consideration
of $0.8 million. As the acquisition was not material, we did not present pro forma results of operations, actual results of operations
from the acquisition date through December 31, 2013, or other disclosure required for material business combinations.
Note 3. Cash, Cash Equivalents, and Marketable Securities
We hold our cash, cash equivalents, and
marketable securities in financial institutions in various countries throughout the world. Substantially all accounts have balances
in excess of government-insured limits. The following summarizes the geographic location of our holdings (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Cash and Cash Equivalents
|
|
|
Marketable Securities
|
|
|
Total
|
|
|
Cash and Cash Equivalents
|
|
|
Marketable Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
12,281
|
|
|
$
|
-
|
|
|
$
|
12,281
|
|
|
$
|
11,052
|
|
|
$
|
-
|
|
|
$
|
11,052
|
|
France
|
|
|
1,504
|
|
|
|
4,989
|
|
|
|
6,493
|
|
|
|
344
|
|
|
|
5,724
|
|
|
|
6,068
|
|
Macau S.A.R., China
|
|
|
1,731
|
|
|
|
-
|
|
|
|
1,731
|
|
|
|
3,096
|
|
|
|
-
|
|
|
|
3,096
|
|
Total
|
|
$
|
15,517
|
|
|
$
|
4,989
|
|
|
$
|
20,506
|
|
|
$
|
14,492
|
|
|
$
|
5,724
|
|
|
$
|
20,216
|
|
Available-for-sale marketable securities
consist of investments in securities such as certificates of deposit offered by French banks and bond mutual funds (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
Cost
|
|
|
Unrealized Gain/(Loss)
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Unrealized Gain/(Loss)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
$
|
1,364
|
|
|
$
|
-
|
|
|
$
|
1,364
|
|
|
$
|
4,680
|
|
|
$
|
-
|
|
|
$
|
4,680
|
|
Bond mutual funds
|
|
|
3,625
|
|
|
|
-
|
|
|
|
3,625
|
|
|
|
1,044
|
|
|
|
-
|
|
|
|
1,044
|
|
Total marketable securities
|
|
$
|
4,989
|
|
|
$
|
-
|
|
|
$
|
4,989
|
|
|
$
|
5,724
|
|
|
$
|
-
|
|
|
$
|
5,724
|
|
We present our marketable securities at
their estimated fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. We have determined that all of our marketable
securities are Level 1 financial instruments, with asset values recorded at quoted prices in active markets for identical assets.
Note 4. Accounts Receivable and Allowance for Doubtful
Accounts
At June 30, 2014, no casino customer accounted
for more than 10% of our accounts receivable balance. At December 31, 2013, we had one casino customer that accounted for 10% of
our accounts receivable balance.
The allowance for doubtful accounts consists
of the following (in thousands):
|
|
Balance at Beginning
of Year
|
|
|
Provision
(Benefit)
|
|
|
Write-offs, Net
of Recoveries
|
|
|
Exchange
Rate Effect
|
|
|
Balance at
End of Period
|
|
June 30, 2014
|
|
$
|
114
|
|
|
$
|
55
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
169
|
|
December 31, 2013
|
|
$
|
152
|
|
|
$
|
(39
|
)
|
|
$
|
-
|
|
|
$
|
1
|
|
|
$
|
114
|
|
Note 5. Inventories
Inventories consist of the following (in
thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Raw materials
|
|
$
|
4,479
|
|
|
$
|
4,957
|
|
Work in progress
|
|
|
1,923
|
|
|
|
937
|
|
Finished goods
|
|
|
2,217
|
|
|
|
1,688
|
|
Total inventories
|
|
$
|
8,619
|
|
|
$
|
7,582
|
|
We classified a portion of our inventories
as non-current because we do not expect this portion to be used within one year. The classification of our inventories on
our condensed consolidated balance sheets is as follows (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Current
|
|
$
|
8,110
|
|
|
$
|
7,407
|
|
Non-current
|
|
|
509
|
|
|
|
175
|
|
Total inventories
|
|
$
|
8,619
|
|
|
$
|
7,582
|
|
Note 6. Property and Equipment
Property and equipment consists of the following
(in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Land
|
|
$
|
1,789
|
|
|
$
|
1,792
|
|
Buildings and improvements
|
|
|
8,856
|
|
|
|
8,897
|
|
Equipment and furniture
|
|
|
21,955
|
|
|
|
21,801
|
|
Vehicles
|
|
|
431
|
|
|
|
475
|
|
|
|
|
33,031
|
|
|
|
32,965
|
|
Less accumulated depreciation
|
|
|
(22,892
|
)
|
|
|
(21,969
|
)
|
Property and equipment, net
|
|
$
|
10,139
|
|
|
$
|
10,996
|
|
Depreciation expense for the three months
ended June 30, 2014 and 2013 was $545,000 and $579,000, respectively. Depreciation expense for the six months ended June 30,
2014 and 2013 was $1,110,000 and $1,130,000 respectively.
Note 7. Intangible Assets
Intangible assets consist
of the following (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
|
|
|
|
Gross Carrying Amount
|
|
|
Accum. Amort.
|
|
|
Net Carrying Amount
|
|
|
Gross Carrying Amount
|
|
|
Accum. Amort.
|
|
|
Net Carrying Amount
|
|
|
Estimated Useful Life (Years)
|
Trademarks
|
|
$
|
631
|
|
|
$
|
(265
|
)
|
|
$
|
366
|
|
|
$
|
631
|
|
|
$
|
(240
|
)
|
|
$
|
391
|
|
|
10-12
|
Patents
|
|
|
517
|
|
|
|
(483
|
)
|
|
|
34
|
|
|
|
517
|
|
|
|
(480
|
)
|
|
|
37
|
|
|
13-14
|
Customer list
|
|
|
513
|
|
|
|
(56
|
)
|
|
|
457
|
|
|
|
513
|
|
|
|
(30
|
)
|
|
|
483
|
|
|
10
|
Other intangible assets
|
|
|
102
|
|
|
|
(36
|
)
|
|
|
66
|
|
|
|
103
|
|
|
|
(29
|
)
|
|
|
74
|
|
|
5-10
|
Total intangible assets
|
|
$
|
1,763
|
|
|
$
|
(840
|
)
|
|
$
|
923
|
|
|
$
|
1,764
|
|
|
$
|
(779
|
)
|
|
$
|
985
|
|
|
|
In May 2013, we acquired certain intangible
assets from Blue Chip, including a customer list, trade secret formulas, and a trademark (see
Note 2
-
Acquisition
).
Amortization expense for intangible assets
for the three months ended June 30, 2014 and 2013 was $30,000 and $36,000, respectively. Amortization expense for intangible assets
for the six months ended June 30, 2014 and 2013 was $61,000 and $63,000, respectively.
Note 8. Restricted Cash and Debt
On June 26, 2014, GPI USA and HSBC Bank
USA entered into a demand line of credit agreement with a limit of $10.0 million. Interest on the line of credit is LIBOR plus
2.25%. GPI USA borrowed $10.0 million under the line of credit to finance the acquisition of GemGroup (see
Note 14 – Subsequent
Events
). The $10.0 million is shown on our condensed consolidated balance sheet as current restricted cash. The $10.0 million
was subsequently used to finance the acquisition of GemGroup. The line of credit is secured by a lien on all of the assets of GPI
USA. The line of credit is guaranteed by GPIC and is subject to renewal by HSBC Bank USA in its sole discretion on June 30
th
of each year.
Note 9. Commitments and Contingencies
Legal Proceedings and Contingencies
We are engaged in disputes and claims that
arose in the normal course of business. We believe the ultimate outcome of these proceedings will not have a material adverse impact
on our consolidated financial position or results of operations. 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.
On March 21, 2014, Walker Digital Table
Systems (WDTS) and PJM Gaming (PJM) informed the Company that International Game Technology (IGT) was in breach of an agreement
under which the Company was granted a distribution license relating to RFID technology. Concurrently, WDTS and PJM filed suit against
the Company in U.S. District Court for patent infringement of four patents licensed to IGT by the agreement. On July 8, 2014, the
dispute was resolved and the suit against the Company was dismissed, with prejudice. The Company, WDTS and PJM, and IGT each entered
into separate license agreements with the other two parties. Under our agreement with IGT, we acquired the two patents pursuant
to which we had an exclusive license from IGT to manufacture and distribute RFID casino currency, readers and systems in the United
States.
Commitments
On March 13, 2014, we entered into a binding
letter of intent to acquire substantially all of the net gaming assets of GemGroup for $22.5 million. In accordance with the letter
of intent, we deposited $1.0 million with an escrow agent. The purchase price was subsequently adjusted to $19.75 million pursuant
to an amended binding letter of intent dated May 20, 2014. On July 1, 2014, we completed the acquisition of GemGroup for $19.75
million, subject to certain post-closing working capital adjustments. We financed the acquisition using a combination of cash and
bank financing (see
Note 14 – Subsequent Events
).
As of June 30, 2014, we had exclusive rights
to two patents (licensed from IGT) related to RFID for use in casino currencies, as well as any gaming table tracking system and
method. The patents expire in 2015 and cumulative minimum payments for these rights were $125,000. On July 8, 2014, we acquired
the two patents for $25,000. These patents allow us to market, sell, manufacture and distribute RFID casino currency, readers
and systems in the US.
Note 10. Accumulated Other Comprehensive Income
Changes in accumulated other comprehensive
income for the three months ended June 30, 2014, were as follows (in thousands):
|
|
Foreign Currency Translation
|
|
|
Unrealized Gains
on Securities
|
|
|
Total
|
|
Balance at March 31, 2014
|
|
$
|
1,656
|
|
|
$
|
1
|
|
|
$
|
1,657
|
|
Other comprehensive income
|
|
|
(131
|
)
|
|
|
-
|
|
|
|
(131
|
)
|
Balance at June 30, 2014
|
|
$
|
1,525
|
|
|
$
|
1
|
|
|
$
|
1,526
|
|
Changes in accumulated other comprehensive
income for the six months ended June 30, 2014, were as follows (in thousands):
|
|
Foreign Currency Translation
|
|
|
Unrealized Gains
on Securities
|
|
|
Total
|
|
Balance at January 1, 2014
|
|
$
|
1,676
|
|
|
$
|
1
|
|
|
$
|
1,677
|
|
Other comprehensive loss
|
|
|
(151
|
)
|
|
|
-
|
|
|
|
(151
|
)
|
Balance at June 30, 2014
|
|
$
|
1,525
|
|
|
$
|
1
|
|
|
$
|
1,526
|
|
Note 11. Geographic and Product Line Information
We manufacture and sell casino table game
equipment in one operating segment - casino table game products. Although the Company derives its revenues from a number of different
product lines, the Company neither allocates resources based on the operating results from the individual product lines, nor manages
each individual product line as a separate business unit. Our chief operating decision maker is our Chief Executive Officer (CEO).
He manages our operations on a consolidated basis and assesses overall corporate profitability in making decisions about corporate
resource allocation. Our CEO is also the chief operating manager for each of our entities in the United States, France and Macau;
that is, the individual locations do not have “segment” or “product line” managers who report to our CEO.
The following tables present our net sales
by geographic area (in thousands):
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
6,960
|
|
|
|
68.1
|
%
|
|
$
|
8,475
|
|
|
|
60.0
|
%
|
Asia Pacific
|
|
|
2,685
|
|
|
|
26.3
|
%
|
|
|
4,886
|
|
|
|
34.5
|
%
|
Europe and Africa
|
|
|
571
|
|
|
|
5.6
|
%
|
|
|
785
|
|
|
|
5.5
|
%
|
Total
|
|
$
|
10,216
|
|
|
|
100.0
|
%
|
|
$
|
14,146
|
|
|
|
100.0
|
%
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
12,230
|
|
|
|
58.8
|
%
|
|
$
|
15,749
|
|
|
|
54.5
|
%
|
Asia Pacific
|
|
|
7,490
|
|
|
|
36.1
|
%
|
|
|
11,705
|
|
|
|
40.5
|
%
|
Europe and Africa
|
|
|
1,055
|
|
|
|
5.1
|
%
|
|
|
1,460
|
|
|
|
5.0
|
%
|
Total
|
|
$
|
20,775
|
|
|
|
100.0
|
%
|
|
$
|
28,914
|
|
|
|
100.0
|
%
|
The following tables present our net sales
by product line (in thousands):
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Casino currency without RFID
|
|
$
|
3,987
|
|
|
|
39.1
|
%
|
|
$
|
4,319
|
|
|
|
30.5
|
%
|
Casino currency with RFID
|
|
|
781
|
|
|
|
7.6
|
%
|
|
|
4,000
|
|
|
|
28.3
|
%
|
Total casino currency
|
|
|
4,768
|
|
|
|
46.7
|
%
|
|
|
8,319
|
|
|
|
58.8
|
%
|
Playing cards
|
|
|
1,649
|
|
|
|
16.2
|
%
|
|
|
1,576
|
|
|
|
11.1
|
%
|
Table layouts
|
|
|
1,005
|
|
|
|
9.8
|
%
|
|
|
1,174
|
|
|
|
8.3
|
%
|
Table accessories and other products
|
|
|
988
|
|
|
|
9.7
|
%
|
|
|
916
|
|
|
|
6.4
|
%
|
Dice
|
|
|
655
|
|
|
|
6.4
|
%
|
|
|
618
|
|
|
|
4.4
|
%
|
Gaming furniture
|
|
|
577
|
|
|
|
5.6
|
%
|
|
|
673
|
|
|
|
4.8
|
%
|
RFID solutions
|
|
|
130
|
|
|
|
1.3
|
%
|
|
|
407
|
|
|
|
2.9
|
%
|
Shipping
|
|
|
444
|
|
|
|
4.3
|
%
|
|
|
463
|
|
|
|
3.3
|
%
|
Total
|
|
$
|
10,216
|
|
|
|
100.0
|
%
|
|
$
|
14,146
|
|
|
|
100.0
|
%
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Casino currency without RFID
|
|
$
|
6,264
|
|
|
|
30.2
|
%
|
|
$
|
9,396
|
|
|
|
32.5
|
%
|
Casino currency with RFID
|
|
|
4,661
|
|
|
|
22.4
|
%
|
|
|
8,349
|
|
|
|
28.9
|
%
|
Total casino currency
|
|
|
10,925
|
|
|
|
52.6
|
%
|
|
|
17,745
|
|
|
|
61.4
|
%
|
Playing cards
|
|
|
3,187
|
|
|
|
15.3
|
%
|
|
|
3,023
|
|
|
|
10.5
|
%
|
Table layouts
|
|
|
1,861
|
|
|
|
9.0
|
%
|
|
|
2,210
|
|
|
|
7.6
|
%
|
Table accessories and other products
|
|
|
1,639
|
|
|
|
7.9
|
%
|
|
|
1,716
|
|
|
|
5.9
|
%
|
Dice
|
|
|
1,165
|
|
|
|
5.6
|
%
|
|
|
1,236
|
|
|
|
4.3
|
%
|
Gaming furniture
|
|
|
833
|
|
|
|
4.0
|
%
|
|
|
1,211
|
|
|
|
4.2
|
%
|
RFID solutions
|
|
|
376
|
|
|
|
1.8
|
%
|
|
|
904
|
|
|
|
3.1
|
%
|
Shipping
|
|
|
789
|
|
|
|
3.8
|
%
|
|
|
869
|
|
|
|
3.0
|
%
|
Total
|
|
$
|
20,775
|
|
|
|
100.0
|
%
|
|
$
|
28,914
|
|
|
|
100.0
|
%
|
For the six months ended June 30, 2014,
one casino customer accounted for 12% of revenues and in the six months ended June 30, 2013, two casino customers accounted for
14% and 12% of total revenues.
The following table presents our property
and equipment by geographic area (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Property and equipment, net:
|
|
|
|
|
|
|
|
|
France
|
|
$
|
4,134
|
|
|
$
|
4,502
|
|
Mexico
|
|
|
3,032
|
|
|
|
3,360
|
|
United States
|
|
|
2,843
|
|
|
|
2,987
|
|
Asia
|
|
|
130
|
|
|
|
147
|
|
Total
|
|
$
|
10,139
|
|
|
$
|
10,996
|
|
The following table presents our intangible
assets by geographic area (in thousands):
|
|
June 30, 2014
|
|
|
December 31, 2013
|
|
Intangible assets, net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
907
|
|
|
$
|
964
|
|
France
|
|
|
16
|
|
|
|
21
|
|
Total
|
|
$
|
923
|
|
|
$
|
985
|
|
Note 12. Stockholders’ Equity
On December 1, 2011, our Board of Directors approved a stock
repurchase program which authorized the repurchase of up to 5%, or 409,951 shares, of 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
June 30, 2014, we repurchased an aggregate of 282,922 shares of our common stock at a cost of $2,066,728, or a weighted-average
price of $7.30 per share. As of June 30, 2014, 215,590 shares remain authorized for repurchase.
During the quarter ended June 30, 2014,
no shares were repurchased. During the quarter ended June 30, 2013, we repurchased 20,201 shares of our common stock under this
program at a cost of $162,696, or a weighted-average price of $8.05 per share.
Repurchases are subject to market conditions,
share price, and other factors, as well as periodic review by the Board of Directors. Repurchases have been and will be made in
accordance with applicable securities laws in the open market, in privately-negotiated transactions, and/or pursuant to Rule 10b5-1
for trading plans. To assist the implementation of the program, our Board of Directors adopted a 10b5-1 Purchase Plan on December
3, 2012 (the “Plan”). As permitted by the Plan, on August 5, 2013, the Board of Directors elected to terminate the
Plan effective August 12, 2013. While the Plan has been terminated, the repurchase program remains in effect. The repurchase program
does not specify an expiration date and it may be suspended or discontinued at any time. In addition to terminating the Plan, the
Board of Directors imposed a minimum six month time period from the effective date of termination of the Plan before the Company
could make any additional repurchases under the repurchase program.
Note 13. Earnings per Share (EPS)
Shares used to compute basic and diluted
earnings per share from operations are as follows:
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
Weighted-average number of common shares outstanding - basic
|
|
|
7,916
|
|
|
|
7,949
|
|
|
|
7,916
|
|
|
|
8,038
|
|
Potential dilution from equity grants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78
|
|
Weighted-average number of common shares outstanding - diluted
|
|
|
7,916
|
|
|
|
7,949
|
|
|
|
7,916
|
|
|
|
8,116
|
|
As of June 30, 2014 and 2013, there were,
respectively, up to 96,114 and 81,488 shares potentially issuable under option agreements that could potentially dilute quarterly
basic earnings per share in the future. As of June 30, 2014 and 2013, there were, respectively, up to 99,602 and 77,934 shares
potentially issuable under option agreements that could potentially dilute yearly basic earnings per share in the future.
For the three and six months ended June
30, 2014, and for the three months ended June 30, 2013, these shares were excluded from the calculation of diluted earnings per
share because their inclusion would have been anti-dilutive to the Company’s loss.
Note 14. Subsequent Events
On July 1, 2014, we purchased substantially
all of the net gaming assets of GemGroup, a manufacturer of casino currency, cards and table layouts primarily sold under the
Gemaco® brand, for $19.75 million subject to certain post-closing working capital adjustments. $2 million of the purchase
price was placed in escrow to guarantee GemGroup's indemnification obligations. We borrowed $10.0 million under a demand line
of credit with HSBC Bank USA to partially fund the purchase.
ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion is intended to assist in the understanding
of our results of operations and our present financial condition. The condensed consolidated financial statements and the accompanying
notes contain additional detailed information that should be referred to when reviewing this material. When we cross-reference
to a “
Note
” herein, we are referring to the notes in Part I, Item 1. of this Form 10-Q. Statements in this discussion
may be forward-looking. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ
significantly from those expressed. See Item 1A, “Risk Factors,” of our Form 10-K for the period ended December
31, 2013.
For a more extensive overview and information
on our products, as well as general information, see Item 1. “Business” of our Form 10-K for the period ended
December 31, 2013.
Overview of Our Business
We custom manufacture and supply casino
currency including low- and high-frequency radio frequency identification device (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), table layouts, playing cards, dice, gaming
furniture, roulette wheels, table accessories, and other products that are used with casino table games such as blackjack, poker,
baccarat, craps, and roulette. GPIC sells its casino table game equipment under the brand names of Paulson®, Bourgogne et Grasset®
(BG
®
), Blue Chip (BC®) and Bud Jones®. On July 1, 2014, GPIC started manufacturing and selling playing cards
and table layouts under the recently acquired Gemaco® brand name (see
Note 14 – Subsequent Events
). GPIC is headquartered
in Las Vegas, Nevada, with offices in Beaune, France; Macau S.A.R., China; San Luis Rio Colorado, Mexico; Blue Springs, Missouri;
Atlantic City, New Jersey; and Gulfport, Mississippi. We sell our products to licensed casinos worldwide. We operate in one segment
and have three operating subsidiaries: GPI USA (including GPI Mexicana, our maquiladora manufacturing operation in Mexico and our
manufacturing operation in Blue Springs, Missouri), GPI SAS, and GPI Asia. Our subsidiaries have the following distribution
and product focus:
|
●
|
GPI USA sells in the United States, Canada, the Caribbean, and Latin America. GPI USA sells our full product line, with most
of the products manufactured at our facility in San Luis Rio Colorado, Mexico and, since July 1, 2014, at our facility in Blue
Springs, Missouri. The remainder is either manufactured in France or purchased from United States vendors. We also warehouse inventory
in San Luis, Arizona and at our Las Vegas, Nevada headquarters, and have sales offices in Las Vegas; Atlantic City, New Jersey;
and Gulfport, Mississippi.
|
|
●
|
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, with an office in Macau S.A.R., China, is the exclusive distributor of GPI USA and GPI SAS products in the Asia-Pacific
region. GPI Asia primarily sells casino currency, manufactured in France or in Mexico, as well as RFID product solutions.
Since July 1, 2014, GPI Asia also sells layouts manufactured in Macau.
|
Historically, we have experienced significant
fluctuations in our quarterly operating results and expect such fluctuations to continue. These fluctuations primarily reflect
the opening of new casinos, the expansion of existing casinos, or large replacement orders for casino currency, our primary product
line, which typically represents approximately 60% of our revenues. The timing of these events is difficult to forecast and largely
beyond our ability to influence, and results in variability in our revenues and earnings. While we pursue most large projects years
in advance, both large and small sales opportunities arise with little prior notice. Our backlog, which reflects signed orders,
was as follows at June 30, 2014 and June 30, 2013 (in millions):
|
|
GPI Asia
|
|
|
GPI USA
|
|
|
GPI SAS
|
|
|
Total
|
|
June 30, 2014
|
|
$
|
7.0
|
|
|
$
|
4.0
|
|
|
$
|
0.4
|
|
|
$
|
11.4
|
|
June 30, 2013
|
|
$
|
3.2
|
|
|
$
|
4.7
|
|
|
$
|
0.6
|
|
|
$
|
8.5
|
|
Outlook
We do not anticipate that we will benefit
from any casino openings in the remainder of 2014. We have received a significant order to supply new chips and plaques for a casino
expansion in Macau. The order includes nearly 900,000 chips and over 137,000 plaques from the Company's Bourgogne et Grasset®
and Bud Jones® brands totaling just under $6.4 million of revenue which should be recognized in the remainder of 2014.
In addition, the acquisition of the gaming
assets of GemGroup will add the Gemaco® brand playing cards and table layouts to our domestic product portfolio and increase
our US market share in both products. It also adds the manufacturing and sale of layouts to our Asia Pacific product offerings.
Financial and Operational Highlights
For the second quarter of 2014, our revenues
were $10.2 million, a decrease of $3.9 million, or 27.8%, compared to revenues of $14.1 million for the same period of 2013. For
the second quarter of 2014, our net loss was $1.2 million, compared to a net loss of $0.1 million for the same period in 2013.
For the first six months of 2014, our revenues
were $20.8 million, a decrease of $8.1 million, or 28.1%, compared to revenues of $28.9 million for the same period of 2013. For
the first six months of 2014, our net loss was $2.3 million, compared to net income of $0.5 million for the same period of 2013.
The decrease in our results for the three
and six months ended June 30, 2014, was directly attributable to the lack of orders for casino openings/expansions.
GPI SAS uses the euro
as its functional currency. At June 30, 2014 and December 31, 2013, the US dollar to euro exchange rates were $1.36 and $1.38,
respectively, which represents a 1.4% stronger dollar compared to the euro. The average exchange rates for the six months ended
June 30, 2014 and 2013 were $1.36 and $1.31, respectively, which represents a 3.8% weaker dollar compared to the euro.
GPI Mexicana uses the
US dollar as its functional currency. At June 30, 2014 and December 31, 2013, the Mexican peso to US dollar exchange rates were
13.00 and 13.07, respectively, which represents a 0.5% weaker dollar compared to the peso. The average exchange rates for the six
months ended June 30, 2014 and 2013 were 13.11 pesos and 12.56 pesos to the US dollar, respectively, which represents a 4.4% stronger
dollar compared to the Mexican peso.
GPI Asia uses the US dollar as its functional
currency. At June 30, 2014 and December 31, 2013, the Macanese pataca to US dollar exchange rates were 7.84 and 7.87, respectively,
which represents a 0.4% weaker dollar compared to the pataca. The average exchange rates for the six months ended June 30, 2014
and 2013 were 7.84 patacas to the US dollar.
Other Matters
On July 1, 2014, we acquired
substantially all of the net gaming assets of GemGroup for $19.75 million, subject to post-closing working capital
adjustments, using a combination of cash and bank financing. GemGroup was a manufacturer of casino currency, cards and table
layouts primarily sold under the Gemaco® brand. We acquired the gaming assets of GemGroup to increase our card and
layout recurring revenue and expand our footprint in the Asia market by manufacturing layouts in Macau. For additional
information, see
Note 14 – Subsequent Events
.
In May 2013, we purchased certain assets
of Blue Chip, a manufacturer of casino currency. The acquisition is part of our overall acquisition strategy to use our cash to
acquire companies, products or technologies that enable us to grow and diversify our product offerings. We completed the asset
acquisition on May 31, 2013 for a total consideration of $0.8 million. For additional information, see
Note 2 – Acquisition
.
On December 1, 2011, our Board of Directors
approved a stock repurchase program which authorized the repurchase of up to five percent, or 409,951 shares, of common stock.
On November 30, 2012, the Board of Directors increased the number of shares available for repurchase to 498,512 shares. As of June
30, 2014, we have repurchased 282,922 shares and 215,590 shares remain authorized for repurchase.
On August
5, 2013, our Board of Directors voted to terminate our 10b5-1 purchase plan effective August 12, 2013. While the 10b5-1 purchase
plan was terminated, the repurchase program remains in effect. However, there is no assurance that we will repurchase any additional
shares under the repurchase program. For more information regarding the repurchase program, see
Note 12 –
Stockholders’
Equity.
CRITICAL ACCOUNTING ESTIMATES
Financial statement preparation requires
management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure
of contingent assets and liabilities. The accompanying condensed consolidated financial statements are prepared using the same
critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
RESULTS OF OPERATIONS
The following tables summarize selected
items from our condensed consolidated statements of operations (in thousands) and as a percentage of revenues:
|
|
Three Months
Ended
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Revenues
|
|
$
|
10,216
|
|
|
|
100.0
|
%
|
|
$
|
14,146
|
|
|
|
100.0
|
%
|
|
$
|
(3,930
|
)
|
|
|
(27.8
|
)%
|
Cost of revenues
|
|
|
7,463
|
|
|
|
73.1
|
%
|
|
|
9,761
|
|
|
|
69.0
|
%
|
|
|
(2,298
|
)
|
|
|
(23.5
|
)%
|
Gross profit
|
|
|
2,753
|
|
|
|
26.9
|
%
|
|
|
4,385
|
|
|
|
31.0
|
%
|
|
|
(1,632
|
)
|
|
|
(37.2
|
)%
|
Selling, administrative,
and research and development
|
|
|
3,803
|
|
|
|
37.2
|
%
|
|
|
4,381
|
|
|
|
31.0
|
%
|
|
|
(578
|
)
|
|
|
(13.2
|
)%
|
Operating (loss) income
|
|
|
(1,050
|
)
|
|
|
(10.3
|
)%
|
|
|
4
|
|
|
|
0.0
|
%
|
|
|
(1,054
|
)
|
|
|
(26,350.0
|
)%
|
Other income and (expense),
net
|
|
|
49
|
|
|
|
0.5
|
%
|
|
|
(40
|
)
|
|
|
(0.3
|
)%
|
|
|
89
|
|
|
|
(222.5
|
)%
|
Loss before income taxes
|
|
|
(1,001
|
)
|
|
|
(9.8
|
)%
|
|
|
(36
|
)
|
|
|
(0.3
|
)%
|
|
|
(965
|
)
|
|
|
2,680.6
|
%
|
Income tax provision
|
|
|
154
|
|
|
|
1.5
|
%
|
|
|
18
|
|
|
|
0.1
|
%
|
|
|
136
|
|
|
|
755.6
|
%
|
Net
loss
|
|
$
|
(1,155
|
)
|
|
|
(11.3
|
)%
|
|
$
|
(54
|
)
|
|
|
(0.4
|
)%
|
|
$
|
(1,101
|
)
|
|
|
2,038.9
|
%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Revenues
|
|
$
|
20,775
|
|
|
|
100.0
|
%
|
|
$
|
28,914
|
|
|
|
100.0
|
%
|
|
$
|
(8,139
|
)
|
|
|
(28.1
|
)%
|
Cost of revenues
|
|
|
15,263
|
|
|
|
73.5
|
%
|
|
|
20,249
|
|
|
|
70.0
|
%
|
|
|
(4,986
|
)
|
|
|
(24.6
|
)%
|
Gross profit
|
|
|
5,512
|
|
|
|
26.5
|
%
|
|
|
8,665
|
|
|
|
30.0
|
%
|
|
|
(3,153
|
)
|
|
|
(36.4
|
)%
|
Selling, administrative, and research and development
|
|
|
7,611
|
|
|
|
36.6
|
%
|
|
|
8,518
|
|
|
|
29.5
|
%
|
|
|
(907
|
)
|
|
|
(10.6
|
)%
|
Operating (loss) income
|
|
|
(2,099
|
)
|
|
|
(10.1
|
)%
|
|
|
147
|
|
|
|
0.5
|
%
|
|
|
(2,246
|
)
|
|
|
(1,527.9
|
)%
|
Other income and (expense), net
|
|
|
106
|
|
|
|
0.5
|
%
|
|
|
38
|
|
|
|
0.1
|
%
|
|
|
68
|
|
|
|
178.9
|
%
|
(Loss) income before income taxes
|
|
|
(1,993
|
)
|
|
|
(9.6
|
)%
|
|
|
185
|
|
|
|
0.6
|
%
|
|
|
(2,178
|
)
|
|
|
(1,177.3
|
)%
|
Income tax provision (benefit)
|
|
|
292
|
|
|
|
1.4
|
%
|
|
|
(293
|
)
|
|
|
(1.0
|
)%
|
|
|
585
|
|
|
|
-
|
|
Net (loss) income
|
|
$
|
(2,285
|
)
|
|
|
(11.0
|
)%
|
|
$
|
478
|
|
|
|
1.6
|
%
|
|
$
|
(2,763
|
)
|
|
|
(578.0
|
)%
|
The following tables present
certain data by geographic area (in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
6,960
|
|
|
|
68.1
|
%
|
|
$
|
8,475
|
|
|
|
60.0
|
%
|
|
$
|
(1,515
|
)
|
|
|
(17.9
|
%)
|
Asia Pacific
|
|
|
2,685
|
|
|
|
26.3
|
%
|
|
|
4,886
|
|
|
|
34.5
|
%
|
|
|
(2,201
|
)
|
|
|
(45.0
|
%)
|
Europe and Africa
|
|
|
571
|
|
|
|
5.6
|
%
|
|
|
785
|
|
|
|
5.5
|
%
|
|
|
(214
|
)
|
|
|
(27.3
|
%)
|
Total
|
|
$
|
10,216
|
|
|
|
100.0
|
%
|
|
$
|
14,146
|
|
|
|
100.0
|
%
|
|
$
|
(3,930
|
)
|
|
|
(27.8
|
%)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Americas
|
|
$
|
12,230
|
|
|
|
58.8
|
%
|
|
$
|
15,749
|
|
|
|
54.5
|
%
|
|
$
|
(3,519
|
)
|
|
|
(22.3
|
%)
|
Asia Pacific
|
|
|
7,490
|
|
|
|
36.1
|
%
|
|
|
11,705
|
|
|
|
40.5
|
%
|
|
|
(4,215
|
)
|
|
|
(36.0
|
%)
|
Europe and Africa
|
|
|
1,055
|
|
|
|
5.1
|
%
|
|
|
1,460
|
|
|
|
5.0
|
%
|
|
|
(405
|
)
|
|
|
(27.7
|
%)
|
Total
|
|
$
|
20,775
|
|
|
|
100.0
|
%
|
|
$
|
28,914
|
|
|
|
100.0
|
%
|
|
$
|
(8,139
|
)
|
|
|
(28.1
|
%)
|
The following tables present our revenues
by product line (in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Casino currency without RFID
|
|
$
|
3,987
|
|
|
|
39.1
|
%
|
|
$
|
4,319
|
|
|
|
30.5
|
%
|
|
$
|
(332
|
)
|
|
|
(7.7
|
%)
|
Casino currency with RFID
|
|
|
781
|
|
|
|
7.6
|
%
|
|
|
4,000
|
|
|
|
28.3
|
%
|
|
|
(3,219
|
)
|
|
|
(80.5
|
%)
|
Total casino currency
|
|
|
4,768
|
|
|
|
46.7
|
%
|
|
|
8,319
|
|
|
|
58.8
|
%
|
|
|
(3,551
|
)
|
|
|
(42.7
|
%)
|
Playing cards
|
|
|
1,649
|
|
|
|
16.2
|
%
|
|
|
1,576
|
|
|
|
11.1
|
%
|
|
|
73
|
|
|
|
4.6
|
%
|
Table layouts
|
|
|
1,005
|
|
|
|
9.8
|
%
|
|
|
1,174
|
|
|
|
8.3
|
%
|
|
|
(169
|
)
|
|
|
(14.4
|
%)
|
Table accessories and other products
|
|
|
988
|
|
|
|
9.7
|
%
|
|
|
916
|
|
|
|
6.4
|
%
|
|
|
72
|
|
|
|
7.9
|
%
|
Dice
|
|
|
655
|
|
|
|
6.4
|
%
|
|
|
618
|
|
|
|
4.4
|
%
|
|
|
37
|
|
|
|
6.0
|
%
|
Gaming furniture
|
|
|
577
|
|
|
|
5.6
|
%
|
|
|
673
|
|
|
|
4.8
|
%
|
|
|
(96
|
)
|
|
|
(14.3
|
%)
|
RFID solutions
|
|
|
130
|
|
|
|
1.3
|
%
|
|
|
407
|
|
|
|
2.9
|
%
|
|
|
(277
|
)
|
|
|
(68.1
|
%)
|
Shipping
|
|
|
444
|
|
|
|
4.3
|
%
|
|
|
463
|
|
|
|
3.3
|
%
|
|
|
(19
|
)
|
|
|
(4.1
|
%)
|
Total
|
|
$
|
10,216
|
|
|
|
100.0
|
%
|
|
$
|
14,146
|
|
|
|
100.0
|
%
|
|
$
|
(3,930
|
)
|
|
|
(27.8
|
%)
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Casino currency without RFID
|
|
$
|
6,264
|
|
|
|
30.2
|
%
|
|
$
|
9,396
|
|
|
|
32.5
|
%
|
|
$
|
(3,132
|
)
|
|
|
(33.3
|
%)
|
Casino currency with RFID
|
|
|
4,661
|
|
|
|
22.4
|
%
|
|
|
8,349
|
|
|
|
28.9
|
%
|
|
|
(3,688
|
)
|
|
|
(44.2
|
%)
|
Total casino currency
|
|
|
10,925
|
|
|
|
52.6
|
%
|
|
|
17,745
|
|
|
|
61.4
|
%
|
|
|
(6,820
|
)
|
|
|
(38.4
|
%)
|
Playing cards
|
|
|
3,187
|
|
|
|
15.3
|
%
|
|
|
3,023
|
|
|
|
10.5
|
%
|
|
|
164
|
|
|
|
5.4
|
%
|
Table layouts
|
|
|
1,861
|
|
|
|
9.0
|
%
|
|
|
2,210
|
|
|
|
7.6
|
%
|
|
|
(349
|
)
|
|
|
(15.8
|
%)
|
Table accessories and other products
|
|
|
1,639
|
|
|
|
7.9
|
%
|
|
|
1,716
|
|
|
|
5.9
|
%
|
|
|
(77
|
)
|
|
|
(4.5
|
%)
|
Dice
|
|
|
1,165
|
|
|
|
5.6
|
%
|
|
|
1,236
|
|
|
|
4.3
|
%
|
|
|
(71
|
)
|
|
|
(5.7
|
%)
|
Gaming furniture
|
|
|
833
|
|
|
|
4.0
|
%
|
|
|
1,211
|
|
|
|
4.2
|
%
|
|
|
(378
|
)
|
|
|
(31.2
|
%)
|
RFID solutions
|
|
|
376
|
|
|
|
1.8
|
%
|
|
|
904
|
|
|
|
3.1
|
%
|
|
|
(528
|
)
|
|
|
(58.4
|
%)
|
Shipping
|
|
|
789
|
|
|
|
3.8
|
%
|
|
|
869
|
|
|
|
3.0
|
%
|
|
|
(80
|
)
|
|
|
(9.2
|
%)
|
Total
|
|
$
|
20,775
|
|
|
|
100.0
|
%
|
|
$
|
28,914
|
|
|
|
100.0
|
%
|
|
$
|
(8,139
|
)
|
|
|
(28.1
|
%)
|
Comparison of Operations for the Three and Six Months Ended
June 30, 2014 and 2013
Revenues
.
For the
three months ended June 30, 2014, our revenues were $10.2 million, a decrease of $3.9 million, or 27.8%, compared to revenues of
$14.1 million during the same period in 2013. The decrease in revenues was primarily attributable to the lack of orders for casino
openings/ expansions during the same period in 2014.
For the six months ended June 30, 2014,
our revenues were $20.8 million, a decrease of $8.1 million, or 28.1%, compared to revenues of $28.9 million during the same period
in 2013. The decrease in revenues was primarily attributable to the lack of orders for casino openings/ expansions during the same
period in 2014.
Cost of Revenues.
For the
three months ended June 30, 2014, cost of revenues was $7.5 million, a decrease of $2.3 million, or 23.5%, compared to cost
of revenues of $9.8 million for the same period in 2013. As a percentage of revenues, our cost of revenues increased to 73.1% in
2014 compared to 69.0% in 2013.
For the six months ended June 30, 2014,
cost of revenues was $15.3 million, a decrease of $4.9 million, or 24.6%, compared to cost of revenues of $20.2 million for
the same period in 2013. As a percentage of revenues, our cost of revenues increased to 73.5% in 2014 compared to 70.0% in 2013.
Gross Profit.
For the three
months ended June 30, 2014, gross profit was $2.8 million, a decrease of $1.6 million, or 37.2%, compared to gross profit
of $4.4 million for the same period in 2013. As a percentage of revenues, our gross profit decreased from 31.0% to 26.9%. This
is mainly due to a decrease in sales of our currency products which caused fixed manufacturing costs to be allocated over a lower
revenue base.
For the six months ended June 30, 2014,
gross profit was $5.5 million, a decrease of $3.2 million, or 36.4%, compared to gross profit of $8.7 million for the same
period in 2013. As a percentage of revenues, our gross profit decreased from 30.0% to 26.5%. This is mainly due to a decrease in
sales of our currency products which caused fixed manufacturing costs to be allocated over a lower revenue base.
Selling, Administrative,
and Research and Development Expenses
. The following tables present the selling, administrative, and research and development
expenses (in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
$
|
1,343
|
|
|
|
13.1
|
%
|
|
$
|
1,505
|
|
|
|
10.6
|
%
|
|
$
|
(162
|
)
|
|
|
(10.8
|
)%
|
General and administrative
|
|
|
2,043
|
|
|
|
20.0
|
%
|
|
|
2,382
|
|
|
|
16.9
|
%
|
|
|
(339
|
)
|
|
|
(14.2
|
)%
|
Research and development
|
|
|
417
|
|
|
|
4.1
|
%
|
|
|
494
|
|
|
|
3.5
|
%
|
|
|
(77
|
)
|
|
|
(15.6
|
)%
|
Total selling, administrative,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and research and development
|
|
$
|
3,803
|
|
|
|
37.2
|
%
|
|
$
|
4,381
|
|
|
|
31.0
|
%
|
|
$
|
(578
|
)
|
|
|
(13.2
|
)%
|
For the three months ended
June 30, 2014, selling, administrative, and research and development expenses were $3.8 million, a decrease of $0.6 million,
or 13.2%, compared to selling, administrative, and research and development expenses of $4.4 million during the same period in
2013. Selling, administrative, and research and development expenses increased as a percent of revenue to 37.3% in the second quarter
of 2014 from 31.0% in the same period in 2013.
Marketing and sales expenses
decreased by $0.2 million during the second quarter of 2014, compared to the same period in 2013. This is primarily due to a decrease
of $0.1 million in sales development expenses related to our marketing and sales in Asia.
General and administrative
expenses, decreased by $0.3 million during the second quarter of 2014, compared to the same period in 2013. This is primarily due
to a decrease of $0.1 million in compensation expense and $0.2 million in legal, consulting and audit costs.
Research and development
expenses remained relatively unchanged in the second quarter of 2014 compared to the same period in 2013.
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing and sales
|
|
$
|
2,646
|
|
|
|
12.7
|
%
|
|
$
|
3,010
|
|
|
|
10.4
|
%
|
|
$
|
(364
|
)
|
|
|
(12.1
|
)%
|
General and administrative
|
|
|
4,111
|
|
|
|
19.8
|
%
|
|
|
4,481
|
|
|
|
15.5
|
%
|
|
|
(370
|
)
|
|
|
(8.3
|
)%
|
Research and development
|
|
|
854
|
|
|
|
4.1
|
%
|
|
|
1,027
|
|
|
|
3.6
|
%
|
|
|
(173
|
)
|
|
|
(16.8
|
)%
|
Total selling, administrative,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and research and development
|
|
$
|
7,611
|
|
|
|
36.6
|
%
|
|
$
|
8,518
|
|
|
|
29.5
|
%
|
|
$
|
(907
|
)
|
|
|
(10.6
|
)%
|
For the six months ended
June 30, 2014, selling, administrative, and research and development expenses were $7.6 million, a decrease of $0.9 million,
or 10.6%, compared to selling, administrative, and research and development expenses of $8.5 million during the same period in
2013. Selling, administrative, and research and development expenses increased as a percent of revenue to 36.7% in the first six
months of 2014 from 29.5% in the same period in 2013.
Marketing and sales expenses
decreased by $0.4 million during the first six months of 2014, compared to the same period in 2013. This is primarily due to a
decrease of $0.1 million in compensation related costs, $0.1 million in sales development expenses related to our marketing and
sales in Asia and $0.1 million in travel and trade-show related costs.
General and administrative
expenses decreased by $0.4 million during the first six months of 2014, compared to the same period in 2013. This is primarily
due to a decrease of $0.3 million in legal, consulting and audit cost.
Research and development
expenses decreased by $0.2 million during the first six months of 2014, compared to the same period in 2013. This is primarily
due to a decrease of $0.1 million in compensation expense.
Other Income and
(Expense)
. The following tables present other income and (expense) items (in thousands) and as a percentage of revenues:
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Interest income
|
|
$
|
49
|
|
|
|
0.5
|
%
|
|
$
|
54
|
|
|
|
0.4
|
%
|
|
$
|
(5
|
)
|
|
|
(9.3
|
)%
|
Other income
|
|
|
2
|
|
|
|
0.0
|
%
|
|
|
13
|
|
|
|
0.1
|
%
|
|
|
(11
|
)
|
|
|
(84.6
|
)%
|
Interest expense
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(2
|
)
|
|
|
0.0
|
%
|
|
|
2
|
|
|
|
(100.0
|
)%
|
Loss on foreign currency transactions
|
|
|
(2
|
)
|
|
|
0.0
|
%
|
|
|
(105
|
)
|
|
|
(0.8
|
)%
|
|
|
103
|
|
|
|
(98.1
|
)%
|
Total other income and (expense)
|
|
$
|
49
|
|
|
|
0.5
|
%
|
|
$
|
(40
|
)
|
|
|
(0.3
|
)%
|
|
$
|
89
|
|
|
|
(222.5
|
)%
|
|
|
Six Months Ended
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Interest income
|
|
$
|
128
|
|
|
|
0.6
|
%
|
|
$
|
115
|
|
|
|
0.4
|
%
|
|
$
|
13
|
|
|
|
11.3
|
%
|
Other income
|
|
|
5
|
|
|
|
0.0
|
%
|
|
|
18
|
|
|
|
0.1
|
%
|
|
|
(13
|
)
|
|
|
(72.2
|
)%
|
Interest expense
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
(4
|
)
|
|
|
0.0
|
%
|
|
|
4
|
|
|
|
(100.0
|
)%
|
Loss on foreign currency transactions
|
|
|
(27
|
)
|
|
|
(0.1
|
)%
|
|
|
(91
|
)
|
|
|
(0.4
|
)%
|
|
|
64
|
|
|
|
(70.3
|
)%
|
Total other income and (expense)
|
|
$
|
106
|
|
|
|
0.5
|
%
|
|
$
|
38
|
|
|
|
0.1
|
%
|
|
$
|
68
|
|
|
|
178.9
|
%
|
Income Taxes.
Our effective
income tax rate for the three months ended June 30, 2014 and 2013 was (15.4%) and (50.0%), respectively. Our effective tax rate
for the three months ended June 30, 2014 was unfavorably affected by an increase in our estimate for the valuation allowance related
to our foreign tax credits, offset by a favorable impact from the foreign rate differential on the income from our Macau subsidiary,
GPI Asia, compared to the prior quarter.
Our effective income tax rate for the six
months ended June 30, 2014 and 2013 was (14.7%) and (158.4%), respectively. Our effective tax rate for the six months ended June
30, 2014 was unfavorably affected by an increase in the valuation allowance related to our foreign tax credits, offset by a favorable
impact from the foreign rate differential on income from our Macau subsidiary, GPI Asia, and the tax benefit from a research credit
from our French subsidiary, GPI SAS. Without the increase in the valuation allowance related to foreign tax credits, our effective
tax rate for the three and six months ended June 30, 2014 would have been 0.6% and 9.1%, respectively.
We account for uncertain tax positions in
accordance with applicable accounting guidance. There were no unrecognized tax benefits reported at June 30, 2014 or December 31,
2013.
Liquidity and Capital Resources
Sources of Liquidity and
Capital Resources
. Historically our primary source of liquidity and capital resources has been cash from operations.
On June 26, 2014, GPI USA and HSBC Bank USA entered into a demand line of credit agreement with a limit of $10.0 million.
Interest on the line of credit is LIBOR plus 2.25%. GPI USA borrowed $10.0 million under the line of credit to finance the
acquisition of GemGroup. The line of credit is secured by a lien on all of the assets of GPI USA and is guaranteed by GPIC.
The line of credit is subject to renewal by the bank in its sole discretion on June 30 of each year. Other potential sources
of liquidity and capital resources include, but are not limited to, marketable securities and potential bank credit
facilities, both in the United States and abroad. We believe that the combination of these resources will satisfy our needs
for working capital, capital expenditures, any purchases of common stock under our stock repurchase program, litigation,
potential dividends or acquisitions.
At June 30, 2014, we had $15.5 million
in cash and cash equivalents, $10.0 million in current restricted cash and $5.0 million in marketable securities, totaling
$30.5 million. Of this amount, $22.3 million is held by GPI USA, of which $18.7 million was used for the acquisition of GemGroup,
$6.5 million is held by GPI SAS, and $1.7 million is held by GPI Asia. Of those amounts held outside the United States, we
would be subject to taxation if we were to repatriate those amounts, though foreign tax credits may be available to offset such
taxes. We may repatriate amounts from GPI SAS and, accordingly, our financial statements reflect the tax impacts that would result
from repatriation. We do not anticipate repatriation from GPI Asia and, accordingly, our financial statements do not reflect the
tax impacts that would result from repatriation.
Working
Capital (See Condensed Consolidated Balance Sheets)
. The following summarizes our cash and cash equivalents, marketable
securities, and working capital (all in thousands), and our current ratio:
|
|
June 30,
|
|
|
December 31,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Cash and cash equivalents
|
|
$
|
15,517
|
|
|
$
|
14,492
|
|
|
$
|
1,025
|
|
|
|
7.1
|
%
|
Marketable securities
|
|
|
4,989
|
|
|
|
5,724
|
|
|
|
(735
|
)
|
|
|
(12.8
|
)%
|
Working capital
|
|
|
29,800
|
|
|
|
32,069
|
|
|
|
(2,269
|
)
|
|
|
(7.1
|
)%
|
Current ratio
|
|
|
2.8
|
|
|
|
6.3
|
|
|
|
|
|
|
|
|
|
At June 30, 2014, working capital totaled
$29.8 million, a decrease of $2.3 million, or 7.1%, compared to working capital of $32.1 million at December 31, 2013. The change
in working capital was due to an increase in current liabilities of $10.8 million, offset by an increase in current assets of $8.5
million. The increase in current liabilities was due primarily to increases in short term debt of $10.0 million and in customer
deposits and deferred revenue of $0.7 million. The increase in current assets was due primarily to increases in restricted cash
for $10.0 million, in cash and cash equivalents for $1.0 million and in inventories for $0.7 million, offset by decreases in accounts
receivables of $1.7 million, in marketable securities of $0.7 million and in other current expenses of $0.6 million.
Cash Flows (See Condensed Consolidated
Statements of Cash Flows)
. The following summarizes our cash flows (in thousands):
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Period-to-Period
|
|
|
|
2014
|
|
|
2013
|
|
|
Change
|
|
Operating activities
|
|
$
|
1,590
|
|
|
$
|
(4,369
|
)
|
|
$
|
5,959
|
|
|
|
(136.4
|
%)
|
Investing activities
|
|
|
(10,543
|
)
|
|
|
5,907
|
|
|
|
(16,450
|
)
|
|
|
(278.5
|
%)
|
Financing activities
|
|
|
10,000
|
|
|
|
(885
|
)
|
|
|
10,885
|
|
|
|
(1,229.9
|
%)
|
Effect of exchange rates
|
|
|
(22
|
)
|
|
|
(217
|
)
|
|
|
195
|
|
|
|
(89.9
|
%)
|
Net change
|
|
$
|
1,025
|
|
|
$
|
436
|
|
|
$
|
589
|
|
|
|
135.1
|
%
|
The increase in cash flows provided by operating
activities was primarily caused by an increase in liabilities of $4.8 million and an increase in assets of $2.6 million, offset
by a decrease in non-cash items of $1.5 million.
The decrease in cash flows provided by investing activities
was primarily due to the allocation of $10.0 million of funds from the demand line of credit to restricted cash (see
Note 8
– Restricted Cash and Debt
), a decrease in net sales of marketable securities of $7.2 million, and by the payment
of a $1.0 million deposit for the acquisition of GemGroup (see
Note 9 – Commitments and Contingencies
), offset by
a decrease in the purchase of business assets of $0.8 million and a decrease of capital expenditures of $1.0 million during the
six months ended June 30, 2014, compared to the same period in 2013.
The increase in cash flows provided by financing
activities was due to the inflow of funds from the demand line of credit for $10.0 million (see
Note 8 – Restricted Cash
and Debt
) and the lack of common stock repurchases in the six months ended June 30, 2014.
C
apital
Expenditures
. We plan to purchase approximately $1.7 million in property, plant, and equipment during the remainder
of 2014. In the first six months of 2014, we purchased $0.2 million of property, plant, and equipment.
Cash
Dividend.
Our Board of Directors has no current plans to pay a regular dividend on our common stock, but may evaluate
the merit of paying a dividend from time to time.
Backlog
.
At June 30, 2014, our backlog of signed orders for 2014 was $11.4 million, consisting of $7.0 million for GPI Asia, $4.0 million
for GPI USA, and $0.4 million for GPI SAS. At June 30, 2013, our backlog of signed orders for 2013 was $8.5 million, consisting
of $3.2 million for GPI Asia, $4.7 million for GPI USA, and $0.6 million for GPI SAS.
Contractual Obligations and Commercial Commitments
On June 26, 2014, GPI USA and HSBC
Bank USA entered into a demand line of credit agreement with a limit of $10.0 million (see
Note 8 – Restricted Cash
and Debt
).
Forward-Looking Information Statements and Risk Factors
Throughout this Form 10-Q, we make
some forward-looking statements which do not relate to historical or current facts, but are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information
based on forecasts of future results and estimates of amounts not yet determinable that, while considered reasonable by us, are
inherently subject to significant business, economic, and competitive risks and uncertainties, many of which are beyond our control
and are subject to change. The statements also relate to our future prospects and anticipated performance, development, and
business strategies such as statements relating to anticipated future sales or the timing thereof, potential acquisitions and integrations,
the long-term growth and prospects of our business or any jurisdiction, the duration or effects of unfavorable economic conditions
which may reduce our product sales, and the long-term potential of the RFID gaming chips market and our ability to capitalize on
any such growth opportunities. These statements are identified by their use of terms and phrases such as anticipate, believe,
could, would, estimate, expect, intend, may, plan, predict, project, pursue, will, continue, feel, or the negative or other variations
thereof, and other similar terms and phrases, including references to assumptions.
Although we believe that
the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from
those expressed or implied. Our future financial condition and results of operations, as well as any forward-looking statements,
are subject to change and to inherent known and unknown risks and uncertainties such as those identified in Part I-Item 1A,
“Risk Factors,” of our Form 10-K for the period ended December 31, 2013. We do not intend, and undertake
no obligation, to update our forward-looking statements to reflect future events or circumstances.