GAMING PARTNERS INTERNATIONAL CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Edgar Glimpses |
The following discussion is intended to assist in the understanding of our
consolidated results of operations and our present financial condition and
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes and the other financial information
included in this Quarterly Report on Form 10-Q. The unaudited condensed
consolidated financial statements and the accompanying notes contain additional
detailed information that should be referred to when reviewing this material.
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
Annual Report on Form 10-K for the fiscal year ended , filed
with the SEC on .



For a more extensive overview and information on our products, as well as
general information, see Item 1. "Business" of our Annual Report on Form 10-K
for the fiscal year ended , filed with the SEC on .



Overview of Our Business



Gaming Partners International Corporation, a Nevada corporation, is
headquartered in North Las Vegas, Nevada. The Company was formed in 2002 through
a reverse merger between Paul-Son Gaming and Bourgogne et Grasset. GPIC has
three operating subsidiaries: Gaming Partners International USA, Inc. (GPI USA)
(including GPI Mexicana S.A. de C.V. (GPI Mexicana), our maquiladora
manufacturing operation in Mexico, and GPI USA Blue Springs, our manufacturing
facility in Missouri); Gaming Partners International SAS (GPI SAS); and Gaming
Partners International Asia Limited (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 in

either San Luis Rio Colorado, Mexico, or Blue Springs, Missouri. The remainder

is either manufactured in France or purchased from United States vendors. We

warehouse inventory in San Luis, Arizona; Blue Springs, Missouri; and North Las

Vegas, Nevada. We have sales offices in North Las Vegas, Nevada; Atlantic City,

   New Jersey; Gulfport, Mississippi; and Blue Springs, Missouri.



• 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, located in Macau S.A.R., China, distributes our full product line in

the Asia-Pacific region. GPI Asia also sells table layouts that it manufactures

   in Macau S.A.R.



We are one of the gaming industry's leading manufacturers and suppliers of
casino table game equipment. We custom manufacture and supply casino currency,
with multiple security and design options, playing cards, table layouts, gaming
furniture, table accessories, dice, and roulette wheels. We also provide
multiple radio frequency identification (RFID) technologies including low- and
high-frequency 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). Our products and services are
used with casino table games such as blackjack, poker, baccarat, craps, and
roulette. Our products fall into two categories - non-consumable and consumable.
Non-consumable products consist of casino currencies, gaming furniture, and RFID
solutions. These products typically have a useful life of several years or
longer. Sales of non-consumables are typically driven by casino openings,
expansions, and re-brandings, as well as replacement in the normal course of
business. Consumable products consist of playing cards, table layouts, dice, and
table accessories. These products each have a useful life that ranges from
several hours for playing cards and dice to several months for layouts. Casinos
tend to buy these products annually if not more frequently.



The majority of our products are specifically designed and produced to meet our
customers' requirements, whether they are related to use, branding, aesthetic
appeal, security, or anti-counterfeiting features. We believe our ability to
produce products with a variety of styles and features, in combination with
years of reliable delivery, enhance our competitive position. Our strategy is to
be the exclusive supplier of table game products for every new casino. Through
this strategy, revenues are generated both from the initial sale and
replenishment of consumable products.



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Historically, we have experienced significant fluctuations in quarterly results
primarily due to large, discrete currency orders as a result of casino openings,
casino expansions, or large replacement orders.



Our backlog, which reflects signed orders scheduled to be delivered over the
following twelve months, was as follows at  and 2017 (in
millions):



                        GPI USA            GPI Asia           GPI SAS            Total
September 30, 2018   $ 11.5 million     $  8.1 million     $ 0.4 million     $ 20.0 million
September 30, 2017   $ 11.0 million     $ 10.8 million     $ 0.4 million     $ 22.2 million




Outlook


Our backlog of signed orders through  was $20.0 million. The
decrease in backlog is primarily due to the timing of receiving confirmed orders
in Asia. We anticipate winning additional business, particularly in the Asia
market due to the number of planned casino openings and expansions in the
region. However, there is always uncertainty surrounding the timing of casino
openings and the number of tables to be allotted to each new casino, which will
impact both the amount of revenue we recognize and the timing of revenue
recognition.



As previously disclosed, we entered into global licensing and development
agreements with BrainChip Holdings Limited and Xuvi, LLC to jointly develop
products to provide a table management solution that would combine visioning
technology and immersive data analytics with our RFID technology to better
secure table currency, increase fraud protection, improve table productivity,
and provide data for player behavior applications. Due to very positive customer
response, we committed an additional $0.8 million in the second half of 2018 to
develop product enhancements and speed up product development.



Performance at our Blue Springs, Missouri facility continues to lag with lower
revenue and higher fixed costs reducing margins and profitability. We continue
to work to remedy the issues at the facility. However, it will be several
quarters before we return to acceptable levels of performance and profitability.



Financial and Operational Highlights

For the third quarter of 2018, our revenues were $22.9 million, a decrease of
$1.7 million, or 7.1%, compared to revenues of $24.6 million for the same period
of 2017. The decrease in revenues was primarily attributable to decreases in
casino currency sales and gaming furniture sales partially offset by increases
in all other product lines. For the third quarter of 2018, our net income was
$1.5 million, a decrease of $0.7 million, or 33.5%, compared to net income of
$2.2 million for the same period in 2017. The decrease in our net income was
primarily due to a decrease in sales and an increase in research and development
expenses, offset by a reduction in the write-down of $0.5 million on slow-moving
inventory items.



For the first nine months of 2018, our revenues were $66.2 million, an increase
of $6.4 million, or 10.7%, compared to revenues of $59.8 million for the same
period of 2017. The increase in revenues was primarily attributable to an
increase in sales of most product lines, especially casino currency, partially
offset by a decrease in playing card sales. For the first nine months of 2018,
our net income was $4.0 million, an increase of $0.8 million, or 24.6%, compared
to net income of $3.2 million for the same period of 2017. The increase in our
net income was primarily due to the increase in sales, offset partially by an
increase in research and development expenses.



Other Matters



See the discussion under "Contractual Obligations and Commercial Commitments" in
Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Quarterly Report on Form 10-Q.



CRITICAL ACCOUNTING ESTIMATES

Our condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q, while unaudited, have been prepared in accordance with U.S.
GAAP. 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
unaudited 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 , filed with the SEC on . Management bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.



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RESULTS OF OPERATIONS



The following tables summarize selected items from our unaudited condensed
consolidated income statements (dollars in thousands) and as a percentage of
revenues:



                                      Three Months Ended
                                        September 30,                               Period-to-Period
                             2018                           2017                         Change
Revenues           $   22,887          100.0 %    $   24,635          100.0 %   $   (1,748 )         (7.1 )%
Cost of revenues       15,696           68.6 %        17,455           70.9 %       (1,759 )        (10.1 )%
Gross profit            7,191           31.4 %         7,180           29.1 %           11             .2 %
Selling,
administrative,
and research and
development             5,052           22.1 %         4,127           16.8 %          925           22.4 %
Operating income        2,139            9.3 %         3,053           12.3 %         (914 )        (29.9 )%
Other (expense)
income, net              (114 )         (0.5 )%           32            0.1 %         (146 )       (456.3 )%
Income before
income taxes            2,025            8.8 %         3,085           12.4 %       (1,060 )        (34.4 )%
Income tax
expense                   559            2.4 %           880            3.6 %         (321 )        (36.5 )%
Net income         $    1,466            6.4 %    $    2,205            8.8 %   $     (739 )        (33.5 )%




                                      Nine Months Ended
                                        September 30,                                 Period-to-Period
                             2018                           2017                           Change
Revenues           $   66,248          100.0 %    $   59,822          100.0 %    $     6,426           10.7 %
Cost of revenues       45,786           69.1 %        42,964           71.8 %          2,822            6.6 %
Gross profit           20,462           30.9 %        16,858           28.2 %          3,604           21.4 %
Selling,
administrative,
and research and
development            14,908           22.5 %        12,269           20.5 %          2,639           21.5 %
Operating income        5,554            8.4 %         4,589            7.7 %            965           21.0 %
Other expense,
net                      (276 )         (0.4 )%          (51 )         (0.1 )%          (225 )        441.2 %
Income before
income taxes            5,278            8.0 %         4,538            7.6 %            740           16.3 %
Income tax
expense                 1,305            2.0 %         1,350            2.3 %            (45 )         (3.3 )%
Net income         $    3,973            6.0 %    $    3,188            5.3 %    $       785           24.6 %



The following tables present certain data by geographic area (dollars in thousands) and as a percentage of revenues:




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                                 Three Months Ended
                                    September 30,                       Period-to-Period
                            2018                     2017                    Change
Revenues
The Americas        $ 14,798        64.6 %   $ 12,511        50.8 %   $   2,287        18.3 %
Asia-Pacific           7,343        32.1 %     11,564        46.9 %      (4,221 )     (36.5 )%
Europe and Africa        746         3.3 %        560         2.3 %         186        33.2 %
Total               $ 22,887       100.0 %   $ 24,635       100.0 %   $  (1,748 )      (7.1 )%




                                  Nine Months Ended
                                    September 30,                       Period-to-Period
                            2018                     2017                    Change
Revenues
The Americas        $ 45,605        68.9 %   $ 40,332        67.4 %   $    5,273       13.1 %
Asia-Pacific          18,164        27.4 %     17,773        29.7 %          391        2.2 %
Europe and Africa      2,479         3.7 %      1,717         2.9 %          762       44.4 %
Total               $ 66,248       100.0 %   $ 59,822       100.0 %   $    6,426       10.7 %



The following tables present our revenues by product line (dollars in thousands) and as a percentage of revenues:




                                     Three Months Ended
                                        September 30,                               Period-to-Period
                             2018                          2017                          Change
Casino currency
without RFID       $    5,212           22.8 %   $    3,552           14.4 %   $     1,660           46.7 %
Casino currency
with RFID               4,913           21.5 %        9,525           38.7 %        (4,612 )        (48.4 )%
Total casino
currency               10,125           44.3 %       13,077           53.1 %        (2,952 )        (22.6 )%

Playing cards           6,138           26.8 %        5,923           24.0 %           215            3.6 %
Table
accessories and
other products          1,823            8.0 %        1,549            6.3 %           274           17.7 %
Table layouts           1,417            6.2 %        1,404            5.7 %            13             .9 %
Gaming furniture          942            4.1 %        1,000            4.1 %           (58 )         (5.8 )%
RFID solutions            766            3.3 %          185            0.7 %           581          314.1 %
Dice                      753            3.3 %          653            2.7 %           100           15.3 %
Shipping                  923            4.0 %          844            3.4 %            79            9.4 %
Total              $   22,887          100.0 %   $   24,635          100.0 %   $    (1,748 )         (7.1 )%




                                      Nine Months Ended
                                        September 30,                               Period-to-Period
                             2018                          2017                          Change
Casino currency
without RFID       $   14,730           22.2 %   $   10,944           18.3 %   $     3,786           34.6 %
Casino currency
with RFID              14,231           21.5 %       13,489           22.5 %           742            5.5 %
Total casino
currency               28,961           43.7 %       24,433           40.8 %         4,528           18.5 %

Playing cards          17,978           27.2 %       18,439           30.8 %          (461 )         (2.5 )%
Table
accessories and
other products          5,433            8.2 %        5,033            8.4 %           400            7.9 %
Table layouts           4,389            6.6 %        3,951            6.6 %           438           11.1 %
Gaming furniture        2,811            4.2 %        2,541            4.2 %           270           10.6 %
Dice                    2,193            3.3 %        2,077            3.5 %           116            5.6 %
RFID solutions          1,727            2.6 %          874            1.6 %           853           97.6 %
Shipping                2,756            4.2 %        2,474            4.1 %           282           11.4 %
Total              $   66,248          100.0 %   $   59,822          100.0 %   $     6,426           10.7 %




  19





Comparison of Operations for the Three and Nine Months Ended and 2017

Revenues. For the three months ended , our revenues were $22.9
million, a decrease of $1.7 million, or 7.1%, compared to revenues of $24.6
million for the same period of 2017. The decrease in revenues was primarily
attributable to decreases in casino currency sales and gaming furniture sales
partially offset by increases in all other product lines.



For the nine months ended , our revenues were $66.2 million,
an increase of $6.4 million, or 10.7%, compared to revenues of $59.8 million for
the same period of 2017. The increase in revenues was primarily attributable to
an increase in sales of most product lines, especially casino currency,
partially offset by a decrease in playing card sales.



Cost of Revenues. For the three months ended , cost of
revenues was $15.7 million, a decrease of $1.8 million, or 10.1%, compared to
cost of revenues of $17.5 million for the same period in 2017. As a percentage
of revenues, our cost of revenues decreased to 68.6% in 2018 compared to 70.9%
in 2017.



For the nine months ended , cost of revenues was $45.8
million, an increase of $2.8 million, or 6.6%, compared to cost of revenues of
$43.0 million for the same period in 2017. As a percentage of revenues, our cost
of revenues decreased to 69.1% in 2018 compared to 71.8% in 2017.



The decrease in cost of revenues as a percentage of revenues was driven by the same factors described under Revenues above and Gross Profit below.

Gross Profit. For the three months ended  and 2017, gross
profit was $7.2 million. As a percentage of revenues, our gross profit increased
to 31.4% from 29.1%. The gross profit was primarily impacted by an increase in
RFID solutions sales and a reduction in the write-down of $0.5 million on
slow-moving inventory items, offset by a decrease in currency sales.



For the nine months ended , gross profit was $20.5 million, an
increase of $3.6 million, or 21.4%, compared to gross profit of $16.9 million
for the same period in 2017. As a percentage of revenues, our gross profit
increased to 30.9% from 28.2%. The increase in gross profit was mainly due to an
increase in sales in all product lines except playing cards, offset by a
reduction in margin in the playing cards product line.



Selling, Administrative, and Research and Development Expenses. The following table presents the selling, administrative, and research and development expenses (dollars in thousands) and as a percentage of revenues:




                                     Three Months Ended
                                        September 30,                                Period-to-Period
                             2018                          2017                           Change
Marketing and
sales              $    1,739            7.6 %   $    1,612            6.5 %   $       127              7.9 %
General and
administrative          2,316           10.1 %        2,155            8.7 %           161              7.5 %
Research and
development               997            4.4 %          360            1.5 %           637            176.9 %
Total selling,
administrative,
and research and
development        $    5,052           22.1 %   $    4,127           16.7 %   $       925             22.4 %



For the three months ended , selling, administrative, and research and development expenses were $5.1 million, an increase of $0.9 million, or 22.4%, compared to selling, administrative, and research and development expenses of $4.1 million during the same period in 2017.

Marketing and sales expenses increased by $0.1 million, or 7.9%, during the third quarter of 2018 compared to the same period in 2017, primarily related to an increase in number of employees and compensation-related expenses.




General and administrative expenses increased by $0.2 million, or 7.5%, during
the third quarter of 2018, compared to the same period in 2017. This is mainly
due to increases of $0.2 million in bad debt accrual expenses and $0.1 million
in stock compensation-related expenses, partially offset by a $0.1 million
decrease in depreciation.



  20





Research and development expenses for the three months ended 
increased by $0.6 million, or 176.9% compared to the same period in 2017. The
increase is mainly due to payments made to BrainChip Holdings Limited and Xuvi,
LLC for achieving certain milestones in our global licensing and development
agreements described at "Outlook" in Part I, Item 2-"Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Quarterly
Report on Form 10-Q.



                                      Nine Months Ended
                                        September 30,                               Period-to-Period
                             2018                          2017                          Change
Marketing and
sales              $    5,367            8.1 %   $    4,814            8.0 %   $       553           11.5 %
General and
administrative          6,501            9.8 %        6,437           10.8 %            64            1.0 %
Research and
development             3,040            4.6 %        1,018            1.7 %         2,022          198.6 %
Total selling,
administrative,
and research and
development        $   14,908           22.5 %   $   12,269           20.5 %   $     2,639           21.5 %



For the nine months ended , selling, administrative, and research and development expenses were $14.9 million, an increase of $2.6 million, or 21.5% compared to selling, administrative, and research and development expenses of $12.3 million during the same period in 2017.




Marketing and sales expenses increased by $0.6 million, or 11.5%, during the
first nine months of 2018 compared to the same period in 2017, primarily due to
an increase in number of employees and compensation-related expenses.



General and administrative expenses remained relatively unchanged during the
first nine months of 2018 compared to the same period in 2017. However, a $0.4
million decrease in stock compensation related expenses and a $0.1 million
decrease in travel expenses was partially offset by increases of $0.2 million in
compensation-related expenses for the increased number of employees, $0.2
million in bad debt accrual expenses and $0.2 million in gaming license
expenses.



Research and development expenses increased $2.0 million, or 198.6%, during the
first nine months of 2018 compared to the same period in 2017. The increase is
mainly due to payments made to BrainChip Holdings Limited and Xuvi, LLC for
achieving certain milestones in our global licensing and development agreements
described at "Outlook" in Part I, Item 2-"Management's Discussion and Analysis
of Financial Condition and Results of Operations" of this Quarterly Report
on
Form 10-Q.



  21





Other Income (Expense), net. The following tables present other income (expense) net, (dollars in thousands) and as a percentage of revenues:




                                      Three Months Ended
                                        September 30,                                 Period-to-Period
                             2018                           2017                           Change
Interest income    $       29            0.1 %    $        -            0.0 %    $        29            0.0 %
Interest expense          (43 )         (0.2 )%          (64 )         (0.3 )%            21          (32.8 )%
Gain (Loss) on
foreign currency
transactions              (85 )         (0.4 )%          129            0.5 %           (214 )       (165.9 )%
Other expense,
net                       (15 )         (0.1 )%          (33 )         (0.1 )%            18          (54.5 )%
Total other
(expense)
income, net        $     (114 )         (0.5 )%   $       32            0.1 %    $      (146 )       (456.3 %




                                      Nine Months Ended
                                        September 30,                                 Period-to-Period
                             2018                           2017                           Change
Interest income    $       50            0.1 %    $        1            0.0 %    $        49         4900.0 %
Interest expense         (168 )         (0.3 )%         (186 )         (0.3 )%            18           (9.7 )%
(Loss) Gain on
foreign currency
transactions             (184 )         (0.3 )%          152            0.3 %           (336 )       (221.1 )%
Other income
(expense), net             26            0.0 %           (18 )          0.0 %             44         (244.4 )%
Total other
(expense)
income, net        $     (276 )         (0.4 )%   $      (51 )         (0.1 )%   $      (225 )        441.2 %



GPI SAS uses the euro as its functional currency. At  and
, the U.S. dollar to euro exchange rates were $1.16 and $1.20,
respectively, which represents a 3.1% stronger dollar compared to the euro. The
average exchange rates for the nine months ended  and 2017 was
$1.19 and $1.11, respectively, which represents a 7.3% weaker dollar compared to
the euro.


GPI Mexicana uses the U.S. dollar as its functional currency. At  and , the Mexican peso to U.S. dollar exchange rates were
18.74 pesos and 19.69 pesos, respectively, which represents a 4.8% weaker dollar
compared to the Mexican peso. The average exchange rates for the nine months
ended  and 2017 was 19.04 pesos and 18.90 pesos, respectively,
which represents a 0.7% stronger dollar compared to the Mexican peso.



GPI Asia uses the U.S. dollar as its functional currency. At 
and , the Macau pataca to U.S. dollar exchange rates were 8.06
patacas and 8.05 patacas, respectively, which represents a 0.1% stronger dollar
compared to the Macau pataca. The average exchange rates for the nine months
ended  and 2017 was 8.08 patacas and 8.17 patacas,
respectively, which represents a 1.1% weaker dollar compared to the Macau
pataca.



Income Taxes. The Tax Act reduces the U.S. statutory federal corporate tax rate
from 34% to 21%. The effective date of the tax rate change was .
As a result, we adjusted our annual effective tax rate for the three and six
months ended , and our U.S. net deferred tax asset balance at
the lower rates. This had a favorable impact on both the three and nine months
effective income tax rates.



Our effective income tax rate for the three months ended  and
2017 was 27.6% and 28.5%, respectively. Our effective tax rate for the three
months ended  was unfavorably affected by our Subpart F income
adjustment, partially offset by the foreign rate differential on the income from
our Macau S.A.R. subsidiary, GPI Asia, and the benefit from research tax credits
from GPI USA and our French subsidiary, GPI SAS. Our effective tax rate for the
three months ended  was favorably affected by the foreign rate
differential on income from GPI Asia, and the benefit from research and low wage
tax credits from GPI SAS, partially offset by our Subpart F income adjustment
and non-statutory stock options that expired during 2017.



Our effective income tax rate for the nine months ended  and
2017 was 24.7% and 29.8%, respectively. Our effective tax rate for the nine
months ended  was unfavorably affected by our Subpart F income
adjustment and tax liability from the IRS audit of the 2015 tax year, partially
offset by the foreign rate differential on income from GPI Asia, and the benefit
from research tax credits from GPI USA and GPI SAS. Our effective tax rate for
the nine months ended  was favorably affected by the foreign
rate differential on income from GPI Asia, and the benefit from a research and
low wage tax credits from GPI SAS, partially offset by our Subpart F income
adjustment and non-statutory stock options that expired during 2017.



  22






We account for uncertain tax positions in accordance with applicable accounting
guidance. At , we reported unrecognized tax benefits related to
the FTA's on-going examination of GPI SAS for tax years 2013 and 2012. In the
first quarter of 2018, in connection with this examination, GPI paid 1.4 million
euros to the FTA. While we were legally obligated to pay this amount, which
represents the FTA's calculation of the taxes owed, this payment does not
represent a settlement nor the end of the examination and we are actively
disputing the findings of the FTA. At this time, an estimate of the range of the
reasonably possible outcomes cannot be made. We do not expect the examination to
be completed within the next twelve months. It is reasonably possible that the
amount of the unrecognized benefit with respect to our unrecognized tax position
could change within the next twelve months. This change may be the result of
settlement of the ongoing audit or competent authority proceedings.



In addition to the on-going FTA examination of GPI SAS for tax years 2013 and
2012, the Company received notification in , of a federal income tax
examination by the IRS for the 2015 tax year. The examination was completed in
the third quarter of 2018 and as a result we paid an audit adjustment of $0.1
million.


As of , there was no change to the unrecognized tax benefits reported at .

Liquidity and Capital Resources




Sources of Liquidity and Capital Resources. Historically, our primary source of
liquidity and capital has been cash from operations. On , the
Company entered into a Credit Agreement with Nevada State Bank for a combined
$15.0 million credit facility, consisting of a $10.0 million seven-year term
loan and a $5.0 million five-year revolving loan. The Company borrowed the full
amount under the term loan and has not drawn any funds under the revolving loan.
In , we made a $2.0 million early principal repayment against the
outstanding term loan and in , we paid the remaining outstanding
balance of the term loan. Additional information can be found at Note 8 to the
unaudited condensed consolidated financial statements included in Part I, Item
1, of this Quarterly Report on Form 10-Q. This description of the material terms
and conditions of the Credit Agreement does not purport to be complete and is
qualified in its entirety by reference to the full texts of the Credit
Agreement, the Pledge and Security Agreement and Irrevocable Proxy, and the
Guaranty, which were filed as Exhibits 10.1, 10.2 and 10.3 to the Form 8-K filed
with the SEC on .



Other potential sources of capital include, but are not limited to, additional
bank credit facilities and the sale of stock. We believe that we have the
resources to satisfy our operating needs for working capital, capital
expenditures, purchases of common stock under our stock repurchase program,
litigation, dividends or acquisitions for our operations for a minimum of the
next twelve months.



At , we had $15.6 million in cash and cash equivalents. Of
this amount, $7.8 million was held by GPI USA, $4.3 million was held by GPI SAS
and $3.5 million was held by GPI Asia. As a consequence of the Tax Act, we would
not be subject to further taxation if we were to repatriate those amounts held
outside of the United States, except for potential minimal withholding taxes.



Working Capital. The following table summarizes our cash and cash equivalents, and working capital (dollars in thousands), and our current ratio:



                             September 30,       December 31,        Period-to-Period
                                 2018                2017                 Change
Cash and cash equivalents   $        15,623     $       14,064     $    1,559       11.1 %
Working capital             $        26,134     $       24,087     $    2,047        8.5 %
Current ratio                           2.7                2.4




  23






Cash Flows. The following table summarizes our cash flows (dollars in
thousands):



                             Nine Months Ended
                               September 30,            Period-to-Period
                             2018          2017              Change

Operating activities       $   5,600     $  5,782     $   (182 )       (3.1 )%
Investing activities            (970 )     (3,693 )      2,723        (73.7 )%
Financing activities          (2,881 )       (975 )     (1,906 )      195.5 %
Effect of exchange rates        (190 )        467         (657 )     (140.7
)%
Net change                 $   1,559     $  1,581     $    (22 )       (1.4 )%




The increase in cash flows provided by operating activities was primarily caused
by an increase in net income of $0.8 million, a positive impact in the change of
assets of $0.4 million and an increase in non-cash items of $0.1 million,
partially offset by a negative impact in the change of liabilities of $0.9
million and a decrease in the effect of foreign exchange of $0.7 million.



The decrease in cash flows used in investing activities was primarily due to
decreases in capital expenditures and purchase of equity method investments and
an increase in insurance proceeds related to damaged property and equipment.



The increase in cash flows used in financing activities was primarily due to a $2.0 million early principal payment on our term loan.

Capital Expenditures. In the first nine months of 2018 we purchased $1.3 million of property, plant and equipment. We currently intend to purchase up to $1.0 million in property and equipment during the remainder of 2018.

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 special dividend from time to time.




Backlog. At , our backlog of signed orders for the following
twelve months was $20.0 million, consisting of $11.5 million for GPI USA, $8.1
million for GPI ASIA, and $0.4 million for GPI SAS. At , our
backlog of signed orders for the following twelve months was $22.2 million,
consisting of $11.0 million for GPI USA, $10.8 million for GPI ASIA, and $0.4
million for GPI SAS.


Contractual Obligations and Commercial Commitments

On , we entered into a Credit Agreement with Nevada State Bank for
a combined $15.0 million, consisting of a $10.0 million seven-year term loan and
a $5.0 million five-year revolving loan described under "Liquidity and Capital
Resources" in Part I, Item 2- "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Quarterly Report on Form 10-Q.



On , we entered into global licensing and development agreements
with BrainChip Holdings Ltd. and Xuvi, LLC and on , we entered into
commercialization and development agreements with Xuvi, LLC, which are described
under "Outlook" in Part I, Item 2- "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this Quarterly Report on
Form
10-Q.



  24





Forward-Looking Information Statements and Risk Factors

Throughout this Quarterly Report on 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, 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 Annual Report on Form 10-K
for the fiscal year ended , filed with the SEC on . We do not intend, and undertake no obligation, to update our
forward-looking statements to reflect future events or circumstances.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Comments

Emerging Growth

Goldrea Resources Corp.

Goldrea Resources Corp is engaged in the acquisition, exploration and development of mineral properties located in North America.