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.
Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, “We believe that the management-led buyout of the non-gaming manufacturing operations presents an ideal exit of this non-core, lower-margin business for the Company and enables us to focus our resources on our gaming chips and plaques, which we believe offer great potential. Not only does the sale provide capital to help offset costs related to the relocation of the gaming chip and plaque facilities but it also allows for a certain number of existing Dolphin Australia employees to maintain employment in the non-gaming operations under the new ownership and the potential to have continued support and assistance from the existing Dolphin Australia management team during the relocation and transition period.