HONG KONG--()--Asia Entertainment & Resources Ltd. (“AERL” or the “Company”) (NASDAQ: AERL), which operates through its subsidiaries and related promoter companies as a VIP room gaming promoter, announced that its Audit Committee has decided to continue to engage UHY LLP as its independent registered public accounting firm for 2012. The Company would also like to clarify certain comments regarding variable interest entities being incorporated into the Company’s consolidated accounts and the enforceability of the Profit Interest Agreements entered into between the Company and the Promoter Companies.
UHY LLP has been the Company’s independent registered accounting firm since its formation and initial public offering in 2008. UHY LLP performed the 2010 and 2011 audits for the Company after its acquisition of Asia Gaming & Resorts Limited (“AGRL”) on February 2, 2010. UHY LLP is one of the largest professional service firms in the United States and is currently ranked in the Top 10 accounting network firms in terms of aggregate income in the United States by the International Accounting Bulletin (the “IAB”). UHY LLP is one of the founding firms of the international network, Urbach Hacker Young International Ltd. (“UHYI”), which is one of the largest accounting networks in the world and currently ranks as the 16th largest international network by the IAB. UHYI has member firms in 81 countries and 250 cities and has access to more than 6,800 professionals, advisors and consultants worldwide to service their clients. UHYI is also one of 21 firm networks that are members of the Forum of Firms (the “FOF”). The FOF was established by the International Federation of Accountants to promote quality for transnational audits performed by international accounting networks. UHY LLP is registered with the United States Public Company Accounting Oversight Board (the “PCAOB”). The PCAOB has inspected UHY LLP on two occasions, and the reports produced from the inspections both resulted in no accounting or auditing findings. The reports can be accessed at www.PCAOB.org.
The Company’s Audit Committee works with UHY LLP to review the scope of its audit. UHY LLP sends its U.S. staff to Macau to conduct the semi-annual review and year-end audit. Its year-end audit procedures include cage counting procedures; direct confirmation of cash account balances with the banks, marker receivables from agents as well as commissions due to those agents and direct confirmation of amounts earned by the Promoter Companies and due from casino operators; and engaging the specialists review of contingent consideration calculation and annual goodwill evaluation. The review and audit procedures encompass all of the Promoter Companies that are the source of revenue and expenses included in the consolidated financial reports of the Company. UHY LLP also reviews the Company’s internal controls based on Sarbanes-Oxley (SOX) guidelines for AERL. The Audit committee meets with UHY LLP regularly to review the work performed and is provided with the results and receives suggested improvements from the Firm. The Audit Committee expects UHY LLP to continue the same level of service during their 2012 engagement.
Casinos in Macau may only be operated by licensed concessionaires or sub-concessionaires. The concessionaires or sub-concessionaires establish VIP gaming rooms in the casinos and outsource the marketing of such rooms to VIP gaming promoters in exchange for a commission or other form of remuneration. A VIP gaming room may only be used by a VIP gaming promoter’s patrons, the chips are for the exclusive use of the individual VIP gaming room though each casino typically houses multiple VIP gaming rooms. In turn, VIP gaming promoters typically enter into arrangements with the junket agents (also known as collaborators) who have direct relationships with gaming patrons.
Current Macau laws do not allow corporate entities to be shareholders of promoter companies that operate a gaming promotion business in Macau. Consequently, AERL’s gaming promotion business is operated through a series of contractual arrangements, including profit interest agreements, that enable AERL (through its wholly owned subsidiaries) to receive substantially all of the economic benefits of certain VIP gaming promoters (the “Promoter Companies”) and to exercise effective control over the Promoter Companies, even though AERL and its subsidiaries do not own an equity interest in such Promoter Companies. AERL’s largest shareholders and members of management own the Promoter Companies (“VIEs”) and their interest in the success of AERL and the Promoter Companies is aligned.
The Company accounts for the Promoter Companies as variable interest entities (“VIEs”). “VIE” is a term used by the United States Financial Accounting Standards Board to refer to an entity in which the investor holds a controlling interest that is not based on the majority of voting rights. If an entity determines that it is the primary beneficiary of a VIE in accordance with Accounting Standards Codification 810, then it may be required to consolidate its operations with such VIE. Since AERL’s subsidiaries control the Promoter Companies through contractual agreements rather than equity ownership, AERL has determined that the Promoter Companies are VIEs and has consolidated the operations of the Promoter Companies with those of AERL and its subsidiaries. In addition, intercompany transactions and account balances have been eliminated and the financial results of the Promoter Companies are included in AERL’s annual audit.
The Company also announced that it has received legal opinions from two Macau independent law firms – Monica T. Neves and Elsa E. Santo – that the profit interest agreements that entitle it to the economic benefits of its Promoter Companies are currently enforceable under Macau law.
The use of VIEs is not unusual in the gaming industry. For example, Boyd Gaming Corporation (NYSE: BYD), a multi-jurisdictional gaming company, and Las Vegas Sands Corp. (NYSE: LVS), a global developer of destination properties including casinos, consolidate their operations with VIEs.
“We hope the above clarifications will provide insight to our investors about AERL’s accounting and clarify that our corporate structure is designed to help protect the interest of our investors,” said AERL Chief Executive Officer Kenny Leong.
About Asia Entertainment & Resources Ltd.
AERL, formerly known as CS China Acquisition Corp., acquired AGRL on February 2, 2010. AERL is an investment holding company which operates through its subsidiaries and related promoter companies as a VIP room gaming promoter, and is entitled to receive all of the profits of the VIP gaming promoters from VIP gaming rooms. AERL’s VIP room gaming promoters currently participate in the promotion of three major luxury VIP gaming facilities in Macau, China, the largest gaming market in the world. One VIP gaming room is located at the Galaxy Macau Resort. Another Macau VIP gaming facility is located in the luxury 5‐star hotel, the Star World Hotel & Casino in downtown Macau, which is operated by Galaxy Casino, S.A. The third VIP gaming room is located at the Venetian Macao‐Resort‐Hotel on the Cotai Strip.
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 AERL's management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements.