Entertainment Gaming Asia Inc. (NYSE Amex: EGT) (“Entertainment Gaming Asia” or “the Company”), a leading provider of electronic gaming machines (EGMs) on a participation basis to the Pan-Asian gaming industry, today reported operating results for the fourth quarter and fiscal year ended December 31, 2010 and reviewed recent corporate progress.

Highlights:
  • Consolidated adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and non-cash charges) was $2.5 million for the fourth quarter of 2010 compared to $808,000 for the fourth quarter of 2009. Consolidated adjusted EBITDA was $8.2 million for the 2010 fiscal year compared to $33,000 for the 2009 fiscal year.
  • Total net revenue from EGMs on participation for the fourth quarter of 2010 was $3.8 million, an increase of 55% from the fourth quarter of 2009. Total net revenue from EGMs on participation for the 2010 fiscal year was $14.3 million, more than double the 2009 fiscal year level.
  • Average consolidated win per unit per day (WUD) for the fourth quarter of 2010 was $119, an increase of 13% from the fourth quarter of 2009. Average consolidated WUD for the 2010 fiscal year was $117, up 31% from the 2009 fiscal year.
  • As of February 28, 2011, total installed EGM seats in operation were 1,608 in eight venues, comprised of six venues in the Philippines with a total of 878 seats and two venues in Cambodia with a total of 730 seats.
  • Cash selling, general and administrative (SG&A) expense was $1.6 million for the fourth quarter of 2010, down 4% from the fourth quarter of 2009. Cash SG&A expense was $5.9 million for the 2010 fiscal year, down 23% from the 2009 fiscal year.
  • As part of its annual impairment review, the Company recorded a $3.1 million non-cash impairment charge in the fourth quarter of 2010 associated with the write-down of certain Dolphin intangible and fixed assets as the current carrying value of the assets was higher than the expected value of the projected future cash flows.
  • Cash balance of $10.2 million as of December 31, 2010, more than doubling from $4.2 million as of December 31, 2009.
  • Effective December 31, 2010, the Company effected an elective accounting quasi-reorganization to eliminate the deficit in retained earnings against additional paid-in capital, which serves to further streamline its balance sheet and better reflect the Company’s progress in refocusing its business operations.
  • In March 2011, the Company announced a joint venture agreement in Cambodia under which the Company will develop and operate a new casino strategically located in the Southern Cambodia province of Kampot near the Vietnam border.
  • The Company is actively building a solid pipeline of potential casino and slot venue projects in the Indo-China region to achieve its growth objectives.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, “The 2010 fiscal year was a very positive year for the company in which we demonstrated strong financial growth as well as continued progress in our corporate model. This transformation was a result of our efforts over the last two years to reposition the Company via refocusing our business model and improving our operating efficiency in order to drive cash flow. These efforts are clearly reflected in the strong year-over-year improvements in our financial performance. We generated over $8 million in adjusted EBITDA in the 2010 fiscal year and have improved our cash position to over $10 million as of December 31, 2010 and to approximately $12 million as of February 28, 2011. Going forward, we believe we have established a solid base from which to not only maximize returns from our core participation business but also to expand our business model as we execute on our casino development plans. We enter 2011 a transformed company poised to capitalize on the opportunities within emerging gaming markets in Asia.”

Q4 and Fiscal Year 2010 Financial Review

Entertainment Gaming Asia’s fourth quarter of 2010 consolidated revenue was $6.1 million, an increase of 35% compared to $4.5 million in the fourth quarter of 2009 due to strong improvement in the Company’s gaming participation operations and increasing sales in the Company’s non-gaming operations partially offset by reduced table games product sales. Consolidated revenue for the 2010 fiscal year was $22.2 million, an increase of 42% compared to $15.6 million in the 2009 fiscal year due to significant improvements in the Company’s gaming participation operations and increasing sales in the Company’s non-gaming operations partially offset by reduced table games product sales due to a large order for casino gaming chips for a new casino opening in Macau during 2009.

Revenue from EGMs on participation was $3.8 million in the fourth quarter of 2010, an increase of 55% compared to $2.5 million in the fourth quarter of 2009. Revenue from EGMs on participation was $14.3 million for the 2010 fiscal year, an increase of 105% compared to $7.0 million in the 2009 fiscal year. The increases reflected improved consolidated average WUD, higher installed base of EGMs, and the continuously rising percentage contribution from the Company’s EGM placements at NagaWorld.
                       
WUD          
  Q4:10   Q4:09   Y/Y ∆   FY10   FY09   Y/Y ∆
Cambodia (1) $197   $196   1%   $202   $174   16%
Philippines $58   $57   2%   $57   $56   2%
Consolidated $119   $105   13%   $117   $89   31%
EGM Seats in Operation
              12/31/10   12/31/09   Y/Y ∆
Cambodia             680   440   55%
Philippines             867   859   1%
Consolidated             1,547   1,299   19%
                       

(1) WUD figures exclude EGMs operating under a new venue’s soft launch or when revenue is collected on a cash rather than accrual basis.

Cash SG&A expense was $1.6 million in the fourth quarter of 2010, a decrease of 4% compared to $1.7 million in the fourth quarter of 2009. Cash SG&A expense was $5.9 million for the 2010 fiscal year, a decrease of 23% compared to $7.6 million in the 2009 fiscal year as a result of the Company’s aggressive cost reduction initiatives implemented over the past two years.

Based on the Company’s solid revenue performance and strict cost controls, Entertainment Gaming Asia posted strong year-over-year improvements in adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, and non-cash charges) for the fourth quarter and 2010 fiscal year. Fourth quarter of 2010 adjusted EBITDA was $2.5 million compared to approximately $808,000 for the fourth quarter of 2009. Consolidated adjusted EBITDA was $8.2 million for the 2010 fiscal year compared to approximately $33,000 for the 2009 fiscal year.

The Company recorded a tax benefit of approximately $800,000 in the fourth quarter of 2010, which included a one-time benefit related to the adjustment of deferred tax liabilities due to the impairment of assets and discharge of potential tax exposures following the deregistration of a foreign subsidiary, compared to a tax expense of approximately $119,000 in the fourth quarter of 2009.

Entertainment Gaming Asia reported a net loss of $2.7 million for the fourth quarter of 2010, or $0.02 per share, on a weighted average share count of approximately 116.0 million shares. The net loss included a non-cash impairment charge of $3.1 million during the fourth quarter of 2010 related to the write-down of certain Dolphin intangible and fixed assets as the current carrying value of the assets was higher than the expected value of the projected future cash flows. Excluding this charge, the Company reported net income of $400,000, or $0.00 per share for the fourth quarter of 2010. This compared to a net loss of $16.3 million for the fourth quarter of 2009, or $0.14 per share, on a weighted average share count of approximately 115.0 million shares. The fourth quarter of 2009 net loss included a non-cash impairment charge related to gaming assets of $13.7 million, or $0.12 per share. Excluding this charge, the Company reported a net loss of $2.6 million, or $0.02 per share for the fourth quarter of 2009.

For the 2010 fiscal year, the Company reported a net loss of $5.2 million, or $0.05 per share, on a weighted average share count of 115.7 million. Excluding the above-mentioned non-cash impairment charge in the fourth quarter of 2010, the Company reported a net loss of $2.1 million, or $0.02 per share for the 2010 fiscal year. For the 2009 fiscal year, the Company reported a net loss of $26.4 million, or $0.23 per share, on a weighted average share count of 115.0 million. Excluding the above-mentioned non-cash impairment charge of $13.7 million in the fourth quarter of 2009, the Company reported a net loss of $12.7 million, or $0.11 per share for the 2009 fiscal year.

Accounting Quasi-Reorganization

As previously announced, the Company effected an elective accounting quasi-reorganization as of December 31, 2010, which eliminated its accumulated deficit in retained earnings against additional paid-in capital. A necessary component of effecting this “fresh start” accounting method was to evaluate and adjust, if necessary, the Company’s assets and liabilities to fair market value. As such, the Company engaged a third-party valuation appraisal firm to perform the required valuation analysis of the fair value of its assets and liabilities and determined that, aside from the $3.1 million impairment taken on certain Dolphin assets as part of the Company’s annual impairment review, no additional impairment was needed at this time. The quasi-reorganization adjustments have no effect on the Company’s cash flow and provide it with a further streamlined balance sheet which will better reflect the progress in its current and future business operations.

Casino Development Plans

Entertainment Gaming Asia is making progress in its casino development plans. On March 8, 2011, the Company announced its plans to develop and operate a casino in the Kampot province of Cambodia strategically located near the Vietnam border. The initial phase, which is intended to include up to 14 table games and 25 EGM seats, is expected to open in the fourth quarter of 2011, subject to the issuance of gaming licenses and building permits on a timely basis. Dreamworld Casino Kampot is anticipated to contribute to near-term earnings and further establish the Company’s footprint and the “Dreamworld” brand in its target markets. Capital expenditures for the initial development phase, which include construction and gaming equipment costs, are expected to be minimal at less than $1 million, enabling the Company to remain well positioned to actively pursue additional casino development projects in the Indo-China market.

Entertainment Gaming Asia is in discussions on several new projects in the region, which include an entertainment center with slot venue, a standalone slot venue, and a casino resort. The casino resort project is the same project the Company referenced in its third quarter 2010 earnings release and Form 10Q filing. This is a large project and involves multiple parties with varying interests and concerns. As such, the negotiation process is taking longer than previously expected.

Given this attractive pipeline of potential opportunities and the Company’s limited resources at present, it has decided to focus its existing resources on those projects with the highest projected short-term returns. As a result, the Company has slowed the development of its announced casino project in the Takeo province of Cambodia.

While there is no guarantee it will successfully conclude the negotiations for the aforementioned projects, Entertainment Gaming Asia is building a solid pipeline of potential opportunities, which it believes will position the Company as a leading regional casino operator in Indo China.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, concluded, “Due to the successful implementation of our strategic initiatives over the last two years to refocus our business model, streamline our operating structure, and improve our financial flexibility, we have established a strong platform for growth. With a focus on maximizing returns in our existing operations and selectively building a pipeline of potential opportunities for our casino development plans, we are excited about the future.

“We expect that the gaming industry in the dynamic markets of emerging Asia will grow as the region continues its rapid development. With our strong local market presence, relationships, and operational expertise, Entertainment Gaming Asia is positioned to participate and capitalize on this growth as a leading gaming company in the region.”

Entertainment Gaming Asia is hosting a conference call and simultaneous webcast at 8:30 a.m. ET today, March 11, 2011, both of which are open to the general public. The conference call number is 800/892-9785 or 212/231-2939. Questions and answers will be reserved for call-in analysts and investors. Interested parties may also access the live call on the Internet at www.EGT-Group.com. Please allow 15 minutes to register and download and install any necessary software. Following its completion, a replay of the call can be accessed for thirty days on the Internet at www.EGT-Group.com

About Entertainment Gaming Asia Inc.

Entertainment Gaming Asia Inc. (NYSE Amex: EGT), formerly known as Elixir Gaming Technologies, Inc., is a leading provider of electronic gaming machines on a participation basis to the Pan-Asian gaming industry. The Company secures long-term contracts to provide electronic gaming machines and related systems to premier hotels and other well-located gaming venues in Asia. The Company retains ownership of the gaming machines and systems and receives recurring daily or monthly fees based on an agreed upon percentage of the net gaming win per machine and provides on-site maintenance. Entertainment Gaming Asia Inc. also is engaged in the development of casinos in Indo China where intends to own and operate casino resorts under the “Dreamworld” brand. For more information please visit www.EGT-Group.com.

Forward Looking Statements

This press release contains forward-looking statements concerning Entertainment Gaming Asia within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those forward-looking statements include statements regarding expectations for the expansion of the Company’s participation business model, the timeline and working capital requirements for the new Kampot casino, the near-term earnings of the Kampot casino, growth of the gaming industry in the Indo-China region and the Company’s ability to secure new casino projects and fund those projects as well. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected in such forward-looking statements. Factors that could cause or contribute to differences include, but are not limited to, risks related to Entertainment Gaming Asia’s ability to place gaming machines at significant levels and generate the expected amount of net win from the gaming machines placed, obtain the gaming license and building permits for the Kampot casino on a timely basis or at all, identify, procure successfully develop additional casino projects in the Indo-China region,acquire additional capital as and when needed and those other risks set forth in Entertainment Gaming Asia’s annual report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 30, 2010 and subsequently filed quarterly reports on Form 10-Q. Entertainment Gaming Asia cautions readers not to place undue reliance on any forward-looking statements. Entertainment Gaming Asia does not undertake, and specifically disclaims any obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur.
   
Entertainment Gaming Asia Inc.
Consolidated Statements of Operations
(Unaudited)
 
Three Months Ended Years Ended
December 31, December 31,
(amounts in thousands, except per share data) 2010   2009 2010   2009
Revenues:
Gaming machine participation $ 3,830 $ 2,470 $ 14,312 $ 6,998
Table game products 295 675 1,293 4,516
Non-gaming products 2,013 1,390 6,600 4,109
Total revenues 6,138 4,535 22,205 15,623
Operating costs and expenses:
Cost of gaming machine participation:
Machine depreciation 2,150 2,705 8,020 10,054
Other operating costs 155 165 759 1,051
Cost of table game products 162 403 806 2,551
Cost of non-gaming products 1,704 1,265 6,110 4,220
Selling, general and administrative 1,823 2,166 6,767 8,829
Impairment of assets:
Gaming equipment and systems and property and equipment 809 13,766 1,053 14,262
Intangibles and others 2,407 2,407 425
Flood damage losses/(reversal) (15) 83
Product development expenses 90 75 610 277
Depreciation and amortization 207 235 885 1,037
Restructuring charges 31 310 623
Total operating costs and expenses 9,507 20,796 27,727 43,412
 
Loss from operations (3,369) (16,261) (5,522) (27,789)
 
Other income/(expense):
Interest expense and finance fees (89) (143) (411) (537)
Interest income 26 11 92 85
Foreign currency losses (44) (11) (72) (89)
Legal settlement gain 656
Loss on disposition of assets (47) (13) (164) (107)
Other (15) 226 202 368
Total other income/(expense) (169) 70 (353) 376
 
Loss before income tax and discontinued operations (3,538) (16,191) (5,875) (27,413)
 
Income tax benefit/(expense) 800 (119) 665 (486)
 
Net loss from continuing operations (2,738) (16,310) (5,210) (27,899)
Net (loss)/income from discontinued operations, net of tax (6) 1,540
 
Net loss $ (2,738) $ (16,316) $ (5,210) $ (26,359)
 
Income/(loss) per share:
Loss from continuing operations $ (0.02) $ (0.14) $ (0.05) $ (0.24)
Income from discontinued operations $ 0.01
Basic and diluted loss per share $ (0.02) $ (0.14) $ (0.05) $ (0.23)
 
Weighted average common shares outstanding 116,064 114,957 115,702 114,957
   
Entertainment Gaming Asia Inc.
Consolidated Balance Sheets
 
December 31, December 31,
2010* 2009
(amounts in thousands, except per share data) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,217 $ 4,190
Trade accounts receivable, net 2,854 2,670
Due from a related party 12
Other receivables 101 195
Inventories 1,064 621
Assets held for sale 422 930
Prepaid commitment fees 4,838
Deferred tax assets 90
Prepaid expenses and other current assets 1,051 770
Total current assets 15,709 14,316
 
Trade accounts receivable, net of current portion 106
Gaming equipment and systems, net 12,360 26,507
Casino contract 12,790
Property and equipment, net 1,941 3,322
Intangible assets, net 140 3,026
Goodwill 84
Contract amendment fees 558 688
Prepaids, deposits, and other assets 561 408
Total assets $ 44,059 $ 48,457
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,062 $ 1,125
Amount due to a related party 14 46
Accrued expenses 2,225 2,325
Notes payable to a related party, current portion 2,991 3,128
Capital lease obligations, current portion 164 187
Customer deposits and other current liabilities 251 78
Total current liabilities 6,707 6,889
 
Notes payable to a related party, net of current portion 6,211 6,265
Capital lease obligations, net of current portion 307 414
Other liabilities 441 604
Deferred tax liability 71 877
Total liabilities 13,737 15,049
 
Stockholders’ equity:
Common stock, $.001 par value, 300,000,000 shares authorized; 116,189,394 and 114,956,667 shares issued and outstanding 116 115
Additional paid-in-capital 29,638 414,864
Accumulated other comprehensive income/(losses) 568 (645)
Accumulated deficit (380,926)
Total stockholders’ equity 30,322 33,408
Total liabilities and stockholders’ equity $ 44,059 $ 48,457

* Balances reflect quasi-reorganization
   
Entertainment Gaming Asia Inc.
Adjusted EBITDA
(Unaudited)
 
Three Months Ended Years Ended
December 31, December 31,
(amounts in thousands, except per share data) 2010   2009 2010   2009
Net loss – GAAP $ (2,738) $ (16,316) $ (5,210) $ (26,359)
Loss/(Income) from discontinued operations 6 (1,540)
Interest expense and finance fees 89 143 411 537
Interest income (26) (11) (92) (85)
Income tax (benefit)/expense (800) 119 (665) 486
Depreciation and amortization 2,491 3,015 9,395 11,348
Stock option expense 220 101 887 876
Impairment/write-down of assets 3,216 13,766 3,460 14,687
Flood damages losses/(reversal) (15) 83
EBITDA, as adjusted $ 2,452 $ 808 $ 8,186 $ 33

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

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