Entertainment Gaming Asia Inc. EGT (“Entertainment Gaming Asia” or
“the Company”), a leading gaming company focused on emerging gaming markets in
Pan-Asia, today announced it plans to sell its non-gaming manufacturing
operations of its wholly-owned Dolphin Products subsidiary in Melbourne,
Australia (“Dolphin Australia”) in a management-led buyout and relocate its
manufacturing operations for its gaming chips and plaques to a high-tech and
high-security facility in Hong Kong. These actions enable the Company to exit
a non-core, legacy business and are expected to enhance the profitability of
its higher potential gaming chips and plaques division and better penetrate
and service the growing Asian gaming markets. Dolphin Australia presently
manufactures and sells a comprehensive suite of RFID and traditional gaming
chips and plaques with state-of-the-art security features as well as plastic
components primarily for the automotive industry. Both gaming chips and
plaques and the non-gaming businesses, referred to on a combined basis as
“Other Products” in the Company's financial statements, contributed $7.9
million in revenue for the first nine months of 2012.
Over the last several years, the Company has made a strategic shift in focus
of its “Other Products” operations toward the manufacture and sale of gaming
chips and plaques and away from the lower-margin, non-gaming plastic
components. With investments in gaming product development and targeted
marketing programs, the Company has made significant progress in further
strengthening its existing customer relationships in its core gaming markets
of Australia and Macau and broadening its customer base in existing and new
geographies, such as the Philippines and Indo-China. As a result, the Company
has achieved strong improvement in gaming chip and plaque revenue, which
reached approximately $3.2 million for the first nine months of 2012 compared
to approximately $756,000 for the same period in 2011.
After reviewing its other alternatives, such as liquidation of the non-gaming
business or the possibility of selling it to an unrelated third party, the
Company has elected to sell the non-gaming manufacturing operations in a
management-led buyout to Dolphin Australia's existing general manager of
operations. Total consideration for the sale of these assets is AUD$350,000
(approximately US$361,000 based on conversion rates as of February 22, 2013)
to be paid upon completion of the transaction on or before March 28, 2013.
Prior to completion, all business and assets that relate to the gaming chip
and plaque production operations, including but not limited to, the equipment
and tooling, finished goods, work-in-progress, raw materials, business orders,
technology know-how, and related intellectual property rights, will be
transferred to the new Dolphin operations in Hong Kong. For a period of up to
five years after the completion of the sale, the non-gaming operations under
the new ownership will not be permitted to engage in the gaming business in
Australia and certain countries in Asia. The Company will terminate the
employment of all existing Dolphin Australia employees, including the existing
general manager of operations, and pay the severance costs to them as part of
the transaction although some of them may be re-employed in the non-gaming
operations under the new ownership.
The Company expects to record one-time cash costs associated with the sale and
relocation, which include severance and new facility set-up, of approximately
$1.7 million, net of the consideration for the sale of the non-gaming
manufacturing assets. These costs will be incurred in 2013 and will be funded
from the Company's available working capital. The Company expects the new
Dolphin facility in Hong Kong to commence operations in the second quarter of
2013 and that there should be minimal to no disruption in fulfilling gaming
chip and plaque orders during the transition of the relocation.
During 2012, the Company made investments in new equipment and the development
of in-house manufacturing processes for Dolphin Australia to improve
production efficiency and capacity. The benefits of those investments will be
retained and transferred to the new Hong Kong facility. The relocation of
gaming chip and plaque production to Hong Kong is anticipated to further
enhance production efficiencies, escalate the development of its product range
and high-security features by availing the Company to greater high-tech
resources, improve monitoring and controls, and reduce estimated annual
overhead costs by over $1 million. The cost reductions are primarily related
to payroll (average hourly casual labor rate in Australia is approximately $20
compared to $5 in Hong Kong) and administration by consolidating certain
support functions. The Company believes that these efforts will enable it to
maintain the price competitiveness of its gaming products and broaden and
deepen its customer relationships in the growing gaming markets in Asia.
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