Iao Kun Group Holding Company Limited (“IKGH” or the
“Company”) (NASDAQ:IKGH), which operates through its subsidiaries
and related promotion entities that act as VIP room gaming
promoters and a collaborator, today announced unaudited financial
results for the three and six months ended June 30, 2016. All
currency amounts are stated in United States dollars.
Please refer to the Form 6-K that will be filed with
the Securities and Exchange Commission for the full
unaudited financial statements and related disclosures for the
three and six months ended June 30, 2016.
Second Quarter 2016 Highlights
- Rolling Chip Turnover (a metric used by
casinos to measure the aggregate amount of players’ bets and
overall volume of VIP gaming room business transacted, which is
further defined below) for the three months ended June 30,
2016 was $0.9 billion, a decrease of 51%, compared
to $1.7 billion for the three months ended June 30,
2015.
- Net loss for the second quarter of 2016
was $104.4 million, or $1.65 net loss per share
(basic and diluted), compared to net loss of $23.8 million,
or $0.38 net loss per share (basic and diluted), for the same
period of 2015. During the second quarter of 2016, IKGH incurred a
one-time $97.3 million impairment of intangible assets, while
during the second quarter of 2015, IKGH incurred a one-time $17.8
million impairment of goodwill.
- Non-GAAP loss, which is operating loss
before amortization of intangible assets, impairment of goodwill
and intangible assets and the change in fair value of contingent
consideration related to the acquisitions of King’s
Gaming, Bao Li Gaming and Oriental VIP Room,
was $3.0 million, or $0.05 net loss per share (basic
and diluted), for the three months ended June 30,
2016, as compared to non-GAAP loss of $2.2 million,
or $0.03 net loss per share (basic and diluted), for the
three months ended June 30, 2015.
Update on Pending Acquisition of Jeju Sun Hotel &
Casino
On June 23, 2016, IKGH announced its indirect wholly-owned
subsidiary, Iao Kun Jeju Hotel Company Limited, had entered into a
share purchase agreement with Golden & Luxury Company, Ltd.,
Solaire Korea Co., Ltd. and Bloomberry Resorts Corporation, to
acquire the Jeju Sun Hotel & Casino in Jeju, Korea for KRW117.5
billion in cash (approximately US$101.8 million). The Company
remains in negotiations regarding funding arrangements and will
provide additional updates with respect to financing when
available. In the interim, the Company and the seller have agreed
to extend the required closing date for the acquisition.
Second Quarter 2016 Results
For the three months ended June 30, 2016, IKGH recorded
revenue of $10.6 million, a 52% decrease from the same period
in 2015, primarily due to lower Rolling Chip Turnover during the
quarter, as well as (i) a reduction of players for VIP baccarat,
consistent with the overall decline of VIP baccarat gaming revenue
in Macau; (ii) the economic downturn and ongoing
anti-corruption campaign in mainland China, where the majority of
IKGH’s VIP gaming patrons reside; and (iii) the continued
tightening of government policies in mainland China, including
restrictions on credit card usage.
The increase in net loss for the three months ended June 30,
2016 as compared to the three months ended June 30, 2015 was
primarily a result of recognizing a one-time $97.3 million
impairment of intangible assets in the second quarter of 2016.
Apart from the one-time impairment of intangible assets, the net
loss was primarily due to a significant decrease in revenues as a
result of lower Rolling Chip Turnover and lower win rate, partially
offset by lower commissions to junket agents for the three months
ended June 30, 2016 as a result of the lower Rolling Chip Turnover
compared to the prior-year period. Selling, general and
administrative expenses also declined for the three months
ended June 30, 2016 compared to the prior-year period,
primarily due to no longer paying a monthly table rental to the
L’Arc Casino since September 2015, lower overall VIP Gaming Room
operating expenses and no year-end bonuses paid to cage employees,
all partially offset by an increase in legal and professional fees
for the pending Jeju acquisition.
“As we expect that the VIP market in Macau will continue to be
challenging for the foreseeable future, we commenced a strategic
review of our operations to reduce expenses and continue to
preserve our capital. As a result of the review, we recently closed
three of our VIP gaming rooms in Macau,” said Mr. Lam Man Pou,
Chairman of IKGH. “While we streamline our operations in Macau, we
are looking forward to completing the acquisition of the Jeju Sun
Hotel & Casino as well as a non-expiring transferrable gaming
license, which will allow us to further diversify our revenue
streams while providing a significant opportunity to rapidly grow
VIP operations on Jeju Island.”
Six Month 2016 Highlights
- Rolling Chip Turnover for the six
months ended June 30, 2016 was $2.1 billion, a decrease of 48%
compared to $3.9 billion for the six months ended June 30,
2015.
- Net loss for the six months ended June
30, 2016 was $107.9 million, or $1.71 net loss per
share (basic and diluted), compared to net loss of $6.7
million, or $0.11 net loss per share (basic and diluted), for
the same period of 2015. During the six months ended June 30, 2016,
IKGH incurred a one-time $97.3 million impairment of intangible
assets, while during the six months ended June 30, 2015, IKGH
incurred a one-time $17.8 million impairment of goodwill and the
gain from change in fair value of contingent consideration of $13.3
million related to the Bao Li Gaming and Oriental VIP Room
acquisitions.
- Non-GAAP loss, which is operating loss
before amortization of intangible assets, impairment of goodwill
and intangible assets and the change in fair value of contingent
consideration related to the acquisitions of King’s Gaming, Bao Li
Gaming and Oriental VIP Room, was $2.4 million, or $0.04 loss per
share (basic and diluted), for the six months ended June 30, 2016
compared to income of $5.9 million, or $0.10 earnings per share
(basic and diluted), for the six months ended June 30, 2015.
Outlook for 2016
For the first eight months of 2016, IKGH’s Rolling Chip Turnover
was US$2.41 billion (an average of $0.30 billion per month), down
50% year-over-year, compared to US$4.80 billion (an average of
$0.60 billion per month) for the first eight months of 2015.
Given the recent closure of three of its VIP rooms, the Company
is now projecting 2016 Rolling Chip Turnover guidance
in Macau of between US$2.5
billion and US$3.0 billion.
Conference Call and Replay Information
IKGH will conduct a conference call to discuss the financial
results today at 8:30AM EDT/8:30PM Macau. To participate,
please dial one of the following numbers at least 10 minutes prior
to the scheduled start of the call:
1-877-419-6594 (United States/Canada)10-800-714-1511 (North
China)10-800-140-1377 (South China)800-968-835 (Hong
Kong)800-101-2323 (Singapore)0808-101-7162 (United
Kingdom)1-719-325-4767 (Other International)
Interested parties may also access the live call on the Internet
at www.ikghcl.com (select
Events and Presentations). Following its completion, a replay of
the call can be accessed on the Internet at the above link or
through October 6, 2016 by calling either 1-877-870-5176 (U.S.
callers) or 1-858-384-5517 (International callers) and providing
conference ID 5611323.
Definition of Rolling Chip Turnover
Rolling Chip Turnover is used by casinos to measure the volume
of VIP business transacted and represents the aggregate amount of
non-negotiable chips players purchased. Bets are wagered with
"non-negotiable chips" and winning bets are paid out by casinos in
so-called "cash" chips. "Non-negotiable chips" are specifically
designed for VIP players to allow casinos to calculate the
commission payable to VIP room gaming promoters and collaborator.
Commissions are paid based on the total amount of "non-negotiable
chips" purchased by each player. VIP room gaming promoters
therefore require the players to "roll," from time to time, their
"cash chips" into "non-negotiable" chips for further betting (hence
the term "Rolling Chip Turnover"). Through the promoters,
"non-negotiable chips" can be converted back into cash at any time.
Betting using rolling chips, as opposed to using cash chips, is
also used by the Gaming Inspection and Coordination Bureau to
distinguish between VIP table revenue and mass market table
revenue.
IKGH’s Macau VIP rooms are on a revenue sharing remuneration
model. On a win/loss split basis, the VIP room gaming promoter and
collaborator receive an agreed percentage of the "win" in the VIP
gaming room (plus certain incentive allowances), and is required to
also bear the same percentage of losses that might be incurred.
Revenue from VIP operation in Australia is based upon a
mutually-agreed percentage of the Rolling Chip Turnover.
About Iao Kun Group Holding Company Limited
IKGH is a holding company which operates through its
subsidiaries and related promotion entities that act as VIP room
gaming promoters and a collaborator, and is entitled to receive all
of the profits of the VIP gaming promoters and a collaborator from
VIP gaming rooms. IKGH’s VIP room gaming promoters and collaborator
currently participate in the promotion of major luxury VIP gaming
facilities in Macau, China, the largest gaming market in
the world. VIP gaming rooms are located at the City of Dreams Macau
in Cotai and Le Royal Arc Casino, located in
NAPE, Downtown Macau. IKGH, through its subsidiaries, also
acts as junket operator for Australian casinos (Crown Perth Casino
in Perth, Australia and the Crown Melbourne Casino in Melbourne,
Australia) as it seeks to expand to additional overseas
markets.
Forward-Looking Statements
This press release includes forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties.
Forward-looking statements are statements that are not historical
facts. Such forward-looking statements, based upon the current
beliefs and expectations of IKGH’s management, are subject to risks
and uncertainties, which could cause actual results to differ from
the forward-looking statements. The gaming industry is
characterized by an element of chance. Theoretical win rates for
IKGH’s promotion entities’ VIP gaming room operations depend on a
variety of factors, some beyond their control. In addition to the
element of chance, theoretical win rates are also affected by other
factors, including gaming patrons' skill and experience, the mix of
games played, the financial resources of gaming patrons, the spread
of table limits, the volume of bets placed by IKGH’s promotion
entities’ gaming patrons and the amount of time gaming patrons
spend on gambling — thus VIP gaming rooms’ actual win rates may
differ greatly over short time periods, such as from quarter to
quarter, and could cause their quarterly results to be volatile.
These factors, alone or in combination, have the potential to
negatively impact the VIP gaming rooms’ win rates. Investors and
potential investors should consult all of the information set forth
herein and should also refer to the risk factors set forth in
IKGH’s Annual Report on Form 20-F filed in March 2016, and
other reports filed or to be filed from time-to-time with
the Securities and Exchange Commission.
IAO KUN GROUP HOLDING COMPANY
LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS (Unaudited) For the Three
Months For the Three Months For the Six Months
For the Six Months Ended Ended Ended
Ended June 30, 2016 June 30, 2015 June 30,
2016 June 30, 2015 Revenue from VIP Gaming Operations $
10,578,785 $ 21,869,783 $ 28,500,970 $
63,571,015 Total Revenues 10,578,785
21,869,783 28,500,970 63,571,015
Expenses - Commission to Junket Agents 9,035,121 19,253,556
22,760,102
47,251,688
- Selling, General and Administrative Expenses 4,472,369 4,644,627
7,973,559
10,036,683
- Special Rolling Tax 86,007 173,698 205,836 393,263 - Impairment
of Goodwill -
17,754,136
- 17,754,136 - Amortization of Intangible Assets 4,064,631
4,092,683
8,136,369
8,183,361
- Impairment of Intangible Assets 97,279,517 -
97,279,517
-
Total Expenses 114,937,645 45,918,700
136,355,383 83,619,131
Operating loss attributable to ordinary shareholders before change
in fair value of contingent consideration (104,358,860 )
(24,048,917 ) (107,854,413 ) (20,048,116 ) Change in Fair
Value of Contingent Consideration for the Acquisitions of King's
Gaming, Bao Li Gaming and Oriental VIP Room -
244,129 - 13,325,814 Net Loss
Attributable to Ordinary Shareholders (104,358,860 )
(23,804,788 ) (107,854,413 ) (6,722,302 )
Other Comprehensive Income (loss) Foreign Currency - Translation
Adjustment (189,762 ) 35,828 (374,176 )
52,991 Total Comprehensive Loss $ (104,548,622 ) $
(23,768,960 ) $ (108,228,589 ) $ (6,669,311 )
Net Loss
Per Share Basic $ (1.65 ) $ (0.38 ) $ (1.71 ) $ (0.11 ) Diluted
$ (1.65 ) $ (0.38 ) $ (1.71 ) $ (0.11 )
Weighted Average Shares
Outstanding Basic 63,103,781 62,150,102
63,103,781 61,871,123 Diluted
63,103,781 62,150,102 63,103,781
61,871,123
IAO KUN GROUP HOLDING COMPANY
LIMITED
CONSOLIDATED BALANCE SHEETS June 30,
2016 December 31, 2015 (Unaudited) ASSETS
CURRENT ASSETS Cash and Cash Equivalents $ 5,658,773 $ 3,052,694
Accounts Receivable, Net 906,590 1,460,251 Markers Receivable
159,291,191 170,892,037 Prepaid Expenses and Other Assets
1,520,251 1,448,155 Total Current Assets 167,376,805
176,853,137 Intangible Assets, net - 105,645,737 Property
and Equipment (net of accumulated depreciation of $191,897 and
$169,798 at June 30, 2016 and December 31, 2015, respectively)
187,890 241,927 TOTAL ASSETS $ 167,564,695
$ 282,740,801
LIABILITIES AND SHAREHOLDERS'
EQUITY CURRENT LIABILITIES Lines of Credit Payable $ 35,955,925
$ 41,908,984 Accrued Expenses 3,654,553 6,030,996 Dividend payable
499,630 - Bao Li Gaming Acquisition-Purchase Price Obligation
14,228,500 14,228,500 Loan Payable, Shareholders, current
4,009,569 2,827,584 Total Current Liabilities
58,348,177 64,996,064 Total Liabilities
58,348,177 64,996,064 COMMITMENTS AND
CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Shares, $0.0001
par value Authorized 1,150,000 shares; none issued - -
Ordinary Shares, $0.0001 par
value,Authorized 500,000,000 shares; 62,453,774 and 62,307,794
issued and outstanding at June 30, 2016 and December 31, 2015,
respectively.
6,245 6,230 Additional Paid-in Capital 133,436,640 133,236,655
Retained Earnings (24,492,796 ) 83,861,247 Accumulated Other
Comprehensive Income 266,429 640,605 Total
Shareholders' Equity 109,216,518 217,744,737
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 167,564,695 $
282,740,801
Cash flow information (in thousands)
(unaudited)
For the Six For the Six Months Ended
Months Ended June 30, 2016 June 30, 2015
Net cash provided by operating activities $ 1,421 $ 17,402
Net cash from (used in) investing activities 2 (3 ) Net cash from
(used in) financing activities 1,184 (17,556 ) Net
increase(decrease) in cash and cash equivalents $ 2,607 $ (157)
Non-GAAP Financial Measures
The Company’s calculation of Non-GAAP income (operating income
before amortization of intangible assets, impairment of goodwill
and change in fair value of contingent consideration) and Non-GAAP
EPS differs from EPS based on net income because it does not
include amortization of intangible assets, impairment of goodwill
and change in fair value of contingent consideration. The Company
uses this information internally in evaluating its operations and
believes this information is important to investors because it
provides users of the Company’s financial information with
additional useful information in evaluating operating performance
for the periods and is more consistently comparable to the prior
periods. Notwithstanding the foregoing, Non-GAAP income and EPS
should not be considered an alternative to, or more meaningful
than, net income and EPS as determined in accordance with GAAP. The
following is a reconciliation of the Company’s net income to
Non-GAAP income and GAAP EPS to its Non-GAAP EPS:
For the For the
Three Three For the Six For the Six
Months Months Months Months Ended
June Ended June Ended June Ended June
30, 2016 30, 2015 30, 2016 30, 2015
Net loss attributable to ordinary shareholders $
(104,358,860 ) $ (23,804,788 ) $ (107,854,413 ) $ (6,722,302 )
Amortization of intangible assets 4,064,631 4,092,683
8,136,369 8,183,361 Impairment of intangible assets
97,279,517 - 97,279,517 - Impairment of goodwill -
17,754,136 - 17,754,136 Change in fair value of contingent
consideration - (244,129 ) -
(13,325,814 ) Non-GAAP (loss) income (before
amortization of intangible assets, impairment of goodwill and
intangible assets, and change in fair value of contingent
consideration) $ (3,014,712 ) $ (2,202,098 ) $ (2,438,527 ) $
5,889,381 Weighted Average Shares Outstanding Basic
63,103,781 62,150,102 63,103,781
61,871,123 Diluted 63,103,781
62,150,102 63,103,781 61,950,405
For the Three Months EndedJune
30, 2016
For the Three Months Ended
June30, 2015
Basic Fully Diluted Basic
Fully Diluted Loss per share attributable to ordinary
shareholders $ (1.65 ) $ (1.65 ) $ (0.38 ) $ (0.38 )
Amortization of intangible assets 0.06 0.06 0.07 0.07
Impairment of intangible assets 1.54 1.54 - - Impairment of
goodwill - - 0.28 0.28 Change in fair value of contingent
consideration - - -
- Non-GAAP Loss per share (before amortization
of intangible assets, impairment of goodwill and intangible assets,
and change in fair value of contingent consideration) $ (0.05 ) $
(0.05 ) $ (0.03 ) $ (0.03 )
For the Six Months Ended June
30,2016
For the Six Months EndedJune 30,
2015
Basic Fully Diluted Basic
Fully Diluted Loss per share attributable to ordinary
shareholders $ (1.71 ) $ (1.71 ) $ (0.11 ) $ (0.11 )
Amortization of intangible assets 0.13 0.13 0.13 0.13
Impairment of intangible assets 1.54 1.54 - - Impairment of
goodwill - - 0.29 0.29 Change in fair value of contingent
consideration - - (0.21 )
(0.21 ) Non-GAAP (Loss) Earnings per share (before
amortization of intangible assets, impairment of goodwill and
intangible assets, and change in fair value of contingent
consideration) $ (0.04 ) $ (0.04 ) $ 0.10 $ 0.10
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version on businesswire.com: http://www.businesswire.com/news/home/20160922005395/en/
Iao Kun Group Holding Company LimitedJames Preissler, +1
646-450-8808preissj@ikghcl.com
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