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Revision History For: TNA.V - Evergreen Gaming Corporation (Casino & Restaurant)

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Return to TNA.V - Evergreen Gaming Corporation (Casino & Restaurant)
 
TNA.V Due Diligence Report – Recent Financials & MD&A Highlights

Price: $0.115
Common Shares: 124,716,865
Insider Holdings: 95,967,855 or 77.51% (Shown in the October 2016 Information Circular on Sedar)
TNA itself owns 908,000 shares(as per info circular) and there are other old insiders/institutions too

Year End Results will be released end of April 2017, below is company Q3 results. All assets are in US dollars. Given their last news release, TNA’s four casinos/restaurants should keep the profitable quarters going forward even with the upcoming changes.

Financials(USD)

ASSETS
Cash: $3,680,299
Property, Plant & Equipment: $10,899,957
Goodwill: $6,435,481
Trademarks: $1,185,000
Game Licenses: $71,067
Deferred Tax: $234,000
Deposits: $13,354
Inventories: $164,438
Accounts Receivable: $54,586
Other Assets: $185,215
Cash(Restricted): $661,200
Total Assets: $23,584,597 (Q3 2015 Total Assets - $19,101,737)

LIABILITIES *NOTE* TNA’s liabilities are numerous payables, nothing else. These have been condensed
Current Payables: $3,391,674
Non Current Payables: $7,900,565
Total Liabilities: $11,292,239 (Q3 2015 Total Liabilities - $10,014,609)

Revenue Breakdown per quarter
Date – Sales – Net Income
2014(YE) - $30,555,757 - $2,720,669 - $0.02c EPS
2015(YE) - $33,338,543 - $3,933,883 - $0.03c EPS
2016(9M) - $25,091,725 - $2,118,015 - $0.02c EPS
- We still have Q4 to add to 2016, but the company keep putting out large quarterly profits

MD&A Highlights

Evergreen is in the business of overseeing the gaming operations of its principal U.S. subsidiary, Washington Gaming, Inc. (“WGI”). WGI, through its subsidiary corporations, operates five casinos in Washington State: The Riverside Casino in Tukwila, Palace Casino in Tukwila, Goldies Casino in Shoreline and Chips and Palace Casinos in Lakewood. These are mini-casinos (or house-banked card rooms) which offer to persons of legal age a variety of games of chance at which the player may win or lose money, a business commonly referred to as “gaming”. The Company also operates restaurants in each casino, as required by state law.

Casino revenues for the quarter ended September 30, 2016 were $8,446,507, an increase of $95,140 compared to the same period in the prior year. Gaming dollars dropped were 10% higher than the same period last year, largely due to an increase in Baccarat dollars dropped at Riverside Casino, which had another excellent quarter with revenues 27% over the same quarter 2015. Offsetting that was Chips Casino Lakewood, where revenue was down 24% from the previous year, as their Baccarat hold percentage was half of what its target rate is and gaming dollars dropped decreased 11%. The decrease in Baccarat hold percentage is the result of the Company having to match competitors in the area who were increasing “their giveaway” and “match play” promotions. During the third quarter Chips Casino recorded income from operations of $257,700, and although still far below the $705,168 recorded the same time period a year ago, is a significant improvement over prior quarters. The Company has placed a new general manager in Lakewood who is retraining staff and reviewing all operational procedures. The Palace Casino Lakewood has an excellent hold percentage, driving revenues up 8.9% over same quarter last year. Goldies Casino also had positive income from operations despite a revenue deficit of $351,355 compared to last year, due largely to a two point drop in the Baccarat hold percentage. The Palace Casino Tukwila is partway through its transition to a full service casino. Gaming tables are being added, food and beverage offerings revised and marketing plans are underway to drive business there in the coming months.

Working capital at September 30, 2016 was $1,354,064, compared to working capital of $1,769,385 at December 31, 2015. The first quarter down payment of $1,575,000 for the acquisition of the Lakewood property contributed to the change in working capital. With sustained healthy revenues and ongoing game protection and expense controls, management expects continued profitable operations sufficient to exceed the cash demands necessary for the company to meet its future obligations.

The Company’s assets at September 30, 2016 totaled $23,584,597 compared to total liabilities of $11,292,239. At December 31, 2015, total assets were $19,597,155 compared to total liabilities of $9,422,812. These changes reflect the $4.5 million Lakewood property acquisition.

The Company’s cash at September 30, 2016 was $4,341,499, compared to $4,615,021 at December 31, 2015. These amounts include “Restricted Cash” balances of $661,200 and $517,942 respectively. “Restricted Cash” balances are jackpot funds held for prizes being offered at the casinos. Cash provided by operating activities as of the quarter ended September 30, 2016 was $2,407,697 compared to $2,840,355 as of the quarter ended September 30, 2015.

The Company continues to have access to the $1.2 million line of credit available to Tacoma Casino LLC, and Pete’s Flying Aces, Inc. from the vendor of the companies, Michels Development. As of November 29, 2016, this balance is $0.

Due to changes in the healthcare laws in the United States, the Company has made available health insurance to all employees working 30 hours per week or more beginning in 2015. Executive officers of the company have worked closely with the management company during 2016 to minimize the impact of the new law. The incremental cost of providing insurance to those qualified employees was just under $175,000. The State of Washington voters passed the minimum wage initiative on the ballot in November 2016. The initiative raises the hourly minimum wage for all workers in Washington State over the next 4 years. The present minimum wage will increase from $9.47 in 2016 to $11.00 in January 2017, $11.50 in 2018, $12.00 in 2019 and $13.50/hour in the year 2020. The increases to the minimum wage will also impact hourly wage rates for employees with greater experience and responsibility. The cumulative effect on wages, including payroll taxes over the four year period is projected to be $1,394,000, $2,041,000, $2,690,000, and $4,327,000 respectively.

Insider Holdings Breakdown
Name of Shareholder Number of Shares Percentage of Outstanding
Steve Michels 46,817,626(1) 37.81%
Leonard Libin 30,172,060 24.37%
Tom Marvin 18,978,196(2) 15.33%

Most Recent News Release:

Evergreen refinances mortgage for $3.25-million

2017-02-10 17:26 MT - News Release

An anonymous director reports

RIVERSIDE CASINO REFINANCES MORTGAGE

Evergreen Gaming Corp., through its subsidiary 14040 Gaming LLC, has refinanced the 2006 loans for the acquisition of the Riverside Casino Inc. and the associated real estate located at 14060 Interurban Ave. South, Tukwila, Wash. The original mortgage and loans, payable to the previous owners, were set to mature in 2020 and carried an interest rate of 6 per cent.

The company has refinanced the mortgage through Banner Bank for $3.25-million. The 10-year note carries a 3.85-per-cent interest rate for the first three years. The rate will be adjusted after that, based on the bullet rate for the three-year federal home loan bank fixed-rate advances (the index), which will only change every three years. That rate is currently calculated to be 4.47 per cent. The loan is secured by a deed of trust on the real property in favour of the lender, along with the assignment of rents. The loan will mature Dec. 1, 2026.

Change to Washington State minimum hourly wage

In November, 2016, voters in the state of Washington voters passed Initiative 1433. Effective Jan. 1, 2017, the initiative raises the hourly minimum wage for all workers in Washington State each January for the next four years. The present minimum wage will increase from $9.47 to $11 in January, 2017, and to $11.50 in 2018, $12 in 2019 and $13.50 per hour in the year 2020. The increases to the minimum wage will also impact hourly wage rates for employees with greater experience and responsibility. The cumulative effect on wages, including payroll taxes, over the four-year period, is projected to be $800,000, $1.1-million, $1.4-million and $2.4-million, respectively.

Management believes the company will make adjustments and increase revenues during this four-year period so as to remain profitable. Casinos are able to increase food and drink prices, but that same luxury does not exist with the company's primary revenue source, the gaming tables. Therefore, the company will commit to increasing its customer base through strategic use of marketing dollars. The company is continually reviewing all labour processes to optimize staffing needs based on customer counts. In addition, the company will seek reductions in gaming and other tax rates from local jurisdictions as a means to ease the impact of increases to minimum wage. Other changes in state laws and regulations will also be reviewed for opportunities to reduce costs or increase revenues.

Closure of unprofitable card room in Tukwila

The company announces the closure of the Palace Tukwila card room. After years of trying to establish the Palace card room in Tukwila, the company has come to the conclusion the Tukwila market is saturated and cannot support another card room. Factors contributing to the closure included the recent increase to the state minimum wage and a lack of experienced dealers willing to work for a start-up location.

The employees and assets of the business operation will be deployed for use at other business locations owned by the company. The board will be meeting later in the month to discuss optional uses for the land and building, which are owned by the company.

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