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Entertainment & Resources Ltd. announces Q3 financial results

19 November 2012

HONG KONG -- (PRESS RELEASE) -- Asia Entertainment & Resources Ltd. (“AERL” or the “Company”) (NASDAQ: AERL), which operates through its subsidiaries and related promoter companies as VIP room gaming promoters, today announced unaudited financial results for the third quarter and nine-month periods ended September 30, 2012. All currency amounts are stated in United States dollars.

“Despite the lower year-over-year results we believe we managed our business appropriately to reduce exposure to undue risk that can impair longer-term growth”

Third Quarter 2012 Highlights

On September 12, 2012, the Company completed the acquisition of Bao Li Gaming Promotion Limited (“Bao Li”), a Macau-based VIP room gaming promoter that operates one room with five tables at City of Dreams Macau. As a result of the acquisition closing on September 12, and in accordance with the terms of the purchase agreement, AERL obtained the right to all of the profit interest of Bao Li dating back to September 1.

Rolling Chip Turnover for the three months ended September 30, 2012 in the Company’s VIP gaming rooms was $4.0 billion, down 32% year-over-year, compared to $6.0 billion in the same period of 2011.

Net income, which includes a gain of $9.4 million for the change in fair value of contingent consideration related to the acquisition of King’s Gaming and Bao Li, declined 16% to $22.6 million, or $0.53 per share (fully diluted), in the three months ended September 30, 2012, from $26.9 million, or $0.68 per share (fully diluted). in the same period of 2011.

Non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li was $14.9 million, or $0.35 per share (fully diluted), in the three months ended September 30, 2012, a 34% decrease as compared to $22.5 million, or $0.57 per share (fully diluted), for the three months ended September 30, 2011.

In the third quarter 2012, the Company repurchased and retired 262,347 shares at an average price of $3.67 per share. The share repurchase program, which expires June 30, 2013, authorizes the Company to further purchase up to an additional 1,737,653 of its ordinary shares on the open market at prices to be determined by the Company’s management.

On August 31, 2012, the Company paid its 2012 Six Month Dividend of $0.12 per outstanding ordinary share.
Beginning September 1, 2012, the Company changed its remuneration model to a revenue sharing model for all of its VIP rooms.

“Despite the lower year-over-year results we believe we managed our business appropriately to reduce exposure to undue risk that can impair longer-term growth,” said Mr. Man Pou Lam (Mr. Lam), Chairman of AERL. “The tightening of credit to junket agents had a near-term impact on our overall performance that we expect will reverse over the mid-to-longer term. To that end, in the quarter, we shifted our remuneration model away from a fixed commission structure to a share of win/loss revenue model, which should allow us to grow our Rolling Chip Turnover and hopefully help to reduce volatility as our base of business broadens. We also implemented a new program for large VIP agents who do not require credit from AERL to participate in our revenue sharing model and thus incentivize them to partner with AERL. We remain committed to growing our business presence in the Macau VIP gaming market and create value for our shareholders.”

Nine Month 2012 Highlights

Rolling Chip Turnover for the nine months ended September 30, 2012 in the Company’s VIP gaming rooms was $14.1 billion, down 2% year-over-year, compared to $14.4 billion in the same period of 2011.

Net income, which includes a gain of $15.2 million for the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li, declined 1% to $60.0 million, or $1.41 per share (fully diluted), in the nine months ended September 30, 2012 from $60.9 million, or $1.61 per share (fully diluted), in the same period of 2011.

Non-GAAP income before amortization of intangible assets and the change in fair value of contingent consideration related to the acquisition of King's Gaming and Bao Li was $49.0 million, or $1.15 per share (fully diluted), for the nine months ended September 30, 2012, a 13% decrease as compared to Non-GAAP income of $56.3 million, or $1.49 per share (fully diluted), for the nine months ended September 30, 2011.

Outlook for 2012

For the first nine months of 2012, AERL's monthly average Rolling Chip Turnover was $1.6 billion. The Company's Rolling Chip Turnover year-to-date through October 31, 2012 in Macau was $15.6 billion, a decrease of 5% year-over-year, compared to $16.5 billion for the first ten months of 2011.

“Given the volatility of our results and the broader macroeconomic trends over the last few months, we are suspending our guidance on Rolling Chip Turnover for the year but we are maintaining our previous Non-GAAP income guidance of $68 million to $80 million for the full year,” concluded Chairman Lam.

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